Legislature(2003 - 2004)

04/27/2004 09:02 AM FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                                                                                                                                
     CS FOR SENATE BILL NO. 272(L&C)                                                                                            
     "An  Act relating  to certain  monetary advances  in which  the                                                            
     deposit or  other negotiation of checks to pay  the advances is                                                            
     delayed  until a  later date;  and providing  for an  effective                                                            
     date."                                                                                                                     
                                                                                                                                
                                                                                                                                
This  was the first  hearing  for this  bill in  the Senate  Finance                                                            
Committee.                                                                                                                      
                                                                                                                                
Co-Chair Wilken  noted that this legislation, which  is sponsored by                                                            
the Senate Rules  Committee, would require the Division  of Banking,                                                            
Securities  and Corporations, Department  of Community and  Economic                                                            
Development  "to  license  and  supervise  Alaska's  payday  lending                                                            
establishments."  He  noted that,  "39 states  and  the District  of                                                            
Columbia  specifically  regulate  this  service."  The  Version  23-                                                            
LS1516\U committee substitute is before the Committee.                                                                          
                                                                                                                                
RICHARD SCHMITZ,  Staff to  Senator John Cowdery,  the Chair  of the                                                            
Senate Rules Committee,  stated that this legislation would regulate                                                            
"payday  lenders" which  is a term  used to  identify business  that                                                            
lend less  than $500 on  short-term loan  basis, typically  for less                                                            
than two weeks.                                                                                                                 
                                                                                                                                
ED SNIFFEN,  Assistant  Attorney General,  Commercial/Fair  Business                                                            
Section, Civil  Division (Anchorage),  Department of Law,  testified                                                            
via teleconference  from an offnet site in Anchorage  and noted this                                                            
bill  would  regulate the  payday  lender  industry  by instituting                                                             
"fairly  significant"  licensing  requirements   including  bonding,                                                            
auditing, and regulatory  authority. The issue being most debated in                                                            
this  bill "deals"  with "the  fundamental  principal  of how  these                                                            
loans" would  originate. Payday lenders  have operated in  Anchorage                                                            
"for quite some time" and  typically charge $15 in interest per each                                                            
$100 loan amount.  The Version "U" committee substitute  would limit                                                            
payday lending  to a maximum of $500 and would allow  the loan to be                                                            
rolled over  two times as compared  to the $1,000 maximum  and four-                                                            
time rollover proposed in the original version of the bill.                                                                     
                                                                                                                                
Mr. Sniffen  explained  that a rollover  occurs when  a loan  is not                                                            
paid when  due and is "rolled  over" for another  two weeks  with an                                                            
additional  $15 per  $100 charge levied.  A provision  in this  bill                                                            
would require  a payday lender to offer a borrower  the option of up                                                            
to a six-month  payment plan at no  additional fee or charge  at the                                                            
conclusion of a rollover  period were a loan unpaid at that time. He                                                            
expressed  that  "significant   consumer  protection"   language  is                                                            
incorporated  into the  bill to  "provide protection  that does  not                                                            
currently exist."                                                                                                               
                                                                                                                                
Mr. Sniffen  allowed  that such things  as a  pending lawsuit  being                                                            
advanced by Alaska Legal  Services against payday lenders challenges                                                            
"the legality  of these transactions  under Alaska Usery  Statutes,"                                                            
has  caused  confusion  regarding  this  legislation.  The  Banking,                                                            
Securities  and Corporations  Division  "is  not as  optimistic"  as                                                            
Alaska  Legal Services  is about  the outcome  of  that lawsuit.  He                                                            
stated   that,  "there   is  no   current  indication   that   these                                                            
transactions are currently  illegal," and he reminded that they have                                                            
been available "for quite some time."                                                                                           
                                                                                                                                
Mr. Sniffen  commented  that while  some groups  are furthering  the                                                            
adoption of  the Model Act, no other  state has adopted it  or would                                                            
likely  be  adopting it  in  this  regard, as  "it  contains  fairly                                                            
significant   restrictions   that   would  essentially   put   these                                                            
businesses out of business."                                                                                                    
                                                                                                                                
