Legislature(2003 - 2004)
04/06/2004 02:04 PM L&C
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
SB 272-DEFERRED DEPOSIT ADVANCES (PAYDAY LOANS) CHAIR CON BUNDE announced SB 272 to be up for consideration. SENATOR RALPH SEEKINS moved to adopt CSSB 272(L&C), version /D, as the working document. There were no objections and it was so ordered. MR. RICHARD SCHMITZ, staff to Senator John Cowdery, said the CS puts the bill in alignment with the House version. MS. MARIE DARLIN, Coordinator, Capital City Task Force, AARP Alaska, noted its letter in the committee packet that lays out their concerns. She explained that the task force has worked in partnership with The Consumer Federation of America, the Consumer's Union, and the National Consumer Law Center over several years and has developed a model bill, which was sent to the committee. That is more of what we would like to see in the bill. Among our recommendations are that we [indisc.] no less than two weeks for each $50 owed on the loan. And a consumer shall be permitted to make partial payments in amounts equal to no less than $5 increments on the loan at any time without charge. The maximum amount of the deferred deposit loan shall not exceed $300. I realize right now they have a limit of $500 and the bill wants to increase it to $1,000, which we definitely object to. We are sure the committee is concerned with consumer protection, as we are and that is our main concern.... If the term of the loan is no less than two weeks per $50, consumers will have a better chance of paying off the loan rather than defaulting and possibly taking court action or having to renew the loan again at exorbitant rates. We understand that the new version of the bill retains the maximum amount of $500 rather than increasing available loan to $1,000, but we believe Alaska should reduce the available amount from $500 to $300. These are monies paid out of someone's pocket. So it is interest. If you and I do not pay off our credit cards, we pay interest. If I take out a payday loan and pay an exorbitant fee, much higher than interest on a credit card, it's still money and a significant amount of money and out of my pocket. When credit card companies can make a handsome profit on interest rates of 18% to 23%, why cannot a payday loan outfit make a profit with an interest rate or fee that does not go beyond 36%? Our model law also allows for an administrative fee of no more than $5 per loan, no matter how much the loan is for. Some states have determined that payday lenders should not be allowed to exist in their state. AARP does not argue that they should be banned; we only argue that the interest rate should be no more than 36% APR. The available loan amount should not be more than $300 and the borrower should be allowed to make partial repayment. If the consumer has more than $300 in outstanding payday loans from one or more lenders, they should be prohibited from taking out any additional loans from any payday lending organization. This is consumer interest to us, but we believe this is in everybody's best interest. MR. MARK DAVIS, Director, Banking and Securities and Corporations, Department of Community & Economic Development (DCED), said he is ready to take over regulation of this industry that is currently unregulated. Forty-four states do regulate it. "We're basically in favor of regulation in terms of making sure that some rules are followed." MR. DAVIS said there is a fiscal note for one more banking examiner. He supported a $500 limit; any greater amount would make it incompatible with the current Small Loan Act. CHAIR BUNDE asked how he could make this issue revenue neutral. MR. DAVIS replied that industry has told him that there are 10 companies doing business in the state; he found 30 locations between Anchorage and Fairbanks that would have to be checked. Basically, another examiner would be needed to do that. He added that the current four examiners work now to stay on schedule with the state charter banks and credit union. CHAIR BUNDE clarified that he wasn't suggesting doing without another staff person, but was looking for revenues with which to pay him. MR. DAVIS answered that he has asked for a registration fee and an hourly rate for the examiners. "We would at least break even." CHAIR BUNDE asked if he would break even under the existing CS. MR. DAVIS replied that he wanted to charge $75 per examiner hour on location to make the bill revenue neutral. SENATOR FRENCH said the charge on the loan would be expressed as a specific value - $15 per $100. MR. DAVIS said he was only trying to make consumers aware of how much it cost them to borrow money. MR. ED SNIFFEN, Assistant Attorney General, Department of Law (DOL), said he and Cindy Drinkwater, DOL, worked with the Mr. Davis and the payday lenders to craft the CS. A section in the bill already requires that APRs be disclosed to consumers in the form of a placard in a payday lenders shop that identifies the cost per $100. It is also expressed in the form of an annual percentage rate, which is required under the Truth in Lending Act. Another provision says that other federal requirements impose other disclosure obligations on a payday lender, as well. Payday lenders are not currently regulated and this bill goes a long way to removing the problems with these kinds of transactions. He agreed with Mr. Davis that reducing the loan amount to $300 from $500 would be more trouble than it's worth to be consistent with the