Insurance & Commerce- House

Issue with this we've held them over from previous meeting we're gonna take a couple of other bills first of Representative Evans are you here to present your bill. There you go there you are okay and bring any witnesses to the table with you that you might need. I'm I'm gonna hold you to your word that this is an easy bill right. Thank you Mr chairman this is that is easy as most all of yours are Sir with the gosh. The well that that that city The immediate consideration. Uptakes that. Rebbe's Representative of police I did identify yourself for all the the targets and it will sling it you certainly thank you Mr thank you committee members this morning I bring to you house bill twelve fifty five. The purpose of this is to clarify the law as it relates to how mortgages and loans reference real and personal property there to be the security or the collateral for mortgages and loans. The term is cross collateral is ation and hard work for me to say but it's a term that you use when the collateral for one loan is also used as collateral for another loan more specifically current Arkansas law allows parties to a secured loan transaction to have that security the collateral for the debt which is a real or personal property to also serve as collateral for existing debt or even a future day at between the same two parties. recently the Arkansas court of appeals issued a ruling in a case that stated that anytime you have a loan number two the most specifically identify alone number one as being secured by the collateral of the second loan. house bill twelve fifty five makes it clear that in cross collateral is ation the provision is valid when it makes a general reference to the pre existing loan that's very important. This will cut down on time and costs are associated with repairing loan documents will also benefit both lenders and borrowers be happy to take any questions. Members do you have any questions or want to hear from any of the witnesses yes represent would. Represent the Evans has this come about the the other bank mess it up on a UCC filing and and and and it ended up in court. Great question presage asked that question represented wooden I'd like to allow one of my Guest here today to explain current situation that has occurred he brings this to the forefront. I think that's all we would please identify yourself for the record posting Brad Chambliss I'm with farmers and merchants bank of the bank available thank you the equity case involved two longs and that's generally where this all began thing cross collateral station you have to have more than one long before they will even engaged to the equity case had a real estate peace with it on the first loan and the second one was driven by furniture fixtures and equipment so when the collection began there was default on both of the loans the party went to mediation and the the property the real estate on the first loan was given back to the banks of the bank liquidated that peace the equity case centered on the second loan which is the equity and equipment when they sold the soul the equipment out where that money was applied and there was a fight and the concern with between which of the two loans that money should go to and that is when the court said it should have been spelled out directly in the loan agreements as to which loan specifically those proceeds were to be applied to so that that's the genesis of the concern today on cross collateral is ation the general concept where those two pieces flow back and forth and it's been it's been that concept for years it's just this situation has raised the issue of. Does that special direction on which alone you're talking about in the cross collateral is ation document does that have to be specifically spelled out in the loan agreement itself or can we still realize banker on the general concept of cross collateral is ation when it is made made a parent and set forth in the definitional terms in the loan contracted sales. Follows you're recognized so the. The real state filing in UCC of the fixture following the equipment is totally is different is that true. So so the this is the second loan with four fixtures and that's where the this problem occurred relative to is not being mentioned in the first document or the first on the first. Of Louis not being referenced. Is tied into the second if you will not have been physically reference that is correct so the banks theory was the longstanding practices have been in the industry the cross collateral is ation allows those funds to be applied to debt that are still outstanding on either of the loans that it is recognized as a cross collateral is ation green it between the parties in the contract and the court held that there should have been some higher level of of notice exactly where those funds were going to be applied. It was the that's what the court base their decision on that is correct the standard standard practices in the industry on loan documentation whether that be the actual note the mortgage the UC sees or the security agreement those are generated currently by third party vendors our bank uses Walters Clewer you may be familiar with that company it's a national bank dot company and what those companies do is they create can loan documents basically for the sole purpose on our side for efficiency we do probably three thousand loans a year that are a little bank so its inefficiency we can't type those loans and at our location but the second piece of it is that the loan document itself and the reason we use of alters clue or it's from a consumer protection standpoint all of the regulations that are flowing from the state and the federal level have to be compliant and all of our loan documents so we have a pay a premium let's say to Walter's clear to generate loan docks that are consistent and compliant with state and federal regulations and that we rely upon that warranty from law school or the warranty of the company to your bank yes Sir so I appreciate your homeless about the size of your bank the The the Willow's majority of all representatives come back can we come back to work okay Representative Clowney. Thank you Mister chair and. I'm just trying to wrap my head around this so be patient with me but what I'm hearing is things have been done a certain way for a very long time. An Arkansas courts at a bar or got in trouble because of the way that things have been done for a very long time so maybe the legislature should look at that represent at and you said that this was good for borrowers can you help me understand what about this is good for borrowers. Well certainly try I think that that in any business and myself as a small business owner I know that I have to. Allow a certain percentage every year of I'm going to have some bad debts I'm gonna have some losses somewhere along the way so anything that I can do in my practice and trade to minimize any potential loss that I may have. Actually provide gives me the opportunity then to lower my overall cost of doing business and I think in this type of