Mr. Sniffen  pointed  out that  this legislation,  when compared  to                                                            
regulations of the 44 states  that currently regulate this industry,                                                            
would be viewed  as "one of the more  restrictive" in that  it would                                                            
implement a  monetary limit and a  minimum two-week lending  period.                                                            
In addition,  this legislation  is the only  one that would  require                                                            
lenders  to  provide  the  aforementioned  payment  plan  option  to                                                            
borrowers.                                                                                                                      
                                                                                                                                
Mr.  Sniffen also  communicated  that  there  is opposition  to  the                                                            
lending  fee   which  would  be  considered   "enormous,"   were  it                                                            
calculated in terms of  an annual percentage rate (APR). The $15 fee                                                            
for a $100 loan combined  with the five-dollar origination fee would                                                            
amount to a  520-APR; a $300 loan  would equate to a 433-APR;  and a                                                            
$500 loan  would equate to  a 416-APR. He  noted that these  figures                                                            
would not change  were a rollover to occur, as both  the fee and the                                                            
amount  of time  would be  doubled. The  largest fee  charged on  an                                                            
annual  basis, he shared,  would therefore  equate  to a maximum  of                                                            
520-APR. While  some states have implemented  a 60-percent  interest                                                            
rate cap, "most  states do not" have  a specified limit and  the fee                                                            
being charged in Alaska  could be considered to be "at the low end."                                                            
                                                                                                                                
Mr. Sniffen conveyed  that the Division's view is  that, rather than                                                            
the $15  fee creating  consumer  harm, financial  management is  the                                                            
issue. Extending the length  of the loan from 14-days to 30-days has                                                            
been discussed  as it would  "half the interest  rate … the  lenders                                                            
might have  some problems  with that  and it  would effectively  put                                                            
them out of  business." He stated  that the industry could  speak to                                                            
that concern.                                                                                                                   
                                                                                                                                
Mr. Sniffen discounted  comparisons of the payday lender industry to                                                            
the credit  card industry,  as,  he contended,  they are  completely                                                            
different  kinds   of  loans.  In  summary,  this  legislation   was                                                            
carefully  developed after  weighing  the input  from the  industry,                                                            
consumer  groups, and other  interested parties.  In conclusion,  he                                                            
stated that the Department supports the legislation.                                                                            
                                                                                                                                
Senator   Bunde  asked   regarding  the   bill's  business   license                                                            
requirements;   specifically   how  the  licensing   fee  would   be                                                            
determined.                                                                                                                     
                                                                                                                                
Mr. Sniffen understood  that the licensing fee could total a maximum                                                            
of $2,000. The Division  of Banking, Security and Corporations would                                                            
determine the amount.                                                                                                           
                                                                                                                                
Senator Bunde asked that the fee structure be further explained.                                                                
                                                                                                                                
MARK   DAVIS,   Director,   Division  of   Banking,   Securities   &                                                            
Corporations,  Department  of Community  and  Economic Development,                                                             
testified via  teleconference from  an offnet site in Anchorage  and                                                            
explained that  a biannual, maximum $1,000 per year  fee, or a total                                                            
two-year fee  of $2,000, could be  levied as depicted in  Section 3,                                                            
Sec. 06.50.080, page five, lines 12 through 16 of the bill.                                                                     
                                                                                                                                
Senator  Bunde asked  whether  these fees  would  offset the  actual                                                            
costs associated with managing the program.                                                                                     
                                                                                                                                
Mr. M. Davis responded  that these fees "would capture approximately                                                            
80-percent"  of the Department's associated  licensing expenses.  He                                                            
noted that the Department  was concerned that these businesses would                                                            
not pay  a higher  fee  during the  initial implementation  of  this                                                            
legislation.                                                                                                                    
                                                                                                                                
Senator Bunde,  noting that  there are not  an exorbitant number  of                                                            
payday lenders operating  in the State, asked whether the Department                                                            
could enforce the fee or force the business to close.                                                                           
                                                                                                                                
                                                                                                                                
SFC 04 # 96, SIDE B 04:49 PM                                                                                                    
                                                                                                                                
                                                                                                                                
Mr.  M.  Davis  continued  that  this  legislation  would  serve  to                                                            
characterize  these  businesses  as financial  institutions  and  as                                                            
such, once they were licensed,  their license must be maintained. As                                                            
such, the  powers of the  State's banking  codes would be in  effect                                                            
and the State "could prevent them from being in operation."                                                                     
                                                                                                                                
