HOUSE BILL NO. 319 "An Act relating to the regulation of small loan and retail installment transactions." GEORGE DOSIER, STAFF, REPRESENTATIVE PETE KOTT testified in support of HB 319. He gave a brief overview of HB 319. He noted that HB 319 addresses the Alaska's Small Loan Act and the Retail Installment Sales Act. He observed that under 8 the Small Loan Act HB 319: * Increases the application fee from $400.0 hundred dollars to $1.0 thousand dollars: * Authorizes multiple office licenses and establishes 10 offices as the maximum number of offices eligible under one license; * Increases the annual license fee from $200 to $500 hundred dollars in the case of a single office and allows a multiple office license of $2.0 thousand dollars; * Increases liquid asset requirements from $20.0 to $25 thousand dollars; and clarifies that an equivalent amount must be available for each office licensed under a multiple office license; * Increases the bond requirement from $5.0 to $20.0 thousand dollars; and clarifies that only one bond is required for a multiple office license; * Allows licensees to maintain books and records consistent with contemporary data processing and accounting methods (the licensee would not have to maintain separate books for associated business); * Clarifies regulations regarding splitting of loans (husbands and wives may receive separate loans); and * Broadens the scope of non-interest fees that lenders may charge borrowers and increases the amount of late payment fees that may be charged from 10 percent or $15 dollars to 10 percent or $25 dollars whichever is less. Mr. Dosier explained that HB 319 would permit the charge of reasonable costs and fees for appraisals, surveys, and title insurance and reports on loans of $10.0 thousand dollars or less where real property is taken as collateral. This would also apply to loans over $10.0 thousand dollars even in cases where real collateral is not taken for the loan. He added that reasonable attorney fees, actual expenses and costs would be allowed in connection to the collection of a delinquent loan or foreclosure. Mr. Dosier noted the effects of HB 319 on the Retail Installment Sales Act: * Clarifies and broadens the scope of fees and 9 charges that may be imposed in connection with transactions, including late fees, collection charges and dishonored check charges which are not currently allowed; and * Amends current law to permit lenders to charge interest rates at whatever rate the parties agree to charge. Representative Navarre referred to the increased bond requirement. Mr. Dosier clarified that currently all licensees pay a $5.0 thousand dollar bond. Representative Navarre noted that a business with five offices currently maintains a $25.0 thousand dollar bond. Under the bill they would still need a $25.0 thousand dollar bond. He pointed out that small operations would be penalized. He asked the justification for the change. Representative Brown noted that the legislation would remove limits on interest. She questioned if the rate could be changed without the agreement of both parties. Mr. Dosier stated that notification of term changes would pertain to future use of the card. The terms are established by agreement. WILLIS KIRKPATRICK, DIRECTOR, DIVISION OF BANKING, SECURITIES AND CORPORATIONS, DEPARTMENT OF COMMERCE AND ECONOMIC DEVELOPMENT stated that the Small Loan Act needs to be addressed. He noted that the legislation is a collaboration between the Division and businesses. He observed that the Act was enacted at statehood. He observed that the bond requirement was raised to reflect the maximum personal loan a small loan company can make. Representative Navarre pointed out that one bond could pertain to 10 separate offices. Mr. Kirkpatrick observed that currently each office has their own license and bond. He noted that there has not been an action against a bond since he began working with the Division in 1968. Representative Navarre reiterated multiple licensees would have an economic advantage. Representative Brown asked Mr. Kirkpatrick to discuss interest rates. Mr. Kirkpatrick maintained that if one side of the balance sheet is deregulated that the other side of the balance sheet should be deregulated. He noted that interest rates are highly competitive. He observed that interest rates are imported from other states. He emphasized that the Division receives a lot of applications from merchants that want to become small loan companies. He maintained that Alaskan businesses want to compete in the market place but cannot compete using the Alaska Retail Installment Sales Act. He noted that one company in 10 Anchorage offers computers at no money down with an interest rate of 21 percent. He stressed that competition determines the interest rate. Representative Navarre asked why