situation I in an Oct I'll give you a real life situation because I I have been involved with the cross collateral is ation myself. are a few years back I made the decision to expand my company and build a new office complex so we bought property construction loan final mortgage that whole process during that process the. Has to be if it explained to me the whole process across lateralization and that was where on the existing property that are previously on that at some point I knew I was going to sale and there was still a mortgage on that the bank was very clear to me that what they were asking was to me to take the the equity collateral of that existing mortgage pledge that as collateral against my new business so that in the event of my business failed. Then the bank would not be left withholding potentially too bad notes they could use the equity from the previous as someone who was trying to operate in good faith and make sure that I was protecting not only my interests but also the bank's interest he was working with me I was very happy to do that I think if someone was not willing to do that you might speak of potential you know ill intent of not living up to their obligations you know in the financial matters. Follow up about it so. I understand I. I understand what the process of cross collateral is ation is good M. what why that process existing but what I heard in your story was you saying that you had bankers at that down to that explained exactly what was happening exactly what was you know being put up my concern of the language that we have in front of us is that it's not going to be as clear if you don't have a banker who is as forthright and thorough as yours was can you all explain to me why were not airing on this side F. making it very clear to the bar or what it is that they're getting themselves into I hear your arguments about efficiency but can you just walk me through exactly what it would take to make it clear to the borrower. Sure the first thing that to your point is that. You're exactly right there's no way on earth that we could sit here and tell you that every banker on in Arkansas in fact closes on the same way it's just it's not not possible there's a duty on that banker to disclose that what's in the contractual terms there's also the duty on behalf of the borrower what this bill does is that it makes that language stand out so I would hope that every banker the close of the loan that has a close across collateral is ation agreement and it is talking about that and making it very apparent to that bar work if that borrower comes back and says I don't or I can't for some there are some situations at that occur where you can't that the borrower cross collateralized property when that conversation comes out the bank has two options basically a concert we cannot do the loan based upon the risk profile that you presented us or they can go back and they can say we will not require cross collateral is ation and at that point in time they will do a second set of documents that don't have that language in it so that it's taken out its on the go she ation peace there but if if. Based upon what we are currently doing with Walters Clewer if we were to go back and start trying to add language to our long documents if the weeds are warranty immediately so our warranty with Walter Stewart from a compliance standpoint It it's putting the bank's risk profile at an elevated state because it is basically boarding that work you we are creating modified loan documents at that point the alternative is is to go and have outside alone got done by tourney's which is just a cost prohibitive almost so that's the purpose of this from from the consumer standpoint I think even in this case from the consumer standpoint there's one thing that's common the common thread amongst all the loans on earth if the application process you go through that application process so I'd application you're required to certify and file an accurate financial statement with with the bank along with that application so all of the assets and all of the debts are outlined there so on the first loan you wouldn't have anything to put relative to loan one might say but on long to you already know that you have it on the books of the assets that you purchased with with the proceeds of alone one would be there and then you would have the corresponding data on your balance sheet to show an identify alone to when it was made so I don't know aside from trying to. I guess the honest and and complete answers your question there's really no one set of long documents out there that fits all loans are so many different types of loans even commercially driven you have agriculture equipments Marshall and development you've got commercial real estate you've got consumers unsecured consumer so you have those loans there are so many different types of different types of loan documents that banks were rely upon and that's why we use the warranties of Walter Clore can with questions for a couple of other members first represent Hodges than Murdock then Richardson and I would say also if I may add represent Clowney and in my particular case when when out and I would back as is I started working on this bill and pulled all of those documents from from my original mortgage. That crossed lateralization document was not in there because as Mr Jammeh said there was nothing to cross collateral but when I did my second mortgage I went back and flip through and. If you've got a commercial loan like that I mean it's it's a stack but there was a very clear one page document with the large heading that that that identified it as a cross collateral is ation statement that I would you know that I was filled out. Represent Hodges you're recognized thank you thank thank you Mr chairman thank you represent the events bringing that out you know full disclosure I am a banker Eight you mentioned you know if made a parent in the contract that. The work work cross collateral this this this this this Blown up front I think the the the the the the. And I support the bill the app again clarity on enough for the bill the the Would you agree that banks are are strongly regulated you know with the dot dot Frank at the bank that are heavily regulated and and scrutinized and and and. And you know what. So as far as consumer protection go. We would. Pretty strongly regulated where were people looking over our shoulders and making sure that we're not doing anything that would harm the customers would you agree with that. Yes so the market's going into with Arvest bank. But I would I would say yes I think that you know the important thing to note here is that the customer knows full well up front that the their place in the collateral on on loan number one and as has been mentioned here on loan number two there is clear across globalization language that we reviews for a number of years that makes it also clear so there's the application process up front with the customer physically list the request and the collateral that they're with willing to pledge in the and it's