HB 145-LOANS UNDER $25,000; PAYDAY LOANS  3:16:22 PM VICE CHAIR RUFFRIDGE announced that the first order of business would be HB 145, "An Act relating to loans in an amount of $25,000 or less; relating to deferred deposit advances; and providing for an effective date." 3:16:32 PM VICE CHAIR RUFFRIDGE opened public testimony on HB 145. 3:16:55 PM KRISTI MAGUIRE, representing self, Bivocational Pastor, gave public testimony in support of HB 145. She stated that she has worked this past year with the Mutual Aid Network of Anchorage to help members of the community pay back payday loans. She said that people living paycheck to paycheck need these loans, and she cannot think of an ethical reason for the interest rates to be so high. She expressed praise for the generosity of Alaskans and encouraged the legislature to create new solutions. 3:19:57 PM ALAN BUDAHL, Executive Director, Lutheran Social Services of Alaska, gave public testimony in support of HB 145. He stated that Lutheran Social Services frequently receives calls from people who are struggling to pay back payday loans. Oftentimes, people use such loans to pay rent, and these high interest rates disproportionately affect low-income individuals. He related a story of a woman who went in to pay her loan shortly before the lender closed; however, she was unable to do so and had to pay significantly more interest. 3:22:11 PM NOEL LOWE, Owner, Alaska Fast Cash, provided public testimony during the hearing in opposition to HB 145. He stated that payday loans are only a small part of his business, as these loans are less profitable. He explained that payday loans are meant for those with steady employment but no ties to traditional lenders. He expressed the opinion that the examples of predatory payday lending are coming from lenders outside of Alaska, rather than the brick-and-mortar stores within the state. He explained that stores in Alaska are highly regulated by the state; however, online lenders outside of Alaska are not concerned about regulations in the state. He expressed concern that the proposed legislation would stop payday lenders in the state; therefore, more people would have to turn to out of state lenders. He argued that missing a mortgage or car payment often has a higher interest rate than a payday loan. He added that payday loan lenders are required to offer six-month payment plans which stop more interest from accruing. 3:25:13 PM REPRESENTATIVE FIELDS asked what percentage of profits come from payday loans. MR. LOWE answered approximately 10 percent. In response to a follow-up question, he stated that the reason for payday loans having such high interest rates is because the loans do not have collateral. REPRESENTATIVE FIELDS asked why there is a high rate of default for payday loans, if the people taking them have steady paychecks. MR. LOWE answered that payday lenders do not want customers to default, and the income guidelines are posted in the stores. He added that each loan default is personal for each individual. In response to a follow-up question, he expressed the belief that traditional payday loan lenders would not offer this service in states which have passed laws limiting interest rates. 3:28:45 PM REPRESENTATIVE PRAX asked whether payday loan lenders publish their interest rates and whether they charge processing fees. MR. LOWE answered that payday loans are short 14-day loans, and the state allows a 15 percent interest to be charged, with a $5 fee late fee. In response to a follow-up question, he expressed agreement that the fee is lower than the fee an individual would be charged for over drafting a bank account. 3:32:08 PM REPRESENTATIVE SADDLER asked how long the 15 percent interest rate lasts. MR. LOWE answered that the 15 percent interest rate is meant to be for a short 14-day loan. He added that the interest rates would accrue if it took an entire year to pay the loan posted in the store. In response to a follow-up question, he said that income guidelines are posted in the store. He added that the terms in the agreement are reviewed with each customer, so each customer understands the process. REPRESENTATIVE SADDLER expressed doubt in his own ability to pay back loans at the high interest rates he has seen. MR. LOWE responded that the highest interest rates only apply to loans which are not paid back in 365 days, when the loan is meant to only cover 14 days. He compared this to renting a car for a month, as the car would cost $50 for only one day, but it would cost $1,500 for a month. REPRESENTATIVE SADDLER asked whether a payday lender would accrue additional costs if a payday loan were not paid back within 14 days. MR. LOWE answered that the state allows a borrower to extend the interest two times. If that individual cannot pay back the loan, the lender is required to offer a six-month payment plan. In response to a follow-up question, he said that the only additional cost is the lost opportunity cost of not being able to loan the money to another individual. 3:37:10 PM REPRESENTATIVE PRAX commented that payday loans are difficult to collect, and the extension periods to pay back the loans have the effect of reducing the actual posted interest rates. 3:37:44 PM REPRESENTATIVE SADDLER asked how many borrowers use the six- month payment plan. MR. LOWE expressed uncertainty, as it varies seasonally. In response to a follow-up question, he expressed the belief that it is less than half. He added that only about 25 percent of borrowers default. 3:39:29 PM MARGE STONEKING, Advocacy Director, AARP, gave public testimony in support of HB 145. She stated that AARP supports HB 145 in order to protect the financial security of older Alaskans. She expressed the opinion that older individuals have less options to pay back debts, and short-term loans are more likely to harm them than help them. She pointed out that there are small loans available at banks, and these offer better options than payday loans. 3:41:55 PM VICE CHAIR RUFFRIDGE, after ascertaining there was no one else who wished to testify, closed public testimony. 3:42:19 PM REPRESENTATIVE PRAX commented that Mr. Lowe's testimony warrants careful consideration. He said that in the retail business, bad checks are often not collected because the cost of collecting is not worthwhile. Although the costs may be high at a payday lender, high costs and other consequences can occur if a payment to a bank or credit card company is late. He expressed concern that the bill would not work as intended and taking such steps would be akin to putting warning labels on cigarettes. 3:45:15 PM VICE CHAIR RUFFRIDGE announced that HB 145 was held over.