SB 66-FINANCIAL INSTITUTIONS  CHAIRMAN TAYLOR announced SB 66 to be up for consideration. MR. TERRY ELDER, director of the Division of Banking, Securities and Corporations, noted that HB 106, the companion bill to SB 66, just passed out of the House Labor and Commerce Committee. He hoped it would be scheduled for a floor vote shortly. He said the main issue surrounding SB 66 seems to be privacy but the bill makes other changes that are non-controversial. He explained: Right now, in current law there's a requirement for banks to publish their quarterly statements of condition in newspapers. There's a provision in this bill that will allow them to also publish that electronically as an alternative. It's much cheaper; they'll still make the same information available to customers on request instead of just in newspapers. For mutual savings banks, right now in current chapter, the directors, whom they call trustees, are treated different from directors of banks in terms of arms length dealing that they would have with the mutual savings banks and in borrowing from the mutual savings bank. That's making it much more difficult for the mutual savings bank to find people who are willing to be trustees and who are knowledgeable in business activities. So, there's provisions in this bill that would essentially put the trustees of a mutual savings bank on the same level as the directors of the commercial banks. There's also currently a requirement for the automatic teller machines to be approved by our division. And what we're putting in here is a provision that will allow a notice filing rather than approval so we'll know where the services are. We don't feel that there's any public benefit from our making an approval of whether or not an ATM is placed on one corner versus another corner. Also, in the credit union chapter, there's no provision for ATMs. So, this includes a provision there. It also equalizes the legal lending limits in Alaska with the federal limits. It, therefore, removes a barrier for institutions to decide to take the state charter rather than the national charter. Those are all things we think are good for the industry. It also makes sense from a regulatory standpoint, but of course they get overshadowed by the big policy issue on policy. SENATOR ELLIS asked if there was language that affects the legislature's future ability to cap fees in any way. MR. ELDER replied no; it only applies to location. He added from the division's standpoint, current law (changed in 1994) limits where staff can borrow money. Previously, it said they couldn't borrow from state chartered institutions, obviously because they examine them. In 1994, that was changed to any institution that receives a certificate of authority. Mr. Elder noted: The problem with that is that we currently also issue permits and certificates to national banks that branch into Alaska. So, if you had enough branching and enough purchasing of state charter banks, our staff would have difficulty banking anywhere in Alaska. This also takes us back to the original language that we had before us saying that our staff can't borrow from state chartered institutions. MR. ELDER explained further: Obviously, the big issue is privacy. Everyone knows, but I'll state it briefly, what the issue is and that is Gramm-Leach-Blighly, a federal law, passed and allows - the term is sharing, but it also covers selling of information with non-affiliated third parties which is anybody who is not an affiliate. So, it's a lot of folks. That requires them to offer the public the ability to opt out of that kind of sharing. We have been on record and very forcefully so in both the Senate and the House that we don't think opt out is sufficient. We have opt in in the current banking code and we were proposing in SB 66 that the opt in be maintained. The opt in was maintained in the House Labor and Commerce Committee, but not in the Senate. So, therefore, when it came over here, we sent you a letter, Mr. Chairman, that indicated our desire for you to delete the reference to Gramm-Leach-Blighly that would remove the opt out language and would make it, therefore, opt in. CHAIRMAN TAYLOR said he had an amendment prepared to do that. MR. ELDER said that was good to hear. He believes that as long as the dialogue between his division and industry was about sharing everything in one's file with everybody in the world, the two would always be at each end of the spectrum. There would be no compromise and it would be the legislature's call for one of the extremes. He thought there was still some middle ground but said, "We just had to find it." He said they met with representatives of the banker's association and developed reasonable compromise language that retains the opt in requirement, generally speaking. So, the bankers have gone all the way from wanting to opt out for everything to agreeing to opt in. Mr. Elder commented: However, we've included a section (d) in AS 06.01.028, the proposed privacy section, which allows financial institutions to share information with other firms who provide their own services. For example, if they have checks printed and statements printed and things like that, they can do that and the compromise language that we came up with allows them to enter into joint marketing agreements for financially related services. TAPE 01-24, SIDE B    MR. ELDER continued: Where those marketing partners would sign an agreement to also be bound by the privacy provision of our code, the opt in, we view that as a reasonable compromise on the basis that generally we are still at opt in. However, we also have to remember that the sharing of information among affiliates is not restricted. The Fair Credit Reporting Act on the federal level allows the financial institution to share information among affiliates and prohibits states from restricting that kind of sharing of information until January 1, 2004. After that date, in fact, states can adopt more restrictive privacy provisions covering affiliates, but they have to pass the law after that date and specifically reference the Fair Credit Reporting Act to do that. MR. ELDER said further: In the meantime banks and other institutions that have a large affiliate structure can share the information without restriction. That puts smaller banks that are largely but, not only state chartered institutions that don't have an affiliate structure at a significant competitive disadvantage. We don't think that's healthy for state chartered institutions. We don't think it's healthy for smaller banks. So, what we're