spelled out in the loan documents in Indian on loan to it's it's specifically mention the across globalization but I also think it's real important to know that the customer knows full of full full well what they're pledging so is not ever a bank's intent to repossess collateral that's not what banks are in the business of doing we don't like it we're not set up for you takes a lot of time so our primary concern is the return of the principal and interest over time we don't want the collateral so it is full. it's full knowledge that that the the district level is is being placed in terms of the consumer if we don't cross collateralized loans didn't we've got one option obviously is to do not alone that's not going to help the consumer if they're willing to expand the business or or use those funds for tenant improvements and things like that so the the other option is we can have attorney prepared documents again that the cost to the customer that's passed on to the customer to the board that's not good for the consumer so and then there's the the the option of convenience if you already play it's one piece of collateral to the bank and you want to two of our funds for that expansion you're not coming out of pocket for that with with with your own money so you're not utilizing your liquidity you're simply utilizing the collateral that the bank already has. Thank you okay I represent Murdock. Thank you chairman and My my concerns ridiculous it into the to Representative bill represent evinced autumn shows this morning. And my concerns continue even now as I listen. When this was initially brought to me it say it was brought to me was that does not have to be a reference at all is to subsequent loans to the initial collateral is ation I understand the concept of colorization I had a million commercial loans I've been caught up in this so what raised what I see it to the gentleman who came to me and I'm saying it now as loud as possible. Is that whenever there is legislation. The invalidate. It makes Inkatha five is not providing information to consumers. You don't have to let us know. That's scary for me as a legislator. To put that into place. This notification is simply as we go for too long to this is not residential residential gently waffle one the House clarifies the the the loan and that's one from what Carlos is one four one gently commercial we do a lot of stuff and we trust to have relationships with our bankers that they're going to be transparent with us but what happens in business what happened to me even going fast doing what you do you call you back come inside you paperwork you come inside the paperwork on for long two three and four well one one I needed four pieces of property for collateral loan to win three now I'm not getting as much of not doing as much but without that notification I'm not some of that stack of papers necessarily because what this allows for because of this court decision is that you have to make it truly known as subsequent loans that the here's your collateral that your plate you. To do it again let's just say it's an extra effort okay the court said needs to be done for a reason and I think we to codify that will only go let you know the first time. And we don't even have to reference it anymore. That's not good legislation for consumers. You know go to step four let me know as I go for I don't come in every day and make along with the. But I trust you and I want you to be in everybody's not going to be and I'm not gonna say bankers would not say it. You know purposely but is it human nature they're busy as well it is in the packet is in the big packet. But this is telling us this legislation is saying. We want to codify. Not to have to let you know not even have to reference it again. That's very dangerous that say it's something else is suggestive of something else whatever you don't want that now I want to get with my good friend represent Hodges he is in support this but I don't know I haven't heard anything to give me their but actually can somebody get somebody could help me yes means yes please please tune okay so I think if I could clarify one point is you're right when you pledge four pieces of property on loan one and you come back and get subsequent loans two three and four it is standard practice and are banks that we sit down and talk with you about the collateral that is now that may be paid down to a level that we could probably even release some of the collateral so that you're not taking as much collateral so that's part of the discussion process and it sounds like maybe NO a stop right there this is probably the bill the bill does not require you to do it now you talk about a relationship that someone should do I can't put into law Senate Burdon I'm sorry we we will have a discussion period of right now we're asking questions of the witnesses to get to the question okay I will so so I can't assume that that's going to happen so would you agree that if it's in writing that you must do this then I'm going to be the consumer will be guaranteed that notice would be there don't you agree that they would definitely have it when you do it the way the courts it will be the there is a notice now will will be referenced the note number and we reference you know the the a previous loan in a cause collateral is ation process so again if there is a if there's an and the more than an abundance of collateral on no one all the consumer has to do is just tell us just ask no let's talk about it so it brings us back to the table when we reference the previous note and you know that all of the collateral is is on that legislation is. You do not have to reference represented by I'll put you back in the queue and hopefully maybe some of the other questions will help clarify for you next up I've got Representative yes Richardson. Your for your good okay. Represented brown. Thank you Mr chair and this question is for whoever wants to answer it. And forgive me I didn't write down names so the gentleman on my right said something about a warranty. And and said something in the name of the company that does your banking documents so it's kind of like boiler plate. Are Dear kit Richmond out of. So the statement informing the person he's getting the loan. That does not appear in your poorly played documents that is a separate document that you prepare at the bank and how does that I'm asking and what is it that affect your work what is your warranty and and. You were saying something about it be customized your documents if you had an attorney prepare customized documents for each loan that would be cost prohibitive so I'm just wondering where does this cross collateral station statement appear in a separate document that the bank a diff prepares or is that in your boiler plate and and and and what's the warranty. So with respect to those that cross collateral is ation language you can appear one of two places it always is generally appearing in the bowl or plate standardized loan documents that come from Walters Clewer FOR us it's it's already in there to standard term