SB 299 - BAD CHECK CHARGE [Contains references to HB 516, the companion bill.] Number 0999 CHAIR McGUIRE announced that the next order of business would be SENATE BILL NO. 299, "An Act relating to a charge for a bad check." Number 1012 SENATOR CON BUNDE, Alaska State Legislature, speaking as the chair of the Senate Labor and Commerce Standing Committee, sponsor of SB 299, relayed that the bill comes at the request of members of the business community. Current law permits those who write bad checks to require that the businesses they've written bad checks to document the cost of collecting the funds. He opined that in some cases, it is more expensive to document those costs than the actual costs themselves. Senate Bill 299 would allow business to assess a flat fee of $30 on each bounced check it receives, and removes the necessity of having to document the costs incurred while going through the collection process. He opined that a flat fee will make collecting the money from bounced checks less cumbersome. SENATOR BUNDE offered his understanding that about 15 percent of bounced checks are written by people unintentionally; about 40 percent are written by people who chronically write bad checks, and it can take up to 90 days for businesses to recover those funds; and that about 45 percent of bounced checks are never recovered. He opined that SB 299 will act as a deterrent to writing bad checks, and that the consequence of not passing this legislation is that more and more businesses will stop accepting checks altogether. He mentioned that HB 516, a companion bill, has been amended in the House State Affairs Standing Committee, but asked that the committee adopt the original version of SB 299. CHAIR McGUIRE indicated agreement with Senator Bunde's prediction that more business will stop accepting checks altogether as it becomes more difficult to collect on bad checks. REPRESENTATIVE GRUENBERG mentioned that he'd offered the amendment to HB 516 changing "beginning" and "begins" on lines 9 and 10, respectively, to "commencing" and "commences", respectively. He explained that such language is consistent with that found in Rule 3 of the Alaska Rules of Civil Procedure, and indicated that he would be offering the same amendment to SB 299. SENATOR BUNDE relayed that he did not have any objection to such a change. CHAIR McGUIRE mentioned that in committee packets is a memo from Representative Weyhrauch pertaining to HB 516 and the changes made to that bill in the House State Affairs Standing Committee. Number 1459 RONALD JORDAN said he is speaking on his own behalf as a former business owner. He opined that the change proposed by SB 299 would not be for the betterment of anyone, that the increase from $25 to $30 will only provide more profit for collection companies, and that the bill will not deter people from writing bad checks. He remarked that the way collection companies operate and with the fees that banks charge, a $5 bad check could wind up costing $70. He then characterized SB 299 as a bad idea, relayed his experience with bad checks, and suggested that the current law is sufficient. In response to a question, he explained that he used to run a drug and alcohol testing service. REPRESENTATIVE GARA asked Mr. Jordan whether it would allay his concerns to give business owners the flexibility to charge less than the proposed fee of $30. MR. JORDAN said yes and no, but reiterated his belief that SB 299 will only increase the profits of collection agencies and will not result in more money going to businesses. REPRESENTATIVE ANDERSON mentioned that a couple of businesses in his district asked him to strengthen the laws pertaining to bad checks. He asked Mr. Jordan whether he condones the writing of bad checks. MR. JORDAN said he does not, but remarked that he doesn't see the point of SB 299 since most bad check situations can be resolved with a phone call. Number 1699 SCOTT KING, Cornerstone Credit Services, LLC, said he would be testifying in support of SB 299. He relayed that his company's more than 2,000 clients would be directly affected by this bill. He elaborated: We are one of the main collections agencies that provide check recovery services to businesses who do not wish to handle this problem on their own. Businesses which do choose to collect bad debts themselves are equally affected by this bill. I believe the $30 charge is a reasonable and fair amount, and, for the record, I'm the business owner today, now, and I have to deal with today's costs. MR. KING indicated that he has a concern with one of the changes made to HB 516 - that of inserting language specifying that a business owner may waive the fee - because the purpose of the original legislation is to simplify AS 09.68.115(a). He opined that this simplification will allow creditors to collect for bad checks "without the fear of predatory litigation base on ambiguous language." Should a similar change be made to SB 299, he opined, it will put all business at risk and defeats the purpose of the bill. He then noted that his company's legal firm has provided a couple of memorandums regarding such a change, adding that he supports the view expressed in those