trying to do in section (d) is to level the playing field between the banks that have the larger affiliate structure with the banks that have the smaller or no affiliate structure. MR. ELDER explained that this information sharing is limited to what is necessary to do these things, "So, it's not all the information in a file." It is limited only to financial related products, limited to joint marketing efforts and to partners that are willing to subject themselves, even though they don't have to otherwise, to the Alaska Privacy Code. Mr. Elder noted, "With those kinds of limitations, it's sufficiently tight enough for us to feel comfortable even though we have made it very clear we have been and remain extremely concerned and supportive of more restrictive privacy provisions." He said that the small neighborhood banks are going to have difficulty competing and staying independent unless regulators make some reasonable accommodations for privacy of information. He thought it was still a significant action on the part of the legislature to continue the higher privacy provisions that we have had for the last 30 years in Alaska and yet still make reasonable accommodations to smaller banks to operate. CHAIRMAN TAYLOR noted that Mr. Elder's comments were on a proposed amendment to SB 66. MR. ELDER said that is correct and that he was addressing section (d) that was currently in the committee substitute before them. He was also discussing the differences between HB 106 and SB 66. CHAIRMAN TAYLOR asked if they used his list of differences as an amendment, if the examination policy on page 2 was in the bill. MR. ELDER answered that it was not. He said it was in HB 106, though. "We discussed it in Senate Labor and Commerce, but frankly, I think it was an oversight." CHAIRMAN TAYLOR asked if he was changing "depositors of" to "other depository institutions in the following sections" in item 4, page 2. MR. ELDER said yes because currently there is no language in the credit union chapter for ATMs. Language for that section was taken from the banking section. CHAIRMAN TAYLOR asked if the remainder of the amendment pertains to automatic teller machine provisions for credit unions. MR. ELDER responded that language was taken from HB 106. The only thing that was not in HB 106 was, "Once you put in the words 'depositors of' which the House Labor and Commerce Committee did, you can remove 'and their customers' because that's redundant." CHAIRMAN TAYLOR offered Mr. Elder's list of changes as an amendment. SENATOR ELLIS objected. CHAIRMAN TAYLOR said he wanted to change page 2 (e) to delete "in an amount equal to the actual damage" and insert "for" so that damages sought for violation of this section would not be limited to just actual damages, but to all damages that may be incurred. There were no objections. SENATOR ELLIS said he thought they should divide the amendment and that the section that changes the opt in section gives him pause. He complimented the work that had gone into it, but he was more comfortable with the traditional wording. CHAIRMAN TAYLOR said he had an amendment that deletes on page 2, lines 25 - 26, the reference to Gramm-Leach-Bliley. SENATOR COWDERY said he understands that the large institutions have less need of this than the smaller ones that aren't in the marketing or loan business. He asked if this would allow them to be brokers. MR. ELDER said that is correct as long as it was a financially related service. SENATOR COWDERY asked if he had a number in his head of small banks. MR. ELDER replied that the state currently has four state chartered banks and two state chartered credit unions. The Alaska Pacific Bank, which is a federal charter, also doesn't have an affiliate structure and is equally concerned. CHAIRMAN TAYLOR asked if there were any further objections to adopting amendment 1. SENATOR ELLIS objected. CHAIRMAN TAYLOR called for a roll call vote. SENATORS COWDERY, THERRIAULT, and TAYLOR voted yea; SENATOR THERRIAULT voted no; so amendment 1 passed 3 to 1. CHAIRMAN TAYLOR offered amendment 2 and asked Mr. Reinwand to explain it. Number 1620 MR. JERRY REINWAND, Alaska Peddler Gift Shops, said he does a lot of business via credit card and as time goes on, they have noticed more credit card usage. A percentage of the sales, 2 to 4, pays for the system. He has no problem with that, but in Juneau and other places with sales taxes or purchase taxes, the banks are taking their percentage out of the total purchase, including the tax. "This means less money in my pocket at the end of the day." MR. REINWAND said it isn't fair and once this law is passed, credit card companies could offer it as an incentive for merchants to use their cards. SENATOR COWDERY asked how that works in communities that accept credit cards for the payment of taxes. MR. REINWAND replied that generally the IRS tacks on a fee of 2.5 percent to credit card payments so, "You're better off to write a check." CHAIRMAN TAYLOR said his concern is that what's really happening in this transaction is that Mr. Reinwand is not collecting the legal amount of sales tax. He thought discounting on the credit cards actually put him in a difficult position of having to collect it and he didn't think it would be insignificant over a large volume of sales. SENATOR THERRIAULT asked how this would trigger competition. MR. REINWAND explained that there is a lot of competition between credit card companies and they might be able to structure a contract where it's an added incentive. He hadn't thought it through, but a small business is at a real disadvantage in dealing with the credit card companies. He was talking to a staff person in Washington, D.C. when they were hearing a bankruptcy bill and there was total silence on the other end when someone figured out the total amount of money involved nationwide. "It's a huge amount of money." CHAIRMAN TAYLOR asked if there were any objections to adopting amendment 2. There were no objections and it was adopted. MR. JOE SCHIERHORN, Sr. Vice President, Northrim Bank, said he was testifying on behalf of the Alaska Bankers Association as well. They support the amendment and appreciate the efforts of Mr. Elder and the Division of Banking in working with them on this compromise. "I think it's very important to go forward with this to insure that there's a level playing field between nationally regulated banks and state regulated banks for the very reasons Mr. Elder brought forth." CHAIRMAN TAYLOR thanked him for his testimony and said they would hold SB 66 to await the companion bill.