that's been used in banking nationwide for for many years the second place it could appear would be and and attorney prepared documents that would still have cross collateral is ation language in it you may have attorney prepare documents for a totally different reason there are some times and complex commercial it transaction for you have those prepared by lawyers but those are very few and far between so what I would tell you is the most common place you're gonna see him is always in those loan documents prepared about the third party vendor in arcades Walker school or. Just follow up. Yes you do have the opportunity for some customisation within your boiler plate documents we can leave it in or we're going to have to go into a different contract with the Walters Clewer document because I think it was a question earlier about the equity language the language that you read in that case is not in our loan documents I don't know who create their loan documents so that's kinda part of the concern here is is that our loan documents are allowed they're almost like to fill in the blank tight when we loaded up we hit populated it floods that data down into it so if we start even trying to do an addendum to that while that is starting to the road your warranty with that company out there is similar to aye Daddy I gave an example the other day it's almost like me applying for life insurance and having that contract I know what I'm supposed to do in that life insurance contract but then I do it at the end of to the side over here that says I can start smoking you know you've you've you've and you've heard it the purpose of the original contract there by trying to manipulate some of the terms inside of it so I just wanted to make it clear that it's not as simple as going in and just adding more documents are adding more placeholders in it for us and then you need that consistency across all things so that it can be applied fairly and equitably to all all customers for their consumers or commercial customers. Okay thank you thank Representative would and did you need to follow up if over. The if someone if a former has a to a John Deere alone he can't he can't that cannot be crossed colorized could. In an office to if is to direct a quick look purchased with with the manufacturer that is the largest money interest that is correct we. Lateralized okay we'll. What's what's to keep him from going into a bank and and and doing that with that piece of equipment with it will this legislation to keep that from occurring. Or is this your legislation just designed to two four four to protect the bank no Sir it's not designed to protect both parties on both sides so there your direct question on the John Deere piece of equipment that's at John Deere credit it's finance there we can't technically cross collateralized with our loan documents but banks do this every day in order to make sure that under underwriting profile will take a blanket lean across all equipment that owns no matter where where it's play so that blanket lien is filed through UCC one to put the world on notice that this bank is taking an additional lane on top basically it would be the primary lien holders on your credit and then we would be hopefully the secondary lien holder because we're gonna search that you check the second position yes Sir okay what one more for the your bank you use a third party document process do all banks do that. You have a hand and trophy or leave the home side I would say the majority yes Sir yes most most banks do you know from a compliance standpoint that's the reason why again right that's what we would want to consistent across the board so if I understand what you're saying most most banks already use the third party to draft their agreements. Which could have which we could have the close colorization clause in yes Sir thank you Mr chairman thank thank you thank you Representative of members we have quite a few in the queue so hopefully you'll start hearing some answers before you have to ask questions but represented Murdock do you need. Okay thank you very much Representative represented fielding. Thank you Mr mat thank you represent a client of mine of I thank you acts is going but I never did hear. Per ounce of ribs and Evans how is this bill. I want to help the consumer all protect the consumer tell me because I I I didn't hear that Allison so. Because my calling is to tell me that is is is bad for consumers so tell me. How is this going to help the consumer. Thank you for the question at the I think that it helps to get the consumer in a number of ways there's there's a cost benefit to the consumer right now we reference the note number the original note number which the customer knows full well which placed against regional no. and the dollar amount if it needs to be adjusted to the we just need the dollar amount but at the point where the law comes into effect we reference the note number so the note no one has all of the collateral on it. And so if we if we were to start listing specific collateral on every single loan there's a cost involved there's there's a mortgage there's title work in the end the UCC filings if there if there or special if if they're special language that needs to be added to the contract then we moved outside legal counsel to prepare those documents all those costs are passed on to the to be a consumer of again there's there's there's no sleight of hand going on here there's no surprise the customer know knows full well what they're pledging when they come back for the second and third four times we talk about the collateral what they have placed the know what they have placed and then we we we discussed it at that point but the law as a result of this is more of protection the bank protect the bill no Sir no Sir it is it is it is for the consumer again that the consumers not harmed at all actually there's a savings and then the other downside is if there is not enough collateral for loans or if the if the consumer does not want to play H. or cross collateralized the M. collateral the other option is along the Nile and as banks we we're trying to fund as many loans as many businesses as we possibly can for expansion upgrades updates things like that. Members limit let me just take just a very short the point of personal privilege I didn't know that this bill was going to run as long as it did but I wanted to just make a quick introduction many of you will have bills that will hopefully be making it to the Senate side and I wanted to introduce to you the new Senate chairman of insurance and commerce Senator Mathew Pitsch he's here with us today I didn't know how long he was going to be able to stay but I did want you to to know that there is a new chair of that committee so that that is my commercial announcement and now I will turn this back to regular programming if I might I wanted to reach back out and and express my appreciation represented Murdock on on you I think your question earlier was and I don't know that we entered it correctly or directly you ask about it if if we put the