Business, Labor, and Economic Development Interim Committee

law. Mr. Anderson said he believes that the Commissioner of Financial Institutions has unlawfully allowed certain credit unions to serve customers who do not have a common bond of membership and openly offer the same products to the same set of consumers as taxpaying institutions. He noted that the UBA has amended its lawsuit to allow current credit union members to remain members. He said he is concerned that if credit unions are allowed to offer the same products as banks and still maintain its tax-exempt status, in the end, it will hurt not only the retail banking business, but also state tax revenue. He distributed materials to committee members.

    Mr. Scott Earl, President, Utah League of Credit Unions, indicated that Utah Credit Unions do not have a problem with Utah banks and want to be left alone to continue to operate the way they have been for years. If the Legislature decides to remove credit unions' tax-exempt status to level the playing field with banks, it should then allow those credit unions to serve everyone. He distributed an article entitled "The 50 Most Profitable Large Community Banks."

    Mr. Ed Leary, Commissioner, Department of Financial Institutions, said that depending on the outcome of the state case, it is likely that one of the industries will bring their issue to the Legislature during the next session.

5.    Consumer Protection Involving Depository Institutions Offering Insurance - Ms. Mary Catherine Perry, Research Analyst, distributed and reviewed a handout regarding consumer protection when depository institutions offer insurance products.

    Rep. John Valentine said this issue was brought up following the passage of H.B. 427 during the 1998 General Session. He indicated that federal legislation H.R. 10 pertains to this issue. He believes the Legislature should wait and see if H.R. 10 passes before it decides what can or cannot be done regarding this issue.

    Mr. Merwin Stewart, Commissioner, Department of Insurance, stated that when banks have offered insurance in the state in the past, the department has had minimal problems and has been able to work them out. However, as banks expand further into insurance, areas in the law may need clarification. Some of the department's concerns include: 1) insurance statutes require that all assets of an insolvent insurer be available to pay claimants and creditors while bank regulations require that assets of a bank be available to protect the depositors; 2) institutions may require a consumer to purchase insurance to receive a loan; 3) the need for proper disclosure and the opportunity to compare insurance values with an independent source; and 4) insurance sales by people who have not met the fiduciary requirements of a licensed insurance agent.

    Mr. Steve Nielsen, Legal Counsel, Department of Financial Institutions, stated that the department believes in consumer protection and where there is a need, that need should be addressed. The department would be supportive of appropriate legislative action provided that action is applicable to all participants.

    Mr. Steve Baugh, Executive Director, Independent Insurance Agents, said his organization is in favor of having consumer protection safeguards built into the law, whether it be federal law or state law.

6.    Caps on Interest Rates - Ms. Patricia Owen, Associate General Counsel, distributed and reviewed a handout on the regulation of interest rates. She indicated that Utah is one of at least 16 states that do not impose limits on interest charged in consumer credit transactions.

    Rep. Wayne Harper indicated that there are six items regarding this issue he would like to have discussed in the future: 1) educating citizens in the state on how to read some of the forms in order to be aware of what interest rates are out there; 2) strengthening the unconscionability statute; 3) examining benefits and fallacies of certain caps and what it will do to the employment base; 4) clarifying, possibly statutorily, the difference between fees and charges versus the interest rate itself; 5) examining Department of Financial Institutions' enforcement; and 6) examining the strength of federal Subsection Z disclosure rules and regulations or if it would be possible to require higher levels of disclosure or clarifying language.

    Mr. George Sutton, Attorney, Utah Association of Financial Services, indicated that he feels that anyone who wants to understand the terms and charges on credit can easily find those terms out. He also stated that every consumer loan has to have a large disclosure and it has to be segregated from everything else.

    Mr. David Winder, Executive Director, Department of Community and Economic Development, indicated that the state has attractive laws for the financial services industry and consequently has attracted a number of excellent financial institutions as employers in the state. He noted that as the committee looks at some of the issues the committee is going to study, there are certain principles that he believes should apply: 1) Utah should continue to try and have the leading edge for favorable laws with respect to this industry so it will continue to attract businesses to the state; and 2) the government should not regulate rates in industries that are fully competitive.

    Mr. Ed Leary, Commissioner Department of Financial Institutions, said that if Utah is to continue to provide a hospitable environment for financial institutions, this should be reflected in its laws. In the long term, Utah's citizens need to become informed shoppers of credit and must learn to manage credit, shop for credit, and avoid pitfalls. He indicated that competition has been beneficial to the state's consumers and Utah is one of the most competitive financial services market in the country.

    Mr. Scott Earl, President, Utah League of Credit Unions (ULCU), told the committee that from the credit union's perspective, they do not believe that interest rate caps are the answer. Credit Unions believe that consumer education is the key and ULCU will be working with the department on some issues regarding consumer education in the future.

    Ms. Becky Wilks, Utah Bankers Association (UBA), informed the committee that the UBA strongly believes that education is a viable option to interest rate caps and it would like to increase its participation in education programs.

    Mr. Scott McCagno, President, Consumer Credit Counseling, stated that his agency believes in education and is the only agency that provides education free to the entire population of the state. He indicated that the lower income and the less educated population in Utah are not the only people who are declaring bankruptcy. People with a good education, good income, and good credit reports are declaring bankruptcy every day and the high interest loans they have are one of those reasons. He said that he is not in favor of a usury law, but is in favor of education.

    Ms. Whitney Rearick, Utah Issues, stated that she does not feel that a cap on interest rates will eliminate competition. .

    Ms. Brenda Bell related her experience of taking out a second mortgage loan at a 36% interest rate in order to keep her house. She stated that there should be more voices for consumers.

    Mr. Wallace Jensen, Vice President, City Bank, noted that interest rate caps will not protect the citizens of this state. All interest rate caps will do is to determine where the credit that is made available within that state comes. It is critical to find ways to educate the state's population and to use existing laws.

    Ms. Deda Steed, member of the Salt Lake City Council and Jedi Women, suggested that the Legislature look at altering the loan process to make it more consumer friendly, easier to understand, and consistent for all lenders. She also suggested that there is a need for more consumer counseling and she urged the committee to provide more education programs.

    Mr. Mark Zupon, President, Providian Bank, said that interest rate caps are not the answer.

    Sen. Buhler suggested that some legislators, the Commissioner of Financial Institutions, and the Department of Community and Economic Development meet together to see what they can do to fine tune the state's laws, not only to keep the financial services industry that Utah now has, but to foster more growth in the state. Rep. Knudson indicated that the chairs would follow-up on this suggestion.

     MOTION: Rep. Adair moved to adjourn the meeting at 5:00 p.m. The motion passed unanimously. Sen. Waddoups, Rep. Johnson, Rep. Bryson, and Rep. Zolman were absent for the vote.