Legislature(2015 - 2016)BARNES 124

04/01/2016 03:15 PM LABOR & COMMERCE

Note: the audio and video recordings are distinct records and are obtained from different sources. As such there may be key differences between the two. The audio recordings are captured by our records offices as the official record of the meeting and will have more accurate timestamps. Use the icons to switch between them.

Download Mp3. <- Right click and save file as
Download Video part 1. <- Right click and save file as

Audio Topic
04:41:07 PM Start
04:41:24 PM HB271
05:10:24 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Delayed to 4:30 p.m. Today --
Heard & Held
-- Public Testimony <Time Limit May Be Set> --
+ Bills Previously Heard/Scheduled TELECONFERENCED
**Streamed live on AKL.tv**
        HB 271-MONEY SERVICES BUSINESS: REQS; LICENSING;                                                                    
4:41:24 PM                                                                                                                    
CHAIR OLSON  announced that the  only order of business  would be                                                               
HOUSE  BILL  NO.  271,  "An  Act relating  to  a  money  services                                                               
business;  relating to  transmitting value  that substitutes  for                                                               
money;  relating  to   licensing  requirements  and  registration                                                               
through the Nationwide Multistate  Licensing System and Registry;                                                               
relating  to  surety  bonding requirements;  authorizing  certain                                                               
licensees  to contract  to use  subdelegates for  reloading funds                                                               
onto stored-value cards; relating  to record retention, reporting                                                               
requirements,   and    enforcement   provisions;    relating   to                                                               
exemptions;  relating  to  money  services  Internet  activities;                                                               
relating  to   definitions  regarding  the   transmitting  value,                                                               
currency,  and   money  transmission  business   activities;  and                                                               
providing for an effective date."                                                                                               
4:41:50 PM                                                                                                                    
KEVIN  ANSELM,  Director,  Division   of  Banking  &  Securities,                                                               
Anchorage Office,  Department of  Commerce, Community  & Economic                                                               
Development   (DCCED),   provided   a   PowerPoint   presentation                                                               
entitled, "Alaska Money  Services Act HB 271," which  was a brief                                                               
overview of what  money services businesses are  and the purposes                                                               
of  the bill.   Ms.  Anselm said  money services  businesses are,                                                               
either   currency  exchange   or  money   transmission.  Currency                                                               
exchange  means the  receipt  of revenues  from  the exchange  of                                                               
money  of one  government for  money of  another government,  and                                                               
money  transmission  means  the  selling or  issuing  of  payment                                                               
instruments, including  checks, money orders,  traveler's checks,                                                               
prepaid or stored  value cards, sending money  via Western Union,                                                               
or moving money from a deposit  account to a loadable card [slide                                                               
2].   The purpose of HB  271 is to modernize  the [Alaska Uniform                                                               
Money   Services   Act],   update   the   definition   of   money                                                               
transmission,  including  virtual   currencies,  and  incorporate                                                               
alternative  payment systems  and instruments  such as  Apple Pay                                                               
and Square, Inc.                                                                                                                
4:44:53 PM                                                                                                                    
CHAIR  OLSON asked  whether there  would  be an  impact to  group                                                               
medical reimbursement.                                                                                                          
MS. ANSELM  replied no.   She then  returned to  the presentation                                                               
and  noted that  when  the  Act was  originally  passed in  2007,                                                               
virtual currency was  not considered, thus the  division does not                                                               
regulate virtual currency.                                                                                                      
REPRESENTATIVE  LEDOUX   asked  for   a  definition   of  virtual                                                               
MS.  ANSELM   explained  that  virtual  currency   is  a  digital                                                               
representation of  value, mined through a  computer program using                                                               
an  algorithm.   For  example, using  a  mathematical formula,  a                                                               
limited amount  of virtual currency  - such  as bitcoin -  can be                                                               
mined over time.                                                                                                                
CHAIR OLSON  added that  virtual currency  is available  all over                                                               
the world with an access number and a security code.                                                                            
MS. ANSELM  agreed and observed  that virtual currency  is secret                                                               
in that  people are  identified only  by a  number, which  is not                                                               
attached  to a  name.   She cautioned  that these  currencies are                                                               
associated  with  untoward  transactions,  and  that  bitcoin  is                                                               