the fiscal note by the Department of Commerce and Economic Development is zero. He asked if the Division has any concerns. Mr. Kirkpatrick told the Committee that he would provide them with an updated fiscal note explaining why it is at zero. He observed that application fees will be increased from $400.0 to $1.0 thousand dollars. The legislation also allows the Department to charge actual expenses. He stated that he did not foresee any substantial increase in actual expenses. He stated that any expected impact will be positive. He could not estimate the actual impact of the legislation. Representative Navarre asked how many single offices would have fees reduced by going to a multiple license and how many offices would have their fees raised by 150 percent. Mr. Kirkpatrick noted that there are 18 licensees. Norwest is the only licensee which has multiple offices. (Tape Change, HFC 96-48, Side 1) Representative Navarre asked if the Division has suggestions for improvement. Mr. Kirkpatrick responded that the Department is in total agreement with the legislation. He observed that some adjustments were made through the debate process. He noted that the Division met with members of the industry on several occasions. JOHN HIGGINS, GENERAL MANAGER, NORTHLAND CREDIT CORPORATION testified in support of HB 319. He noted that he is also speaking on behalf of the Alaska Consumer Financial Services Association. He explained that the difference between a $5.0 and $25.0 thousand dollar bond is only $100.0 hundred dollars a year in premiums. He maintained that the license fee cost is reasonable and in line with other states. He reviewed highlights of HB 319. He stressed that joint loan provisions are currently restrictive. House Bill 319 would allow more than one open account with the same party or a spouse. He observed that currently only 30 day incremental payment cycles are allowed between payments. He suggested that this is restrictive to seasonal workers. He noted that increased fees for insufficient fund checks will assure that costs are passed on to non-payers. He restated that HB 319 will allow a competitive interest rate structure to meet competition with outside companies that export their rates into the state of Alaska. He requested that the Committee add an immediate effective date. 11 Mr. Higgins emphasized that HB 319 would create and retain jobs in Alaska's financial industry and provide more financing to local communities. He stressed that HB 319 would provide credit to a broader base of Alaskan consumers. JOHN SHIBE, EXECUTIVE VICE PRESIDENT, NATIONAL BANK OF ALASKA, NORTHLAND CREDIT CORPORATION spoke in support of HB 319. He noted that the material has been well represented. In response to a question by Representative Therriault, Mr. Kirkpatrick stated that an immediate effective date would have no impact on the agency. Representative Brown asked how the legislation would change the late fee authorization. Mr. Higgins stated that currently it is unclear if late fees are authorized. The industry does not charge a late fee at this time. He observed that Section 13 clarifies what can be done. He clarified that Section 13 applies to the Retail Installment Sales Act. Representative Brown noted that the legislation allows for a "reasonable" charge. She questioned what is reasonable. Mr. Higgins stated that a dollar amount was not inserted because of the changing nature of the industry. Representative Brown suggested that the Department could use regulations to determine what is "reasonable". Representative Brown asked what recourse a consumer would have it they felt they were charged an unreasonable fee. Mr. Higgins stated that they could contact the company. He explained that it would not be under the Division's regulation. He observed that the consumer has the ability to go to the State Attorney General or other agencies to voice their concerns. Mr. Shibe added that late fees have to be disclosed. SUSAN BIZE, GOVERNMENT RELATIONS, CREDIT DEPARTMENT, JC PENNY INC. testified via the teleconference network. She spoke in support of HB 319. She explained that late fees are agreed to once the charge account has been used. She restated that the purpose of HB 319 is to allow Alaskan retailers to effectively compete with out-of-state vendors who are importing rates into the State. Representative Therriault MOVED to adopt an immediate effective date. There being NO OBJECTION, it was so ordered. Representative Therriault MOVED to report CSHB 319 (FIN) out of Committee with individual recommendations and with the accompanying fiscal notes. There being NO OBJECTION, it was so ordered. 12 CSHB 319 (FIN) was reported out of Committee with a "do pass" recommendation and with a zero fiscal note by the Department of Commerce and Economic Development, dated 2/2/96.