SENATE LABOR AND COMMERCE COMMITTEE May 4, 1995 1:45 P.M. MEMBERS PRESENT Senator Tim Kelly, Chairman Senator John Torgerson, Vice Chairman Senator Judy Salo MEMBERS ABSENT Senator Mike Miller Senator Jim Duncan COMMITTEE CALENDAR SENATE BILL NO. 157 "An Act relating to the regulation of small loan and retail installment transactions." PREVIOUS SENATE COMMITTEE ACTION SB 157 - No previous action to record. WITNESS REGISTER John Higgins, General Manager Northland Credit 3030 Denali, Ste. 11 Anchorage, AK 99503 POSITION STATEMENT: Supported SB 157. Mark Hamlin Norwest Financial POSITION STATEMENT: Supported SB 157. John Andrew, Senior Council Government Relations J.C. Penny Sacramento, CA POSITION STATEMENT: Supported SB 157. Lee Rawell, Vice President AVCO Financial Services Urbine, CA POSITION STATEMENT: Supported SB 157. ACTION NARRATIVE TAPE 95-21, SIDE A Number 001 SB 157 SMALL LOANS & RETAIL INSTALLMENT SALES  CHAIRMAN KELLY called the Senate Labor and Commerce Committee meeting to order at 1:45 p.m. and said the committee would take testimony on SB 157 and continue to work on it over the interim. JOHN HIGGINS, General Manager, Northland Credit, clarified that he was working from CSSB 157(L&C) and the purpose of it was to modernize the Alaska Small Loan Act which hasn't been worked on in about 40 years. A lot of laws currently on the books are archaic, he said. License fees and bonding requirements have been increased as requested by the administration. It helps create a basis for a regular payment which is not allowed right now on loans for seasonal workers and fishermen. The final portion of the bill deals with ARISA which includes appropriate fees and costs that can be included in contracts. He said that Alaska is currently ranked 49th out of 50 states on interest rate ceilings. He said he hoped they could open up smaller markets they can't even look at right now, because of restrictions. SENATOR KELLY remarked when they originally approached the idea of this bill was because of the 14% interest rate restriction that wouldn't allow Alaskan companies to compete with the outside firms in terms of offering loans - for example Sadler's Furniture Store. MR. HIGGINS agreed. MARK HAMLIN, Norwest Financial, said currently he does all the financing for Sadler's Home Furnishings. His company is based out of Des Moines, Iowa, although they have offices in the state of Alaska. To do financing for Sadler's Home Furnishings, he has to charge the dealer a 1% discount to buy the contract in order to get his margins where they have to be to make a profit. Out-of-state lenders, such as General Electric Credit Corporation and Whirlpool, can charge a higher interest rate due to the fact that they are out-of-state and they usually are bank-chartered so they can import their rate into the State of Alaska. Sears has just changed their rate structure and have gone to a 21% interest rate. The reason the rates are going up is so they can offer special programs to the dealers, such as 90-day same as cash, no payments/no interest for six months, etc. If they can get a higher interest rate so they can make some money after the customer starts making payments on a contract, they can afford to offer those services to the dealers in Alaska to promote sales. Out-of-state lenders are currently doing this with no discount to the dealers. MR. HAMLIN said that the states of Montana and Washington are deregulated and they can charge the 21% or 18% interest rate to the dealers and offer a lot of these special programs and compete with some of the out-of-state and in-state companies. Currently Norwest Financial has six offices in the State of Alaska. He said that a lot of out-of-state companies do not understand what happened in Alaska during the mid-80's crash when there were a lot of bankruptcies and a lot of them will turn down these customers. Due to the fact Norwest Financial has been in the state, they understand the economic conditions and will grant credit to people with bankruptcies and foreclosures on their credit report. Number 234 SENATOR KELLY asked who their competition up here was. MR. HAMLIN answered Northland Credit, AVCO, and the credit unions. SENATOR KELLY asked why anyone would go to them when they could go to a credit union. MR. HAMLIN said the biggest reason is that dealers choose to use them is because of their numerous services and to have convenient in-house financing. Credit unions are set up for customers who come into their business and apply for credit which takes time. In-house financing is an advantage, or a service, a dealer offers a customer and it also concludes the sale immediately. JOHN ANDREW, Senior Government Relations Council, J.C. Penny, said they are one of the largest retailers in Alaska. They have their own credit program and, therefore, are subject to the terms of Alaska Retail Sales Act. He supported specifically sections 10 and 11, the fee and service charge sections. It is a good step in updating a 33-year old law, he said. In Alaska, the delinquent fee is prevented on revolving credit. This means the extra costs are spread among all their retail credit customers, including the great majority who pay on time. The 18% across-the-board service charge is a good step in the right direction. On the other hand, he supported deregulation which has been enacted in close to half the states now, they think, to the benefit of the retailers and the customers. Number 332 LEE RAWELL, Vice President, Government Affairs, AVCO Financial Services, said they are currently located in 43 states and Puerto Rico, the Virgin Islands, and six foreign countries, and have approximately 950 branches. He said they are new in Alaska and have an office in Anchorage for less than one year. They feel this bill is a good step forward in updating the Alaska Small Loan Act and the Retail Installment Sales Act. They feel this bill would be an incentive for companies to expand within Alaska. If SB 157 does allow deregulation, the rate would be set by competition. Number 373 SENATOR KELLY asked why Alaska was all-of-a-sudden becoming an attractive market for small loan companies, when for years and years we were avoided. MR. ANDREWS said it was a market they were sorry they had missed for the past six or seven years. MR. RAWELL said he thought modern technology, like faxes and computers, made it easier and more economically feasible to conduct long distance business in Alaska. SENATOR SALO asked if there was anything about our economic demographics that makes the market more attractive here right now. MR. HAMLIN said when they bought out Household Finance in 1986, the reason they left the state was because of high bad debt at the time and there were more people moving out of the state than moving in. The cost factor of doing business in Alaska was quite high, for airlines tickets, for instance. He explained that it takes nine offices to form a district in his company, so someone could actually live here to oversee operations. That is why he currently flies between Washington, Montana, and Alaska. MR. HAMLIN said the incomes are a lot higher up here and people, when they come to Alaska, normally don't bring all their household furnishings with them. They need to buy new things when they get up here and that is good for businesses like Sadler's. And that' what attracted them to the State of Alaska. SENATOR KELLY thanked them for their participation and said he would work on this issue during the interim or at the beginning of next session. SENATOR KELLY adjourned the meeting at 2:20 p.m.