commonly used in Alaska.                                                                                                        
REPRESENTATIVE LEDOUX stated  that currency is backed  by gold or                                                               
the full faith and credit of  a country, and asked why bitcoin is                                                               
worth anything.                                                                                                                 
MS. ANSELM said, "Because someone thinks it is."                                                                                
REPRESENTATIVE KITO stated that value  is created by the scarcity                                                               
of bitcoin.                                                                                                                     
MS.  ANSELM,  in  response   to  Representative  LeDoux,  further                                                               
explained that if someone thinks a  commodity is worth a lot, for                                                               
a short time,  it will be.  She stressed  that the division needs                                                               
to  decide  whether  to  regulate  virtual  currency  and  inform                                                               
4:50:12 PM                                                                                                                    
CHAIR OLSON understood that there  is a finite number of bitcoin,                                                               
and  the  price  fluctuates dramatically.    Theoretically,  more                                                               
bitcoin can't be made.                                                                                                          
REPRESENTATIVE LEDOUX  surmised bitcoin is "used  where you might                                                               
not want the  government to know what you're  doing, they're kind                                                               
of like a, a tech version of a Swiss bank account."                                                                             
MS.  ANSELM agreed.   Other  purposes of  HB 271  are:   to allow                                                               
licensees  to contract  with a  delegate who  may then  use their                                                               
network  of  subdelegates  to reload  funds  onto  prepaid  cards                                                               
without  having a  separate contract;  to remove  an out-of-state                                                               
business  advantage that  allows applicants  licensed in  another                                                               
state to  submit minimal information,  and pay only half  the fee                                                               
an  entity headquartered  in Alaska  pays  [slide 3].   The  bill                                                               
affects current  money services businesses (MSBs)  by simplifying                                                               
the licensing process as follows:                                                                                               
   · requires use of the [Nationwide Multistate Licensing System                                                                
     and Registry] (NMLS)                                                                                                       
   · replaces the net worth requirement with a surety bond                                                                      
     requirement that can be adjusted                                                                                           
   · allows annual assessment fees to cover periodic examination                                                                
     fees and ongoing administrative costs                                                                                      
MS.  ANSELM  noted that  the  present  net worth  requirement  is                                                               
$25,000; however, a bond allows  a business more coverage without                                                               
using as much capital [slide 4].                                                                                                
REPRESENTATIVE  LEDOUX returned  to  the subject  of bitcoin  and                                                               
relayed  that the  new marijuana  industry raises  concerns about                                                               
how  businesses will  pay their  taxes  and utilize  banks.   She                                                               
asked whether  bitcoin could  be the  solution for  the marijuana                                                               
MS. ANSELM was unsure.  Bitcoin  is not recognized as a currency,                                                               
and  the state  would  have  to decide  to  accept  bitcoin as  a                                                               
payment for  taxes.   She restated that  virtual currency  is not                                                               
regulated  by  the state,  and  said  she  could not  answer  the                                                               
CHAIR  OLSON referred  to a  defunct underground  web site  where                                                               
bitcoin was accepted.                                                                                                           
4:54:47 PM                                                                                                                    
REPRESENTATIVE   HUGHES   read   the  following   [document   not                                                               
     The  use  of bitcoin  by  criminals  has attracted  the                                                                    
     attention of financial  regulators, legislative bodies,                                                                    
     law enforcement,  and media.   Criminal  activities are                                                                    
     primarily  centered  around  black markets  and  theft,                                                                    
     though  officials  in  countries  such  as  the  United                                                                    
     States   also  recognize   that  bitcoin   can  provide                                                                    
     legitimate financial  services.  Bitcoin has  drawn the                                                                    
     support  of a  few  politicians,  notably U.S.  Senator                                                                    
     Rand Paul who accepts donations in bitcoin.                                                                                
MS. ANSELM  added that some  states including California  and New                                                               
York,  are regulating  virtual  currency.   She  returned to  the                                                               