Senator Bunde  asked, therefore, the reason that the  fees could not                                                            
recoup the overall expense associated with the program.                                                                         
                                                                                                                                
Mr.  M. Davis  expressed  that were  the fee  higher  than a  $2,000                                                            
biannual  fee,  it  would serve  to  discourage  the  industry  from                                                            
applying for  a license. This would  prevent the State from  getting                                                            
"a handle on this … completely unregulated industry".                                                                           
                                                                                                                                
Senator Bunde  voiced that while he supports this  legislation as it                                                            
would  regulate the  industry, the  State should  not subsidize  20-                                                            
percent of the cost of its licensing program.                                                                                   
                                                                                                                                
Senator Bunde  suggested that an amendment  be developed  to address                                                            
this  concern.  Other  licensing  fees,  such as  those  charged  to                                                            
barbers and hair  dressers, fully compensate the State  for the cost                                                            
of their licensing programs.                                                                                                    
                                                                                                                                
Co-Chair Wilken  asked that Senator Bunde work with  the Division to                                                            
address this concern.                                                                                                           
                                                                                                                                
Senator  Bunde  stated  that  rather than  serving  to  legalize  an                                                            
illegal  industry as  some people  "have been  mislead" to  believe,                                                            
this legislation  would establish  a licensing program for  a legal,                                                            
but un-regulated  industry that has been operating  in the State for                                                            
a significant  amount  of time.  Furthermore, while  the bill  would                                                            
regulate the industry,  it would not promote it, would not establish                                                            
a new industry,  and does not "do  anything to prohibit people  from                                                            
making poor financial judgment."                                                                                                
                                                                                                                                
DEBORAH FINK,  Representative, Cash  Alaska, provided the  Committee                                                            
with a chart titled "Comparison  of CSSB272 to Current Law" [copy on                                                            
file] that  compares the provisions  of the proposed legislation  to                                                            
current industry  practices. Agreeing that misinformation  about the                                                            
industry does  exist she affirmed Senator Bunde's  remarks that this                                                            
legislation  would serve  to regulate  the industry  rather than  to                                                            
legalize  the loans.  Approximately  twenty  payday  lenders in  the                                                            
Municipality  of Anchorage  area operate  under the  Small Loan  Act                                                            
Exemption,  which  was  established  in  the  State  in  1955.  This                                                            
Exemption  originally  specified that  a maximum  of  $100 could  be                                                            
loaned. The  intent of the Act was  to exempt these loans  "from any                                                            
kind  of interest"  or term  limit because  the  Legislature at  the                                                            
time, realized  that these  loans were expensive  to provide  due to                                                            
the fact that  they involved "a high  risk population." In  1980, as                                                            
the result of an Attorney  General challenge, a Superior Court judge                                                            
ruled  that the  original  "Legislative  intent of  exempting  those                                                            
loans from limits  and interest was exactly what they  meant to do."                                                            
Shortly  after that ruling,  the Legislature  increased the  maximum                                                            
loan  amount  to  $200,  and  in  1993,   "after  a  great  deal  of                                                            
discussion", the amount was increased to $500.                                                                                  
                                                                                                                                
Ms.  Fink expressed  that,  while the  industry has  been  "happily"                                                            
operating  for numerous years  without regulation,  due to  the fact                                                            
that it is a very  popular and busy business, "it  is probably time"                                                            
that regulations  be enacted. She  characterized the loans  as being                                                            
"real  simple and  real small"  loans that  range from  $100 to  the                                                            
average of $300. They are  designed to be paid off within two weeks.                                                            
Were this legislation enacted,  a $300 loan would cost an individual                                                            
a total of  $350, including the five-dollar  origination  fee, which                                                            
would be  a one-time fee  that would be calculated  "as part  of the                                                            
interest".  She further clarified  that the five-dollar origination                                                             
fee would not  be re-charged were the loan to roller  over. This and                                                            
some other incorrect information  are included in a letter from AARP                                                            
[copy not provided] that was submitted in regards to this bill.                                                                 
                                                                                                                                