total language of the entire first bill and the second loan document if we spelled out everything in that. Okay okay because because that's what that's what the issue is I think is trying to make sure that we can make credit available to both consumer and commercial customers and all of our markets so if if we put. You know specific language like the court even referenced in the equity case there's no guarantee that the customer would see that language any more so than it was say the language that we've spelled out and tried to distinguish the cross collateral is ation with different font and and set it apart we're trying to be consumer friendly here those are our customers without them we can't do anything business wise but I did want to talk this briefly thanks or are heavily regulated Representative Hodges we are pop arguably the highest regulated industry out there you can go back and reference the C. F. P. B. which is to commit consumer financial protection bureau it is designed to protect consumers we deal with them and have to comply with the rules and recommendation the bases and then finally there are multiple fair lending and fair collection laws that collected that protect those those consumers out there from how we make or deny those loans and then on the backside of it how effectively we collect those loans back so there are a lot of regulations that are around us at the federal level and banking this is simply designed to allow us the flexibility to deal with customers I I could give you a quick example if a customer comes in and buys thousand dollar truck their first truck they've ever bought it is their their prized possession I help them by that truck. Then they come back a year later and saw an ad in an in an advertising in the newspaper and I want to you know the truck on sale is twenty five thousand dollars or upgrading that's the American dream. We won't help them upgrade to if we did both of those loans for them with the cross collateral is ation clearly spelled out like we have it then at the bank our risk and analysis it's going to show that we've got a little bit equity flowing both legs if something were to happen but I would tell you that if that first truck that the consumer probably was going to liquidate and get rid of that now they bought their new dream truck right if something happened to that truck without cross lateralization there's a very real possibility that my hands are totally tied at this point as a banker and I've lost my ability to work with that customer to try to say you know we're going to help extend that debt a little bit you can get it going again because of the cross collateral is ation in the use of that equity in those two pieces and and I think that's the significance from a practical standpoint I live every day I'm trying to help my customers tell you know Mr Wynn's comments the last thing I want when I wake up tomorrow morning is to have a loan go bad and have to collected banks hated and I would tell you if you if you measured a million collection actions that alone there would be one million and one where the bank had a loss it is not a profitable business collecting on that debt so this is designed to help us make sure the debts are under written correctly to make sure that the equity is measured correctly in the analysis and to make sure that both the consumer and the banks are protected equal thank you thank you for that explanation represented Hodges you still have a question. The Committee questioned me you guys you guys particularly for for the this is this does it consumers are protected they you know if for instance you had to liquidate liquidate a an asset or paid the date you know they defaulted on asset with you have the extra collateral that prevents the customer maybe from getting a write off would you agree because you have enough collateral to to sail to ply to that loan which will which will eventually pay pay off that debt which will leave them the the bank with the the bank would have to to the defendant collection on that customer which would help their credit in the long run would you agree with that. That's one of the benefits. I see head nodding so that is correct okay thank you for giving us verbals I I don't we don't necessarily do a transcript but it helps if we have ward's CLT of Representative Murdock do you have a question please yes I have a question and a comment so I want to respond to represent Hodges is he just mentioned the the concept of protection canalization and how we protect the consumer I totally agree with that scenario he just built what I'm really talking about this bill does is the. The process of disseminating information. I'm not to understand what colorization these with loans are with the protections we need protection even the bank needs I get that. This bill C. as in section I'm going to the bill one B. across the because there's nothing here that protect consumers suggest one B. across the globalization calls that grants security agents for person personal family household or commercial purposes a valid enforceable whether whether or not. The cross good colorization calls it specific or general list or identifies existing debts or obligations or secure dates if the card for the same purpose so this legislation that say it's one B. whether not. We list. Say for reference and then in one D. listen to me is this a quote or application calls in a security instrument that does not identify the pre existing debt value or obligation is not invalid in this it doesn't invalidate it if we don't do any of that what I'm saying to you guys it is clearly protects one party clearly it is said that in the legislation. Is not for the consumer okay please that please if you can offer clarification on that section it would be helpful I was looking at the fact that section you cited D. D. okay who beat and B. one B. and one D.. Okay I'm sorry. So would line eighteen on page two section the the cross collateral is ation clause is valid and enforceable if the cross collateral is ation costs meets the requirements of this section and that's the the notification section to the customer making sure that it's set forth in that that loan instruments yes but what you'll meeting is go back up in N. B. in DC being DC is is does not invalidate it if we don't do this yes was you look at it at the bottom C. as if all of the above he is the any don't but what that say is above it don't have to you don't have to do any of those things B. E. N. D. say it with out. Without added right to write what I read on page two on line twenty three section F. one it clearly that was the purpose of that line item there is to negate the cross collateral is ation peace if you do not comply with this the terms of this bill at that is that that one the failure to comply with this section shall render the croc lateralization call wait it doesn't affect the long documented just affect the cross lateralization. Okay but what I'm saying is not addressing what I'm saying what you're saying is you're reading something but it's not addressing what I'm