presentation and said the bill  would enhance consumer protection                                                               
as follows [slide 5]:                                                                                                           
    · adds a background check component                                                                                         
    · requires licensees to comply with federal law                                                                             
    · increases the record retention schedule                                                                                   
    · removes advance exam notification requirement                                                                             
    · updates enforcement provisions                                                                                            
 MS.  ANSELM   further  explained  that  the   bill  provides  an                                                               
 exemption for  businesses that are  not MSBs, such  as insurance                                                               
 companies,  title companies,  escrow agents,  or attorneys  that                                                               
 engage  in  ancillary  money   transmission  as  part  of  their                                                               
 lawfully  conducted   business  [slide   5].     Provisions  for                                                               
 electronic payments are included,  and the definition of payment                                                               
 instrument  would  include  a  Mobile Wallet  [slide  6].    The                                                               
 provisions  related   to  stored  value  cards   are  especially                                                               
 important to  local Alaska  money transmitters because  the bill                                                               
 affects prepaid  cards that are  both open loop  and reloadable.                                                               
 Ms. Anselm stated open loop and stored value cards are defined                                                                 
 as follows [slide 7]:                                                                                                          
    ·  monetary value is prefunded, reduced at each use, and can                                                                
      also be increased                                                                                                         
    ·  includes electronic device or vehicle such as a card code                                                                
      or a pin number                                                                                                           
    ·  redeemable  at   multiple,   unaffiliated   merchants   or                                                               
      automated teller machines (ATMs)                                                                                          
    ·  does not include an electronic record that is primarily                                                                  
      intended to be redeemable only for goods or services from                                                                 
      a specific merchant                                                                                                       
 MS. ALSELM gave the example of  an Olive Garden $50 card that is                                                               
 not reloadable and does not require  an MSB licensee to issue or                                                               
 sell; however, a VISA/Green Dot card  from a service center is a                                                               
 reloadable card and an MSB licensee is required [slide 8].                                                                     
4:59:06 PM                                                                                                                    
REPRESENTATIVE COLVER  asked whether  the proposed bill  could be                                                               
written to eliminate or extend the  expiration date on cards as a                                                               
consumer protection action, so that  the funds do not revert back                                                               
to the seller when the card expires.                                                                                            
MS. ANSELM answered that gift  cards and reloadable cards differ,                                                               
and  gift cards  are  not covered  by  HB 271.    She offered  to                                                               
research this topic.                                                                                                            
CHAIR OLSON recalled federal laws supersede in this regard.                                                                     
MS. ANSELM directed  attention to slide 9,  entitled "The Current                                                               
Treatment  of  Subdelegates,"  which   related  to  a  particular                                                               
licensee in  Nome, and the current  complicated process necessary                                                               
to issue  [the Alaska Prepaid Card  dba Q-Card].  She  said there                                                               
is a need to simplify this  process as many residents use prepaid                                                               
cards in rural  areas because they can be purchased  in a village                                                               
store or supermarket, and used  almost like a checking account to                                                               
pay  bills.   At this  time, Alaska  Prepaid Card  contracts with                                                               
Western  Union  Financial  Services,   and  Western  Union  is  a                                                               
delegate at 32 locations in  Alaska at Fred Meyer, Walgreens, and                                                               
Safeway stores.   To comply with current law that  does not allow                                                               
the use  of a subdelegate  for any purchase, Alaska  Prepaid Card                                                               
must also contract  with each individual location.   In addition,                                                               
current  law requires  Alaska Prepaid  Card  to carry  a bond  to                                                               
include Western Union and each store, which is expensive.                                                                       
CHAIR  OLSON asked  how much  card users  pay in  fees to  Alaska                                                               
Prepaid Card.                                                                                                                   
MS. ANSELM said she will provide that information.                                                                              
REPRESENTATIVE  HUGHES inquired  as to  whether streamlining  the                                                               