Ms. Fink  stated that  this legislation  would serve  to regulate  a                                                            
completely  un-regulated  industry;  would  align the  maximum  loan                                                            
amount of $500  with that currently in effect by the  Small Loan Act                                                            
Exemption;  would limit the  rollover to two  times rather  than the                                                            
current  unlimited  amount; would  establish  licensing provisions;                                                             
would establish  a licensing fee;  and other provisions.  She voiced                                                            
support for the bill in its current form.                                                                                       
                                                                                                                                
Senator Bunde  asked Ms. Fink her position regarding  increasing the                                                            
licensing fee to more than $1,000 per year.                                                                                     
                                                                                                                                
Ms. Fink  stated that  in order  to provide the  service, a  license                                                            
would be  required, and  due to the  fact that  this is a  "healthy"                                                            
industry, businesses would pay it.                                                                                              
                                                                                                                                
Senator Hoffman  asked whether  requiring both  a maximum number  of                                                            
days for a loan term in  addition to the specified minimum loan term                                                            
would be beneficial.                                                                                                            
                                                                                                                                
Ms. Fink responded  that only the minimum loan term  is specified in                                                            
the bill in response  to consumer groups' concerns  specific to that                                                            
aspect.                                                                                                                         
                                                                                                                                
STEVE CLEARY,  Executive Director,  Alaska Public Interest  Research                                                            
Group (AKPIRG),  testified via teleconference  from an offnet  site,                                                            
and stated  that the organization  does not support the bill  in its                                                            
current form,  as it would  serve "to legalize  interest rates  that                                                            
are unfair  and predatory  to vulnerable  consumers." He  referenced                                                            
Mr.  Sniffen's  remarks  relating  to  problems  with  individuals'                                                             
financial  management and  noted that  his organization  is  working                                                            
with financial  institutions  in the State  in order to educate  and                                                            
encourage  people   to  establish  savings  and  bank   accounts  by                                                            
utilizing  such  things  as their  Permanent  Fund  Dividend  checks                                                            
rather  than  opting  to  use  payday  loans.  Usery  Statutes  have                                                            
historically  been  established  to  protect  consumers  from  being                                                            
"gouged  or loan sharked,"  and  he noted that  regulations  prevent                                                            
banks  and other  financial  entities  from charging  high  interest                                                            
rates.  He   argued  that  the  interest   rates  allowed   by  this                                                            
legislation "are not commensurate  with other" established financial                                                            
industry rates.  The State of Georgia has implemented  a maximum 60-                                                            
percent  APR interest  rate  on its  payday loan  industry:  similar                                                            
provisions  would be  preferred "to  just letting  the industry  run                                                            
wild." Noting  Ms. Fink's  position that the  $15 per $100  loan fee                                                            
would  be at the  limit  of where  her business  could successfully                                                             
operate, he  reminded the Committee  that this is the fee  currently                                                            
being utilizing. Therefore,  the five-dollar origination fee allowed                                                            
under  the   proposed  legislation,   would  be  additional   money.                                                            
Financial  institutions  are  required  to adhere  to  the Truth  in                                                            
Lending  Act in  that they  must  depict their  loans  using an  APR                                                            
basis. Were  one to examine  payday lenders  application  paperwork,                                                            
the  APR  listed  on  them  would  reflect  interest  rates  in  the                                                            
thousands of percent. Most  payday loan consumers need the money and                                                            
thereby are subject to  "outrageous interest rates." Noting that the                                                            
payday loan  industry attests  that lower  interest rates would  put                                                            
them out  of business,  he suggested  that a  compromise be  reached                                                            
that, rather  than changing  the amount  of money  to be  collected,                                                            
would  increase,  by two  weeks, the  amount  of time  in which  the                                                            
consumer  could repay the  loan. He stated  that this would  provide                                                            
people, such as those who  are only paid monthly, a better chance to                                                            
repay  the loan.  Therefore, he  asked that  a 30-day  loan term  be                                                            
considered.                                                                                                                     
                                                                                                                                