saying that this bill does not require that communication okay it does not your because if if what you're saying is the case just take it out yeah I'm sorry you've had several follow up so he's with me and I responded back to you well that's what we did this not what we do we will have to ask questions okay so my question bill debate will you please take out section B. indeed of this and then I could support. I don't know that we can go there today because I haven't I don't have that ultimate authority but I would say this the only way this section B. and D. would apply is if the cross collateral is ation clause in the loan documents if it's not alone document this negates the whole process and is not an it's a moot issue so if there is no cross cloud was a student that's a conversation that the bill is a quality collateral is ation bill that's what this is about that's correct so if it's not that that is a mute bill. The mobile. Though it. Okay thank thank you raise some interesting points of members I I don't see any other questions so at this point Represent person were you waving at me. Yes okay okay represented. Thank you Mr that question just for clarification We're talking about a loan for two or three loans at the same bank right. So what happens when I make a loan at Arvest bank. But then I go back to pine bluff. And I do a similar loan it Simmons how does this bill affects that. In terms of the notification to the consumer I ask that question because I actually have a constituent that needed doing that. But not at the same banks that are Mrs Simmons but make the Little Rock in the another bank in pine bluff. Yeah I'm not sure that that that's going to affect our loan at at a bank a versus being the. Sorry stating that your constituents took out a loan and bank a and then went to another city about data into that will make a new bar dump truck okay wanted another law about another month the other truck but he had to go to bank B. no. He he could go to any bank that he wanted to for the loan on the second truck so this legislation would not affected in terms of cross code no Sir not at all. Okay that the clause does not work between different banks and banking does not their cost doesn't render bank lease clause you for only at a same bank okay thank you Mr right so thank you and in the case. How it would be a benefit to your cut constituents would be. If they went back to bank a to buy the second dump truck. And then was able to use cross collateral is ation. To be able to give him more lending power. Because then he would have potential equity on both sides in the case he had some situation where he had to default. So rather than the consumer losing out. As a result if there was equity tied to it from the first loan it could be applied to the second loan to help satisfy that did. Thank thank you for the clarification of sitting there with additional questions at this point I would then turn to the audience and see if there is anyone here to speak. Against okay skews me I'm being provided some notes here so let me. Yes I think the only witnesses signed up for the two that are at the table is there anyone in the audience who wishes to speak against the bill. Anyone additionally want to speak for the bill. And represent of Evans you are Welcome to actually close make a motion during the day and then we can go to scholarship list a lot of testimony a lot of good questions and I appreciate very much the questions that was offer both in the meeting today And beforehand I I you know I'm just as much an advocate for good for consumer protection as is anyone else is in this room now however I feel like that this is is a clear effort just to clarify the law language is in standard documentation that I would venture to say most all banks across the state use the same one or two different providers for their documents I think that in my experiences this this type of situation with cross collateral is ation is been very well spelled out between my relationship with with any lender that I chose to use and and I think this is just good protection for both consumers and lenders and without clothes and would appreciate a good vote okay and do you make a motion to pass. Okay we have a motion on the floor we're now open for discussion will take anyone who would want to speak for the bill among members represent a brown. Thank you Mister chair may I read the the Bill and I've listened to the discussion I think this is a consumer protection bill just dried out thank you okay thank you anyone who would wish to comment against represented Murdock. Yes my my comic continues to be the same thing based upon this reps and browse it I read the bill section B. indie specifically talks about without in what invalidates of the whole process of of of making notice to consumers of this the it's it's been turned the conversation has been turned to more of a some alone one on one education if you will which is good in his proper place that's that would disease that's not what his bill does with this bill bill does do is it protects the bank and it goes further in an almost to meet insults the bar or in that I can't if you give me the information I can make a right or make a decision to make sure I take care of my business in a proper way so what you're going to do is you're going to codify some some some language that allows you to up to if I am not on top of my game that day that I will not and I don't see that you're holding my collateral over the the necessary amount this allows you to keep that to protect me and you small meat BBQ that's what this does that's just a fact that whether somebody else okay with that if the committee wants to do that allow for that the nested but what what is sold to me is when someone says to me that I'm reading this essay is. I don't have to let you know. I don't have in this does not invalidate it when I don't let you know. Senate does not I would have to refer to pre existing loans and mortgages deeds anything that we've done pre existing look it that's what D. C. S. B. indie status why would we. The legislature codified put in the law. Something they say is you don't have to let me know. It's not about the concept. It's about information to consumers protecting consumers what this does is it protects the banks and it also we can't protect the consumer. AKM. But the way you're presenting it in what this does is it takes away my right. Yes it all to you so that's my. Yes go ahead fifty the I want you not to interrupt me let me finish I've heard Representative Representative no no longer I've heard too many committees and you get that might you go owned and owned to you're done you're given diligence for that given you're given consent you know what if I was sure that meeting I would call myself that you know where I am this year. So represented or moving on so the consideration will be The so that is to be for those reasons okay we've got you down as a no. No actually represent of Evans can speak but we would not be able to take into further testimony from witnesses but thank you represented