memorandums. He said that according to his understanding, such language as that added to HB 516 is not found elsewhere in statute, and opined that there should be consistency throughout the statutes. MR. KING, in conclusion, offered his belief that "the greater encompasses the lesser," and, thus, it is already the case that a business is not required to charge the entire fee proposed or even any fee if it doesn't want to. He thanked the committee for considering SB 299, and urged the committee to support it. CHAIR McGUIRE said she questions why adding the language that a business may waive collection of the fee would confuse anybody, since it is already the case that the business can waive collection if it so chooses. What is the harm in adding clarifying language? Number 1871 MR. KING opined that doing so will raise a whole new set of issues that [collection agencies] will have to deal with, adding that less is best particularly if everyone agrees that leaving the language as is will have the same result as changing it. REPRESENTATIVE ANDERSON noted that current language specifies that a person "may" recover damages, and suggested that such is sufficient. MR. KING concurred. REPRESENTATIVE ANDERSON said he does not see the need for an amendment on this issue. CHAIR McGUIRE said she didn't see that adding clarifying language on this issue would result in litigation against business owners. REPRESENTATIVE GARA said that adding language specifying that a business may waive collection of the fee won't result in litigation. "I think people are fearful of a legal argument that a court would never uphold, and I think we've got to stop making policy based on the fear that somebody might make a bad legal argument," he added. Somebody might say that some sort of equal protection problem would arise, but there is no equal protection problem, he opined, adding that if a business doesn't want to charge a fee, it doesn't have to. REPRESENTATIVE GRUENBERG indicated that at one point, he didn't think that adding language specifying that a business may waive collection would generate litigation. However, he remarked, after reviewing the aforementioned memorandums, he is no longer sure either way. Number 2105 CHRIS D. GRONNING, Attorney at Law, Bankston, Gronning, O'Hara, Sedor, Mills, Givens & Heaphey, PC, after confirming that he'd written the aforementioned memorandums to Cornerstone Credit Services, LLC, said that he agrees with Representative Gara that a court probably wouldn't uphold an equal protection argument based on statutory language stating that a business may waive collection of a fee. He elaborated: I believe, at the end of the day, after thorough litigation, that that would indeed be correct, that a court would say, "The power to waive is there, in the discretion of the plaintiff, and if the plaintiff chooses not to exercise that power, that is the decision of the plaintiff and we're not going to inquire further." But I think the problem is in the making of the argument and the costs that the business incurs in defending against the argument, because I can easily envision and think about this mechanically in the manner in which these bad checks are collected. A demand letter is normally sent out that says ..., "You have written a check with insufficient funds, here is the statute and the appropriate penalties at appropriate stages; at this point you have the opportunity to cure by giving us the amount of the check and ... a fee of $30." I'm assuming that that is the new law. At that point, the person sends back a check, or cashier's check, or comes in and pays the principal amount, but says: "Well, I see in the statute that ... you have the opportunity to waive. Would you please waive this?" And then the collection agency or the business says, "No, we will not." And the dialog develops: "Why will you not? I'm not prepared to pay this fee until you've told me why you won't waive it and whether you'll consider the arguments that I'm going to give you for why you should waive it - all of my hardships, all of my reasons - and then I want to see whether you have a policy, internally, about when you do or don't waive. And if you don't have a policy, I want to know why you don't. And if you do have a policy, I want to see whether it's a reasonable one, and ... whether you're applying it properly or fairly to me." All of those arguments, I think, will eventually get made in court pleadings, and will be expensive to rebut. And I think an attorney, any defense attorney who's fighting against a claim like this, is going to send out a discovery request that asks to see the policy, asks to schedule a deposition of the person in charge of making these kinds of determinations, and [will want] to see the history of waivers. So you're going to run up a significant amount of cost and it will be a repetitive problem as significant or more significant than the current problem, which is simply documenting, to a court's satisfaction, $25 of actual incurred expense. So that is where I think the real harm is to the business owners. Number 2274 MR. GRONNING continued: The converse side - what's the ... benefit to the check writer whose check has been