Mr. Cleary stated  that while the payday loan industry  is on record                                                            
that they could  not afford lengthening  the payback term  they have                                                            
not  provided  a reason  as  to why  it would  be  unaffordable.  He                                                            
recalled  Ms. Fink's testimony  before the  Senate Labor &  Commerce                                                            
Committee in which she  stated that most people come in for just one                                                            
loan. Therefore,  he questioned  why a 30-day  loan period  would be                                                            
unacceptable.                                                                                                                   
                                                                                                                                
Mr. Cleary  declared  that a loan  rollover "is  the most  dangerous                                                            
part of  this," as were a  person to rollover  a $300 loan,  without                                                            
paying any portion  of it off, six times, they could  owe as much in                                                            
interest  as they  do  in principle."  This,  he declared,  is  when                                                            
consumers "really  get gouged by these and really  get in a cycle of                                                            
debt that is bad  for our society and is not good  for the business"                                                            
and  could  tie  up Court  time.  Therefore,  in  order  to  provide                                                            
protection  to these "vulnerable  consumers,"  the Committee  should                                                            
consider reducing  the allowable number  of loan rollovers  from two                                                            
to one. In  summary, he asked that  these amendments be considered,                                                             
and were they not, the Committee should not support the bill.                                                                   
                                                                                                                                
PAT LUBY, Advocacy  Director, AARP Alaska, testified  in Juneau, and                                                            
stated that  AARP participated  years prior,  in the development  of                                                            
the  Model  Act legislation.  The  problem  associated  with  payday                                                            
lenders is  that loans cannot be paid  off incrementally;  they must                                                            
be paid off  in entirety. While people  are allowed to make  partial                                                            
payments on their  credit card balances, payday lenders  require the                                                            
entire amount to be paid  or the entire balance must be rolled over.                                                            
The  original  bill would  have  established  a higher  payday  loan                                                            
amount of $1,000 and four  rollovers. He agreed with Senator Bunde's                                                            
and others'  comments  that "this is  an industry  that ought  to be                                                            
regulated," as  many people are at risk. He allowed  that the people                                                            
who use payday  lenders might not be the State's most  sophisticated                                                            
citizens; they are people  who need money in a hurry; and who might,                                                            
two weeks later,  continue to be in  financial trouble and  would be                                                            
required to  roll the loan over. He  pointed out that were  the two-                                                            
time rollover language  in this legislation adopted there is nothing                                                            
that  would prevent  an  individual  from  going to  another  payday                                                            
lender  and  borrowing  from  them.  He  noted  that  the  State  of                                                            
Arizona's regulations  require a payday lender to  determine whether                                                            
a consumer already has  outstanding payday loans by simply calling a                                                            
company called  Telecheck. He stated that credit card  companies are                                                            
profitable  while operating at an  18-APR; therefore, he  questioned                                                            
the reason  that payday lenders  must have  a 400-percent profit  in                                                            
order to be successful.                                                                                                         
                                                                                                                                
Mr. Luby  characterized this  legislation as  an industry bill,  and                                                            
stated  that the fact  that the  industry is  requesting  regulation                                                            
should raise a "red flag."                                                                                                      
                                                                                                                                
Mr.  Luby  referenced  the  Division  of  Banking,   Securities  and                                                            
Corporation's  fiscal note that projects  that the number  of payday                                                            
lenders is expected to  substantially increase. As a result, two new                                                            
staffing  positions  would  be  required  in order  to  license  and                                                            
investigate the  industry. He argued however, that  this legislation                                                            
would  create  "a  regulatory  environment"  that  would  discourage                                                            
rather than encourage new  operators. This would serve to assist the                                                            
businesses  that currently support  the regulation of the  industry.                                                            
Were the  number of  payday lenders  to not  increase as  projected,                                                            
insufficient  funds  would  be  collected  to  offset  the  cost  of                                                            
operating  the  program.   Therefore,  rather  than   assisting  the                                                            
consumer, this  legislation would  serve to enhance the position  of                                                            
the businesses supporting this bill.                                                                                            
                                                                                                                                
