MARCH 17, 2017 – Wednesday afternoon, the Alabama House of Representatives approved House Bill 263, the association’s top legislative priority for the 2017 Regular Session, by a vote of 97-0. As has been discussed in previous issues of this publication, HB 263 clarifies a complicated income tax regulation that applies to multi-state financial institutions. Though sponsored by Rep. Ken Johnson (R-Moulton), who chairs the House Financial Services Committee, it was Rep. Merika Coleman (D-Birmingham) who managed the bill on the House floor. A co-sponsor of the bill, Rep. Coleman helped usher HB 263 through committee a few weeks ago and was a perfect substitute for the sponsor, who was suffering from the flu this week and unable to travel to Montgomery. The association thanks both of these leaders for their dedicated work on this bill!
Notably, HB 263 was the first bill on Wednesday’s lengthy House Special Order Calendar. That prime placement was a direct result of the support of House Speaker Mac McCutcheon (R-Monrovia) and Rep. Alan Boothe (R-Troy), who chairs the calendar-setting House Rules Committee.
Once in the Senate, the bill was assigned to the Senate Banking and Insurance Committee, which chaired by Sen. Slade Blackwell (R-Mountain Brook). Sen. Blackwell has indicated that the bill will be on the committee’s April 5th agenda. This will be the committee’s first meeting after the two-week Spring Break hiatus. Sen. Clay Scofield (R-Arab) has agreed to manage the bill in the Senate.
As a reminder, HB 263 simply clarifies a complicated DOR rule that regulates income taxes paid by multi-state financial institutions. Under the rule in question, for every single loan on its books, a bank must determine the state in which the (1) solicitation, (2) investigation, (3) negotiation, (4) approval, and (5) administration of the loan occurred. Confusingly, the loan is considered part of the bank’s property in Alabama only if a “preponderance” of these five contacts occurred in Alabama.
HB 263 changes this rule to require that evaluation of bank loans be based on (a) the location of the real property securing the loan or, (b) if unsecured, the location of the borrower. Simply put, if the property or the borrower is located in Alabama, then the loan is considered part of the bank’s Alabama property. Incidentally, this is the same method that DOR already uses to determine whether a bank’s interest income should be considered to have been earned in Alabama or elsewhere.
According to state budget experts, this bill will not directly affect current state or local government Financial Institution Excise Tax (i.e., bank income tax) receipts. But without it, banks that have heavily invested in brick-and-mortar properties throughout the state – such as bank branches, bank headquarters, operations centers and data centers – will be unfairly penalized by the regulation in question.
During the two-week Spring Break, ask your senator to support HB 263!
Other bills that might impact the state’s banking industry include the following:
HB 70 by Rep. Bill Poole (R-Tuscaloosa) lowers, with a few notable exceptions, the age of majority in Alabama from 19 years to 18 years. The bill wouldn’t change anything related to the criminal code’s “youthful offender” provisions, and it doesn’t impact the age that one can legally purchase alcohol or tobacco products. But changing the age of majority likely also changes the age at which a person can, for example, enter into a loan agreement with a financial institution. The bill has been passed by the full House and now awaits approval by a Senate committee.
HB 138 by Rep. Juandalynn Givan (D-Birmingham) and Senate Bill 110 by Sen. Cam Ward (R-Alabaster) adopt the Revised Uniform Fiduciary Access to Digital Assets Act, a national uniform law that extends the traditional power of a fiduciary to manage tangible property, including management of a person’s digital assets like computer files, web domains, and virtual currency (but not necessarily email, text messages, or social media). These bills were also introduced in 2016, and are a product of the Alabama Law Institute. In the last three years, this legislation, known as UFADAA, has been enacted in 22 states, including Tennessee and Florida. In 2017, it has already been introduced in a total of 17 states, including Alabama. Each bill has passed out of its house of origin and now awaits committee action in the second house.
HB 159 by Rep. Patricia Todd (D-Birmingham) doubles the fee required to record mortgages, deeds of trust, and other instruments of like character. Currently, the recording fee is 15 cents for every $100 of indebtedness, with 1/3 of the revenue retained by the county and 2/3 of the revenue distributed to the State General Fund. Under this bill, the recording fee would be 30 cents for every $100 of indebtedness, with 19 percent retained by the county, 35 percent allocated to the State General Fund, 23 percent to the Alabama Housing Trust Fund, and 23 percent to the Alabama Homebuyers Initiative. This is the second year in a row that this legislation has been introduced. Last year, the association joined the Alabama Realtors Association and the Alabama Homebuilders Association in opposing the bill. The positions of each of these groups, including ABA, remain unchanged.