dishonored - ... that person is put in no worse [a] position by not including this language, because the business owner always has the option of waiving the fee and can always listen to a hardship case. And I suspect any of these business owners and collection agencies will tell you, there are a fair number of those hardship cases that sufficiently tug at the heartstrings [such] that these are waived. The fees can be waived under the current statute without the language that is proposed in the amendment. They can be waived under the new statute, or the proposed change, without the amendment. And having the amendment creates a tremendous potential for litigation. ... I have not seen any other statute ... where a remedy is granted ... coupled with an express statement that the ... remedy can be waived. That's always implied; it's always understood. Anyone who has the power to collect something has the power not to collect it. So I don't think it's necessary .... CHAIR McGUIRE pointed out, however, that in some instances it is desirable to draw attention to a particular right that someone has, for example, when a plain reading of a statute doesn't elicit an understanding that that right exists. She said her concern revolves around businesses and individuals that aren't educated enough to realize that waiving collection of a fee is an option. TAPE 04-48, SIDE B  Number 2378 REPRESENTATIVE HOLM opined that the use of the word "may" in existing statute is sufficient. REPRESENTATIVE ANDERSON indicated agreement with the arguments offered by Mr. King and Mr. Gronning. REPRESENTATIVE SAMUELS, indicating agreement that the word "may" is sufficient, further remarked, "If you don't want to take their money, give it back to them." SENATOR BUNDE indicated a preference for keeping the language in the bill simple. CHAIR McGUIRE surmised, however, that since the clarifying language was added to HB 516 in the House State Affairs Standing Committee, there must be some merit to the arguments in favor of including it in statute. REPRESENTATIVE GARA indicated that he didn't see the harm in including the clarifying language, particularly since it appears that everyone agrees that the courts will decide that a business can waive collecting the fee if it so chooses. He added: The whole idea that people who write bad checks are then going to litigate them is undermined by this one very important fact: if you lose a case in Alaska state court, you have to pay 20 percent of the other side's [attorney] fees and their costs. So if you're sitting there in an attorney's office, in my office or Mr. Gronning's office ..., I think both of us will tell you: "I wouldn't push this because you're going to have to pay your check, ultimately, and, the longer you push this, the more money you're going to have to pay because you're going to have to pay 20 percent of the other side's [attorney] fees if you keep pushing this, so does it make sense for you not pay your $100 check and instead challenge this in court where the more arguments you make the more [attorney] fees you're going to have to pay on the other side so you ultimately have pay $5,000 or $10,000 or $15,000?" I'm going to tell you not to take that case. Mr. Gronning, I think, essentially admitted that he's going to tell you not to take that case. I guess there's a possibility that someday somebody will take that case, but what can you do about that? I mean, ... there are a certain number of people in the community who sometimes don't make reasonable decisions, and you can never stop that. So I don't think it's going to start a floodgate of litigation; if it does, it's going to start a floodgate of litigation by people who are just going to decide to pay even more money than they would have if they'd just paid the check in the first place. ... And then finally, this whole idea that a business can't charge people differently, we do it all the time - it's capitalism. You walk into a store and you pay $40 for a garden hose, somebody else walks into the store after you and maybe negotiates with the store owner and says, "You know, ... what about $35?" and the store owner says, "Okay, $35." I mean, it's capitalism, so ... you just charge people based on what you think you should charge people, and let's just put it in the statute .... Number 2099 REPRESENTATIVE GARA recommended that the committee amend SB 299 in the same fashion that HB 516 was amended: adding language which clarifies that a business may waive collection of the fee. REPRESENTATIVE GRUENBERG noted that when the chair of the House State Affairs Standing Committee proposed the amendment to HB 516, it was adopted without much discussion and without objection. Representative Gruenberg offered his belief that in offering the amendment, the chair of the House State Affairs Standing Committee felt it would be helpful. REPRESENTATIVE HOLM concurred that no one objected to that amendment to HB 516. REPRESENTATIVE GRUENBERG pointed out that a third change was made to HB 516 in the House State Affairs Standing Committee, that of changing "$30" to "a $30 fee". Such a change clarifies that this is a fee and just an arbitrary imposition. SENATOR BUNDE suggested