Mr. Luby  stressed that AARP  agrees that  this is an industry  that                                                            
must be regulated.  AARP attorneys are participating  in the pending                                                            
Alaska Legal Services lawsuit,  and he voiced optimism that the suit                                                            
could be  won. The  Judge hearing  that case  has already  indicated                                                            
that he  would wait to see  what the Legislature  would do,  as were                                                            
this legislation  enacted,  no lawsuit  would ensue.  He asked  that                                                            
action on  this bill be  delayed until after  the Court proceedings                                                             
conclude.  He stated  that, at that  time, were  the Legislature  to                                                            
determine that  further regulations should be developed,  AARP would                                                            
be willing to  participate in the endeavor to assure  that consumers                                                            
are adequately protected.                                                                                                       
                                                                                                                                
ANGELA   LISTON,   Representative,   Alaska   Catholic  Conference,                                                             
testified  via teleconference   from an  offnet site  and  supported                                                            
Senator  Bunde's comments  that  this is  an industry  that must  be                                                            
regulated. However, she  spoke against the level of fees proposed in                                                            
the legislation  "on behalf of the working poor who  find themselves                                                            
desperate  for cash" in order  to pay for  such things as rent,  car                                                            
repairs,  and  unforeseen  medical  needs.  She  strongly  supported                                                            
AKPIRG's  suggestion that  this legislation  be amended  to allow  a                                                            
minimum 30-day loan term  as it might allow a person to repay a loan                                                            
without being  required to  roll the loan  over. This might  help to                                                            
prevent  the  increasing  burden  of chronic  debt.  She  urged  the                                                            
Committee  to  emphasize with  the  working  poor and  realize  that                                                            
regulation of  this industry would be "a huge step  in promoting the                                                            
common  good." Allowing  these  interest rates  to  continue "is  an                                                            
exploitation of the working poor."                                                                                              
                                                                                                                                
JIM  DAVIS,  Representative,  Alaska  Legal  Services  Corporation,                                                             
testified via teleconference  from an offnet site and expressed that                                                            
"Alaska  Legal Services represents  low income  Alaskans in  various                                                            
civil  matters including  consumer  law matters."  He addressed  six                                                            
issues including the pending  lawsuit that Alaska Legal Services has                                                            
filed  in Anchorage  on behalf  of  a client  that is  based on  the                                                            
premise  that  a business  must  operate  under  the  State's  Usery                                                            
Statutes  unless  explicitly  exempted  from  the  Statute.  Because                                                            
payday lenders  are not exempt, they  are in violation of  the Usery                                                            
Statute law. The  Superior Judge hearing this case  understands that                                                            
the industry  advanced this  legislation in  an attempt to  halt the                                                            
lawsuit. Therefore,  the Judge ruled that he "would  not rule on the                                                            
legality of the  lawsuit until after the Legislature  adjourned" due                                                            
to concern that, were the  Court to rule that payday lenders were in                                                            
violation  of the  law, the  ruling  would be  moot as  it would  be                                                            
argued  that  the  Legislature  changed  the  law  in  this  regard.                                                            
Therefore,  the lawsuit  is  on hold  pending this  legislation.  In                                                            
addition, this  legislation was not brought forward  until after the                                                            
lawsuit was filed.                                                                                                              
                                                                                                                                
Mr. J.  Davis submitted  that this  is not good  legislation,  as it                                                            
would allow  low income  Alaskans to carry  loans carrying  interest                                                            
rates ranging  between 400 and 1000 percent. The claim  that this is                                                            
a consumer protection  bill is questionable, as these  high interest                                                            
rates could  be argued as  otherwise. "It  is a very strange  world"                                                            
when a consumer  protection bill legalizes high interest  rates such                                                            
as  these.  This is  in  effect "loan  sharking."  He  recalled  Mr.                                                            
Sniffen's comments  that specified that "because payday  lenders are                                                            
making these loans, its  legal." He argued that on many occasions in                                                            
this State,  that has  not been the  case. He  recalled that  in the                                                            
1980s  many lenders  provided  loans by  placing  liens on  people's                                                            
permanent  fund  dividend   checks.  He  stated  that  this  was  "a                                                            
disguised transaction charging  ridiculous rates of interest against                                                            
Alaskans  and of  which was  stopped after  the Courts  ruled it  as                                                            
being illegal.                                                                                                                  
                                                                                                                                