Small Loan Act. He noted that the bill has a limit of $15 and a $5 origination fee or 15 percent of the amount loaned. "We put a 15 percent limit in there so if someone wanted to borrow $150, they wouldn't get charged for the $200 cash advance fee. It would be something in between - maybe $22.50." MR. SNIFFEN warned that this is still a fairly significant interest rate. Some states allow more, some less; this bill is in the middle of what is allowed in other states. It's been our experience that what gets consumers in trouble with these kinds of transactions is not the interest rate. It's not the $15 per $100 that creates the problem. The problem comes in poor financial management from the get-go, which brings consumers to these types of lenders in the first place. So, I don't know that undue emphasis needs to be directed toward the interest rate as a percentage or even as a raw dollar figure.... The problem, of course, is a lot deeper than that.... He did not object to allowing partial payments and language could be inserted to that effect, but he wanted to hear from the payday lenders on whether or not that would be problematic. CHAIR BUNDE said he was running out of time today and asked him to work with the bill's sponsor to address that question, along with the issue of trying to make this revenue neutral. MS. ANGELA LISTON, Alaska Catholic Conference, supported regulating the payday loan industry. The Catholic Church, of course, has had a long history of opposing exorbitant interest rates and we're concerned that this type of lending, which was once considered a social problem, is really skyrocketing, not just here in Alaska, but nationally. The people who use these loans are the working poor. If someone was not desperate, they wouldn't pay $15 to borrowers $100 for two weeks. These borrowers are people that don't have other options. In most states, payday lenders make their money on the renewals or what is commonly called rollovers. In California, borrowers average 11 loans a year. In Illinois, they average 13 loans a year. This trend doesn't suggest a consumer service, but it does suggest that the industry moves people into increasing chronic and hopeless debt and every two weeks they're incurring another $15 fee for that same $100 loan. Happily, in Alaska, we learned from an industry representative at a hearing in the House that that's not the trend here. In fact, out of 26,000 loans, one industry rep says that there's 24,000 customers, which is an average closer to one loan per person. If that's the case, to make this, a bad situation, better, we would like to propose that we extend the term of the loan. Right now, it's a two weeks term and we would propose that it become a 30- day term, giving people one extra option for another paycheck to get that loan paid off and we also absolutely support the idea of partial payment.... For the industry it would result in fewer defaults and it would have no impact on the industry since, in fact, they have 24,000 people who are getting these loans. If the industry is making its money off the rollovers, then we do have problems, again, because we have to admit that these constant rollovers and these fees exploit the working poor. MS. JOELLE HALL, Eagle River resident, said she is a military wife and served in the Army from 1983 - 1989; her husband has many years of military service, as well. She wanted to relate the military applications of this bill. "These payday lenders tend to ring around military installations and from my years moving around, I know this to be the case." Her husband is a Sergeant-Major at Fort Richardson and she thought at first to make these places off limits if they were operating without the CS. I feel it's very important to regulate these organizations. If we can't make this kind of lending illegal, then we have to regulate it as best as we can. My hope is that we can make this bill work better for the military clients who I know consume an inordinate number of these payday loans. The 30-day limit that was mentioned earlier would be a great benefit. Soldiers and airmen have the option of getting paid every 15 days, but some of them only get paid every 30 days. So, extending it to a 30-day limit would greatly allow those soldiers and airmen to make their payments on time. In addition, the partial payment question seems to be one of just decency. You should be able to pay a part of your principle any time you take out a loan. It's the way we do business in America with virtually every other kind of lending. I read in the minutes that industry believes they are providing a service to poor people by providing these loans and I would just urge this committee to remember that some of the people who are procuring these loans are actually performing a real service for their country and we should be thinking about them. If the industry is really interested in providing a service, the least they can do is make these loans a little bit more compatible for their clients who wear a uniform. CHAIR BUNDE responded that he remembered being a GI who had fellow GIs who wanted to borrow $10 for a $20 pay back. If they are limited commercially, their creativity would remain the same. MS. HALL responded, "I believe legalized and illegal are different things." CHAIR BUNDE thanked her for her testimony. He wanted the sponsor and industry to address the amendments. There being no further business to come before the committee, he adjourned the meeting at 3:28 p.m.