that if the language pertaining to waiving the fee is added to SB 299, then the committee should also consider whether it should be added to all statutes pertaining to fees. CHAIR McGUIRE said that is a good point. Number 1950 PAMELA LaBOLLE, President, Alaska State Chamber of Commerce (ASCC), said that the ASCC supports SB 299, and pointed out that the current law has engendered litigation and thus it needs to be simplified in the manner proposed. She opined that use of the word "may" is sufficient and so there is no need to add further language regarding the waiving of fees. She offered her belief that business regularly make the determination of whether to waive the fees associated with bad checks. She explained that in one instance where the ASCC received a bad check, the bank charged the ASCC $25 and it took about a month to get the money for that bad check. She opined that if the waiver language is inserted into SB 299, it will create difficulties and costs for businesses who have to go to court to try and collect for a bad check. REPRESENTATIVE GARA pointed out, however, that if such cases do continue to come to court for resolution, it won't be because of the statutory language. The person who wrote the bad check did not do so because he/she read the statute and determined that he/she might get away with not being charged a fee for writing the bad check. Instead such cases will arise because a business loses patience and goes to court in order to collect the money it's owed. The statute is not going to cause people to get involved in litigation, though it may give someone another argument once he/she is already involved in litigation. MS. LaBOLLE mentioned that when sending out a letter demanding payment for a bad check, the business typically cites the statute giving the authority for that demand; thus people will become familiar with the statute at that point. She acknowledged, however, that most people who receive a demand letter will go ahead and pay the money owed before going to court. REPRESENTATIVE ANDERSON asked whether the ASCC has ever received calls from members wanting to know if collection of a fee can be waived. MS. LaBOLLE said that that kind of service is not what members expect of the ASCC and so it has not received any calls such calls. She opined that all business owners know that they may charge a fee but are not required to do so. CHAIR McGUIRE said that as a person who writes checks, she did not know that businesses had the discretion to waive the fee. REPRESENTATIVE ANDERSON remarked, "I say sock it to them because it's costing the businesses fees, and I say don't give any more fodder for ideas for litigation or to waive; it's known, and don't codify it." REPRESENTATIVE OGG remarked that the language in statute is only a triggering device for the court case. In other words, a plaintiff can go to court if [paragraphs (1) and (2)] apply, but if the don't both apply, then there will be no court case. Number 1469 REPRESENTATIVE GRUENBERG made a motion to adopt Amendment 1, to change "beginning" on line 9 to "commencing", and to change "begins" on line 10 to "commences". There being no objection, Amendment 1 was adopted. REPRESENTATIVE GRUENBERG asked Representative Weyhrauch to comment on the addition, in the House State Affairs Standing Committee's version of HB 516, of the word "fee". Number 1386 REPRESENTATIVE BRUCE WEYHRAUCH, Alaska State Legislature, instead explained his intention behind the amendment to HB 516 that he'd offered in the House State Affairs Standing Committee regarding waiving collection of the fee. He opined that it ought to be clear to all parties that collection of the fee may be waived, adding that it would be simplest to just say so in statute rather than relying on an attorney's memorandum. REPRESENTATIVE OGG reiterated his comments about the language in statute simply being a triggering device. He opined that adding specific language regarding waiving collection of the fee will cause ambiguity for the purpose of going to court. REPRESENTATIVE WEYHRAUCH disagreed. He relayed, however, that he didn't want to influence the House Judiciary Standing Committee's policy discussion on this issue. He added, "I simply ... thought it made sense to allow a business to have ... clear discretion to waive a fee; that was simply the intent here." In response to a question, he clarified that what could be waived would be the fee, not the amount of the bad check. CHAIR McGUIRE agreed that if waiver language is added, it would only pertain to the fee, not the bad check. REPRESENTATIVE WEYHRAUCH mentioned that it might be a good idea if the bill refers to a specific fee rather than to just any fee. CHAIR McGUIRE indicated a preference for having the bill specifically reference that it is the fee which is being assessed as a penalty that can be waived, so as not to have it be confused with any other costs associated with collection of the bad check. REPRESENTATIVE SAMUELS asked whether there is motion before the committee. CHAIR McGUIRE observed that a motion has not yet been made. Number 0927 REPRESENTATIVE GRUENBERG made a motion to adopt Conceptual Amendment 2: [To] clarify that