HB 314 by Rep. Ken Johnson (R-Moulton) and Senate Bill 249 by Sen. Gerald Dial (R-Lineville) modify the Alabama Small Loan Act. Under current law, lenders licensed under the Alabama Small Loan Act can loan up to $1,000 to a single customer at a maximum monthly interest rate of $20 and for a maximum loan term of 12 months. This bill would allow these same lenders to loan up to $1,500 to a single customer, would set the maximum monthly interest rate at $26, and would set a minimum loan term of 3 months. The Financial Services Committee favorably reported the HB out of committee this week.
HB 321 by Rep. Bob Fincher (R-Woodland) proposes a constitutional amendment that, if ratified, would cap the maximum interest rate on certain consumer loans, lines of credit, and other financial products at 36 percent per year. The association, along with trade groups representing every other facet of the financial services industry, is opposed to this constitutional amendment. Even though the underlying purpose behind the bill is to limit the interest rate on payday loan transactions, the amendment would apply very broadly. What’s worse, if ratified, the interest rate cap would be enshrined in the constitution, making it nearly impossible to change should future economic conditions make it unfeasible to comply with the amendment. The association will monitor this legislation’s progress, and we have already requested that the Campaign, Constitutions and Elections Committee hold a public hearing on the bill should they decide to consider its approval.
HB 355 by Rep. Merika Coleman (D-Birmingham) and Senate Bill 279 by Sen. Shay Shelnutt (R-Trussville) allow banks and credit unions in Alabama to establish “Prize Linked Savings Accounts,” or PLSAs. Banks and credit unions that choose to establish PLSAs can create a system that encourages customers to save money in exchange for a chance to receive a reward. PLSAs are now available in nearly half of the states in the country. The house bill was favorably reported by the House Financial Services Committee this week and now awaits action by the full House. The Senate bill still awaits committee action.
Senate Bill 67 by Sen. Linda Coleman-Madison (D-Birmingam) would adopt a process known as “Mandatory Unitary Combined Reporting” for state income tax purposes. Though the legislation generally deals with corporate income taxpayers, banks that pay the Financial Institution Excise Tax should also be concerned by this legislation because it gives the Department of Revenue very broad discretion to combine a financial institution – even one not doing business in Alabama – with one or more Alabama corporate income taxpayers; thus the “unitary” nature of the process. This bill has been introduced in each of the last few regular sessions, and the Alabama Bankers Association plans to join nearly every other trade association representing business interests in opposing its passage. The positions of these groups, including ABA, remain unchanged. It is our understanding that the Fiscal Responsibility and Economic Development Committee will hold a public hearing on the bill on April 5. Along with numerous other groups, ABA will attend that hearing in opposition to the bill.
Senate Bill 91 by Sen. Arthur Orr (R-Decatur), the Alabama Protection and Privacy Act of 2017, would provide for the protection of sensitive personally identifying information and notice to individuals whose personal information has been breached. Alabama is one of very few states without some type of data breach notification law, and this legislation is part of the Attorney General’s Office 2017 legislative package. Because they must comply with similar provisions of federal law, including the Gramm-Leach-Bliley Act, financial institutions are exempt from the requirements of this bill. This bill has already been favorably reported by the Senate Judiciary Committee, and is now in position to be voted on by the full Senate.
Senate Bill 261 by Sen. Tom Whatley (R-Auburn) would provide for the regulation of consumer lawsuit lenders and consumer lawsuit lending agreements. Known as the “Consumer Lawsuit Lending Act,” the bill would require lenders to obtain a license from the State Banking Department and would make consumer lawsuit lending agreements subject to certain provisions of the state’s Mini Code. The bill caps the finance charge of a consumer lawsuit lending agreement at 10 percent annually. The bill awaits committee action.
Senate Bill 284 by Sen. Arthur Orr (R-Decatur) would make numerous substantive changes to the terms, interest rates, and other charges applicable to small loans; to the terms and interest rates applicable to deferred presentment (i.e. “payday”) transactions; to laws related to title pawns; and, importantly, to interest rates applicable to consumer loans. Under current law, if the principal balance of a consumer loan is $2,000 or more, the parties to the loan may agree to any interest rate that is not “unconscionable,” meaning unreasonably excessive. Under this bill, if the principal balance of a consumer loan is $2,000 or more, the annualized interest rate cannot exceed 60 percent (as defined by Reg. Z). The Senate County and Municipal Government Committee held a lengthy public hearing, but not a vote, on this bill on Wednesday.
As of this writing, a total of 438 bills have been introduced in the House of Representatives and a total of 336 bills have been introduced in the Senate. Including bills and joint resolutions, a total of 81 measures have been enacted into law since the session began.
The Legislature has met for 13 legislative days. The 2017 regular session can last for no more than 30 legislative days and must conclude on or before May 22. Following a two-week spring break, the House and Senate will convene the 14th legislative day on Tuesday, April 4, at 1 p.m. and 2 p.m. respectively.
Questions or comments? Email Jason Isbell, ABA’s VP of Legal and Governmental Affairs.