Mr.  J. Davis  further  alleged  that  due  to "the  fact  that  Mr.                                                            
Sniffen's  department  is understaffed,"  it  has not  been able  to                                                            
present this business  practice to the Court System.  This scenario,                                                            
he  continued,  only   proves  that  Mr.  Sniffen's  department   is                                                            
understaffed  and  not  that  this practice  is  legal.  Absent  the                                                            
introduction  of this  legislation,  the Superior  Court would  have                                                            
already ruled it as being illegal.                                                                                              
                                                                                                                                
Mr. J. Davis commented  that it has been argued that  the monitoring                                                            
provisions of this legislation  would "fix the problem." The pending                                                            
lawsuit is  a testament that  the provisions  of the bill would  not                                                            
work, as  the case  involves a woman  who took  out one $500  payday                                                            
loan,  could not  pay it  back, and  had to  roll  it over  numerous                                                            
times. As a result, her  loan went into default; she was sued by the                                                            
lender,  and subsequently  lost her  case in Court.  He stated  that                                                            
this scenario regularly occurs.                                                                                                 
                                                                                                                                
Mr. J. Davis cited  a North Carolina banking entity  as stating that                                                            
"consumers  generally   take  these  loans  out  to  satisfy  sudden                                                            
financial  needs, find  themselves  unable to  meet their  budgetary                                                            
needs on their  next payday, take  additional loans, and  get caught                                                            
up on  a never-ending  cycle of  high fees and  interest." He  noted                                                            
that an Illinois  study indicated  that 77-percent of consumers  who                                                            
took these loans repeatedly  fell into the rollover scenario and got                                                            
deeper in debt.                                                                                                                 
                                                                                                                                
Mr.  J. Davis  stated  that this  legislation  would  not fix  these                                                            
problems and that limiting  the number of loans would only encourage                                                            
a borrower to go to another  payday lender. No mechanism is in place                                                            
through which,  either a payday lender  or the Division of  Banking,                                                            
Securities  and Corporations  would  be able to  determine how  many                                                            
loans  a person  has taken  out. He  declared that  the question  is                                                            
whether the State  would desire to approve loans with  high interest                                                            
rates and allow people to get deeper in debt.                                                                                   
                                                                                                                                
Mr. J.  Davis pointed  out that the  bill does  not contain  any APR                                                            
disclosure provisions,  which are required when someone signs up for                                                            
a credit card or bank loan.  He opined that there are better options                                                            
out there and  that a better bill  could be developed were  consumer                                                            
advocacy groups such as AARP involved in the process.                                                                           
                                                                                                                                
Mr. Schmitz  spoke, on behalf of the  bill's sponsor, in  support of                                                            
legislation.  During his research  on this subject, he became  aware                                                            
that  there is  a difference  between interest  rates  and fees.  He                                                            
stated that  were one to write an  insufficient fund check  on their                                                            
bank account,  the bank would typically  assess up to a $25  fee. He                                                            
declared that  perhaps an eighteen-dollar  fee would be reasonable,                                                             
as most people  who borrow are fairly  responsible and are  one-time                                                            
users.  This is contrary  to testimony  that most  consumers  are in                                                            
rollover  scenarios.  He also  stated  that consumer  protection  is                                                            
provided by the  rollover limit and payment plan option  provided in                                                            
the bill.                                                                                                                       
                                                                                                                                
Senator Bunde wished that  he "could propose an amendment that would                                                            
prohibit Alaskans  from making poor financial decisions."  He stated                                                            
that this bill  would not require Alaskans to utilize  this service.                                                            
The service  is driven by  demand. He concluded  that this  industry                                                            
has provided a service  for some time, and were it not regulated, he                                                            
assumed that an underground business might occur.                                                                               
                                                                                                                                
TIM KELLY,  Former Senator, Lobbyist  for Cash Alaska, informed  the                                                            
Committee  that the  Alaska  Legal Services  testimony  misstated  a                                                            
point of fact  as, he continued, the bill contains  three mechanisms                                                            
though which a consumer  could be notified regarding the APR: a sign                                                            
must be placed  in the business window  in this regard; there  is an                                                            
ARP disclaimer  on  the paperwork  that  the consumer  signs; and  a                                                            
federal APR  disclosure requirement  mandates that this information                                                             
must be provided to the consumer.                                                                                               
                                                                                                                                
Co-Chair Wilken ordered the Bill HELD in Committee.                                                                             
                                                                                                                                

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