the plaintiff may recover the amount of the check, the liquidated fee - which would not be the court costs but the administrative fee of going through anything that they might have had to do in the collection effort - they would also, if the case went to court, be entitled to get costs under [Alaska Rules of Civil Procedure] Rule 79, plus [attorney] fees under [Alaska Rules of Civil Procedure] Rule 82. But I want it clear that the deletion of the term, "costs" and the insertion of the term, "fee" means that you would be entitled, if you didn't go to court, to demand the $30 in addition to the amount of the check, and, if you did go to court, you could demand the amount of the check, the $30 fee, courts costs under Rule 79, and [attorney] fees under Rule 82. Number 0836 CHAIR McGUIRE asked whether there were any objections to Conceptual Amendment 2. There being none, Conceptual Amendment 2 was adopted. Number 0809 REPRESENTATIVE GARA made a motion to adopt Conceptual Amendment 3, to have the language from [lines 10-13 of CSHB 516(STA)] replace the language on lines 10-12 of SB 299. REPRESENTATIVE ANDERSON objected. CHAIR McGUIRE, noting that SB 299 has already been amended, suggested that Representative Gara restate his motion for the purpose of clarifying that he is merely referring to the language pertaining to the waiver. REPRESENTATIVE GRUENBERG opined that it would be simpler if Conceptual Amendment 3 were changed such that it adopted the language in CSHB 516(STA), because doing so would incorporate the amendments already made to SB 299. CHAIR McGUIRE opined that there is really no need to do that, adding, "I think we should be clear about what the policy is [that] we're focusing on, which is the waiver itself." Number 0703 REPRESENTATIVE GARA, after withdrawing Conceptual Amendment 3, made a motion to adopt a new Amendment 3 to SB 299: after "$30" on line 11, insert ", but the plaintiff may waive collection of any fee." Number 0649 CHAIR McGUIRE made a motion to amend Amendment 3, "to say 'the $30 fee'." REPRESENTATIVE GARA said, "I wouldn't object." Number 0641 REPRESENTATIVE ANDERSON objected. [Although the objection to amending Amendment 3 was not addressed or withdrawn, Amendment 3 was treated as amended.] REPRESENTATIVE OGG asked why a business would continue a suit in court if it was simply going to waive the fee. REPRESENTATIVE GARA opined that such would not happen. He added: But what you're doing [currently] is saying that just so we can protect the person's right to go to court, we're also going to require [that] the $30 fee be charged to all people we don't go to court against. And that was the whole purpose of the amendment [as amended]: for the bulk of cases, you don't want to charge the $30 fee ... if you have a good relationship with a customer, and we want to make sure the statute isn't interpreted by businesses to think that they have to charge the $30 fee against a customer that they don't want to charge that fee against. So you make a decision, as a business, that you're going to waive the fee or not waive the fee; it's totally up to you. REPRESENTATIVE OGG argued, however, that the statute won't apply if someone isn't being taken to court. CHAIR McGUIRE offered an example illustrating why a business should still have the ability to take someone to court to recover the amount of a bad check even if a fee is never charged, and opined that Amendment 3 [as amended] provides for that ability. She noted that current language stipulates that the demand for payment must be in writing, and offered her belief that the language without Amendment 3 [as amended] would also stipulate that a fee must be charged. REPRESENTATIVE GRUENBERG offered his belief that under current statute, a business may always sue for the amount of the check, and pointed out that AS 09.68.115(a) - the statute being amended via SB 299 - simply provides a business with the ability to claim treble damages up to $1,000; therefore, the triggering mechanisms in SB 299 simply pertain to collecting damages, not the right to collect on debt owed. Additionally, he remarked that SB 299 and the statute it amends appear to only apply to checks written for a small amount; he suggested that perhaps the committee could look into what to do about checks that are written for large amounts. MS. LaBOLLE suggested that perhaps that issue could be addressed at another time, adding that it was a recent court decision that raised concerns about the current language in AS 09.68.115(a) and engendered SB 299 and HB 516. REPRESENTATIVE GRUENBERG observed, however, that SB 299 will not be helpful in instances wherein bad checks for large amounts are written. Number 0057 A roll call vote was taken. Representatives Gara and McGuire voted in favor of Amendment 3, as amended. Representatives Ogg, Gruenberg, Samuels, Holm, and Anderson voted against it. Therefore, Amendment 3, as amended, failed by a vote of 2-5. Number 0039 REPRESENTATIVE ANDERSON moved to report SB 299, as amended, out of committee with individual recommendations and the accompanying zero fiscal [note]. There being no objection, HCS SB 299(JUD) was reported from the House Judiciary Standing Committee.