process would reduce the user fees.                                                                                             
MS. ANSELM said it may.                                                                                                         
5:04:15 PM                                                                                                                    
CHAIR OLSON asked  whether "cash back" is a  different [user fee]                                                               
5:04:34 PM                                                                                                                    
MS.  ANSELM  offered  to  provide  a  summary  of  service  fees.                                                               
Returning to the treatment of  subdelegates, she said the process                                                               
proposed by the  bill allows Alaska Prepaid Card  to maintain its                                                               
license,  and   Western  Union   Financial  Services   remains  a                                                               
delegate;  however,  Alaska  Prepaid  Card  would  enter  into  a                                                               
separate  contract  with  Western  Union to  create  a  licensee-                                                               
delegate  relationship,  and  thereby utilize  the  delegates  of                                                               
Western Union without separate contracts  [slide 10].  The result                                                               
would be that the aforementioned  Olive Garden card does not need                                                               
a  delegate, licensee,  or subdelegate,  and  the VISA/Green  Dot                                                               
card would be  a reloadable card, which requires  an MSB licensee                                                               
or  delegate to  issue and  sell, and  requires an  MSB licensee,                                                               
delegate, or  subdelegate to  reload [slide  11].   She continued                                                               
with the  presentation, noting that slide  12 listed definitions,                                                               
and  slide  13 listed  the  sections  of  HB  271 which  will  be                                                               
introduced along  with a committee  substitute for the bill.   In                                                               
conclusion, Ms.  Anselm informed  the committee that  since 2009,                                                               
the  division has  issued 18  MSB final  orders, the  majority of                                                               
which are  related to unlicensed  activity by  unlicensed parties                                                               
engaging  in money  transmission or  currency exchange  in Alaska                                                               
[slide 14].  Furthermore, the division guards  against fraudulent                                                               
activity, including that instigated by out-of-state MSBs.                                                                       
CHAIR OLSON questioned whether the  division has reciprocity with                                                               
other states in this regard.                                                                                                    
MS. ANSELM said yes.                                                                                                            
5:07:44 PM                                                                                                                    
REPRESENTATIVE   COLVER  asked   whether   there  are   reporting                                                               
requirements on fraudulent  activity in order to  assess "how big                                                               
the problem is."                                                                                                                
MS. ANSELM assured the committee  that the division is in contact                                                               
with  the Financial  Crimes  Enforcement  Network (FinCEN),  U.S.                                                               
Department  of   the  Treasury,  and  other   state  and  federal                                                               
REPRESENTATIVE HUGHES  directed attention  to slide 3,  and asked                                                               
for an  example of who  is affected by the  out-of-state business                                                               
MS. ANSELM  explained that  right now,  out-of-state MSBs  have a                                                               
statutory  advantage that  the bill  would  repeal, thus  out-of-                                                               
state MSBs would pay the same amount as Alaska MSBs.                                                                            
REPRESENTATIVE  HUGHES  asked how  much  more  doubling the  fees                                                               
would garner the state.                                                                                                         
MS. ANSELM  advised that the  fees have  not been assessed.   The                                                               
intent  is  for  the  division   to  better  cover  the  cost  of                                                               
regulating  the industry,  and she  offered to  compare the  fees                                                               
collected now and  what would be expected under the  bill.  Slide                                                               
15 illustrated the following mission statements:                                                                                
              Division of Banking and Securities:                                                                               
      Protect consumers of financial services and promote                                                                       
     safe and sound financial systems                                                                                           
          Department of Commerce, Community & Economic                                                                          
     Promote a healthy economy, support strong communities,                                                                     
     and protect consumers in Alaska                                                                                            
[HB 271 was held over.]                                                                                                         

Document Name Date/Time Subjects
HB271 Ver A.PDF HL&C 4/1/2016 3:15:00 PM
HB 271
HB271 Transmittal Letter.pdf HL&C 4/1/2016 3:15:00 PM
HB 271
HB271 Sectional Analysis.pdf HL&C 4/1/2016 3:15:00 PM
HB 271
HB271 Fiscal Note-DCCED-DBS-11-30-15.PDF HL&C 4/1/2016 3:15:00 PM
HB 271
HB271 Supporting Documents White Paper.pdf HL&C 4/1/2016 3:15:00 PM
HB 271