Matix speaking for thank you Mr chair and so this is interesting you know we're looking at the agenda last time I thought well this is a really noncontroversial really good bill so you know think surprise you but you know just what I want to point out Rison Hodges pointed this out the banking industry in my opinion is the most highly regulated industry there is with the C. F. P. B. as was alluded to is extremely aggressive I mean they have more consumer protections that can be imagined all this is doing is bringing is codifying what's always been the law in Arkansas what makes these for decades that's all this is doing so I'm for this bill this is a good bill but the last thing that I want to say that was touched on this unless you're in this industry I mean you don't know what that. The the forces can't be changed I mean you can't have lawyers drafting every form for every loan is it's not workable these are nation wide forms that all banks use put in all those regulations all those safeguards in it sounds easy just changed form that that's not workable this is an important bill to me this is this is appointed bill we're gonna see to protect consumers and protect banks in Arkansas so obvious portents bill. Thank you. Anyone else wanting to speak against the bill. For the bill. Represented Hodges thank you Mr and and that the appreciate Murdock from sirens and all that and that everything is disclosed everything is disclosed and and in these contracts you know there's nothing hidden from the customer stating that that that that they This this this loan is not being cross cloud cloud about it is it is it that the if if the banks responsibility and if that that the the the the the bars responsibility as well the the the the call that we have called up right of offset you know we don't know we don't fly don't point that out to my customers when they signed the loan that that that that the right of offset but if if if if in that is in that contract this state that you know I can take your money your checking account yours from your CD from your savings account if you default on this loan if you get if you get arrears I have that right to do that that's not out I don't that I don't point that out to the customer I'm not I'm not trying to hide from the customer but I don't point that out to the customer you know and so this I don't think anything about this legislation is trying to hurt the consumer if that happened examine and you brought it out they they don't have to come up because oftentimes you know now you know banks like to have the collateral often time you know we require certain percentage down on on on a loan this will allow the customer not to have to use the the liquid asset they keep the money in the bank because they have additional collateral to secure this is that so you know again if they default we have a mechanism to to fill that that in and get them away from a funded without handing them in the future so you know I I think if the if the if the if a good bill I don't think that would the intent of this bill is to to heard or and I know some some things have unintended consequence of that I don't think this is one of those cases and and I do support the bill thank thank thank you represented. Anyone on the committee that point wishes to speak against the bill for the bill. If not we do have a motion on the floor to pass all those in favor of do pass on this bill signify by saying aye. All those opposed say no. The eyes have it congratulations. Thank you. I have been. Courses are famous last words I've been told that there is a bill that we have that should be very non controversial and should go smoothly which is S. B. eleven we have we did have centers sold in here but I know Representative Gonzales is going to present the bill for him. If you will identify yourself for the record your you can present the bill now represent of Justin's Aulis. Thank you Mr thank you Committee eleven going to say this is not controversial after watching the last forty five minutes but I guess it's been an hour now the way this is this one really should be pretty simple it is just codify one of the executive orders dealing with shareholder meetings being able to be held remotely so that's really all this does. The government's many questions of the real simple and we want to bring anybody else appear. That would be very welcome but members are there any questions. Okay. Hang hang on. I'm sorry represented Pilkington you have a question motion at the proper time motion at the proper time well good if there are no questions your what is your motion motion do pass okay we have a motion to do pass is there any discussion well first I need to ask you if there's anyone in the audience who wishes to speak against the bill. For the bill. There are none so we have a motion on the floor anyone wishing to To to offered there no okay membership of a motion of do pass on Senate bill Eleven all those in favor of the bill signify by saying aye. All those opposed say no and the bill passes congratulations or any thank you for a non controversial bill. Members I'm gonna be relinquishing the chair. To the vice chair to for us to present to bills from the insurance department. Yeah. Here's. Are you gonna. Okay thank you represent Lowery. And I believe you have an amendment first to this bill Torres start with H. B. twelve thirty eight is that correct yes yes that is correct H. B. twelve forty one we have an amendment. Which is just too is to add The New Senate chair senator Matt Pitsch as primary sponsor Senator Hendren will still remain as a co sponsor of the bill on that is that is the amendment okay not recommend to. Adoption of the amendment so I have a motion do pass on the amendment any discussion on the amendment. All in favor say aye. Any opposed no. The member passes you are recognized to present your bill with the amendment it right and I will be present twelve forty one as amended is a state tax intercept a bill I am smart enough here to make sure I've got people here can do can better explain it then that I could I'm very pleased to have the insurance commissioner Allen the claim with me and one of his members of staff saw have them introduce themselves and then we'll turn probably turn it over to them to actually give you the the guests of this bill. Thank you and I believe it would you introduce yourself again for the record and then present your testimony please sure Alam claim the state insurance commissioner and with me is our general counsel from insurance department generator who will do most of the presentation of this particular bill that starting with H. B. twelve forty one our tax intercept bill and I'm with Jim take it from there. Thank you and I'll also identify yourself and just proceed with your testimony please thank you Mister chair again generator on the general counsel of the Arkansas insurance department H. B. twelve forty one this week we call it the state taxes that bill would actually does is add the insurance department and the governmental bonding board program two weeks expressly as those as the it is the statute that defines claimant agencies and that that's over actually in the tax code and agencies have to be expressly permitted and listed there will take advantage of the tax interest that program that's for individuals not organizations and the way it works any individual that owes the insurance department money for fines penalties et cetera gets a notice from our agency. They are then given due process in case we got it wrong I mean there you always have to we could get the wrong John Smith or some example like that and then on this by December first of each calendar year aged claimant agencies in this list certify those names over to the FNA who then load that into their system first for taxidermy should that individual file a return the following year. the statute when we came in the forgive me I don't have the old version here but there was a provision of the said that agencies cannot be added to this list after a date certain in two thousand three unless they had two hundred thousand dollars or more to them I serve I checked with our financial folks we currently through the government bonding board program have about four point six million dollars owed to us that sounds like a lot that's about twenty years worth and other governmental bonding board which will be discussing or other general omnibus bill later that's when someone it covers loss when someone I'm sorry I'm going to direct you just for one moment yes because we just keep that in I can't hear very well up here please keep the noise down just a little bit so we can hear the testimony thank you so much I apologize. Go ahead it what I was I was there is also an amendment taking with that day certain but saying agencies the get added to this list as a claimant agency have to be able to have two of the show that they have two hundred thousand dollars or more worth of debt owed to them we've got that through our self funded up I'm sorry our government bonding board program about four point six million dollars that's generally from restitution from folks that have taken money from a governmental entity been convicted that the government bonding board paid back that entity so monies and then they're ordered restitution so we we meet that statutory qualifications we have to answer any questions thank you Sir for your testimony any questions by the committee I see represent wooden you're recognized. Sorry sorry Lois Goodman attention with a governmental agency says they have a an outstanding day at. That's kind of difficult to comprehend from a layman's standpoint hello in the world do we have twenty years of four point six million dollars over to your agency and you're just now asking for your claimant position in this legislation I don't understand that well I thought I was anticipating that question. Hope you certainly was because that's the same question I the the as I mentioned I've got a spreadsheet here of all the outstanding debts owed to the government bonding board program and they're generally it's a county or city where some staff person. Misappropriated funds still funds whatever bill one the going to the criminal justice system and they'll be ordered to pay back restitution funds etcetera. That's not always the amount that was actually taken and and sometimes those corridors will say they pay a hundred dollars a month until that three hundred thousand dollars or half a million dollars is paid down so that number grows and we don't in any way expect to ever recover all that four point six million Sir but we do track it so with with that's that's something that's out of the insurance department's hands when a court ordered restitution of a set amount that so much that individual has to pay for the corridor this gives us an additional tool to capture some more from their income should they be filing returns and and getting you know a refund check okay explore what you're recognized for follow up sorry. Explain to me how the hell you all ended up with the day. At. The government program yes Sir someone of skilled with the money that was paid to be paid on the bonds and you into the hole in the bonds that were too and now serves the way this works let's say that I'm I work in a circuit clerk's office in the county and I misappropriate funds from that office and I'm caught. Let's say I took a hundred thousand dollars worth over a period of years usually let audit is where these things are and covered it tends to be sometimes not always but that tends to be where we we find these those people joint prosecuted at the end of the prosecution have a conviction the court the criminal court will order restitution. That restitution order will set the frequently set an amount that is owed you know to back to the state or to the county. The government bonding board makes the whole of two three hundred thousand dollars per occurrence or series of occurrences. So you can have a rather large amount of money that you'll never recover back on the restitution of a hundred dollars a month. But we do correct that that's what the numbers as large as this realistically will never get all four point six million dollars of that back in this number changes and grow each year we have more vents there's a bonding more that gets together the government bonding board hears claims lego that is there to present what they found a lot of times the sheriff for the mayor of the small town we'll we'll come in and and present their case that board decides whether or not to pay out a claim on that. so again we're going to go into more detail on that bonding board program original that this bill and perhaps maybe we should go in that order with it but that's that's my fault for asking to put this one first but that's that's where you want to put that that when US wine. With the insurance department a bunny Board work in this list before I can answer that I joined the insurance department a year ago. I saw an opportunity and added this to our proposed legislation last summer. Both want one more follow up yes Sir you're you're recognized. Hello. Is it reads it here occur approved through contracts subordination toward operation of law legal the. understand how you all can collect how you who you collected that money from. From the individuals from the vision of the individual that you don't have a contract with them they stole the money I don't understand the okay that's that's how the state tax enters of program works if if they're it does the required judging from a court can build much lower standard that can be proven but that's what we must give them the process before we certify their name to the FNA to intercept their tax refund. So if I have an individual John Smith from Pulaski County who stole from the county and the governing body for paid out money on that I am going to put his name on that list I'm gonna give him notice that I'm going to do that he has the right to appeal that should he not prevail in his appeal his name will go be certified by the insurance department over to the FNA when he files a tax return gets a refund assuming that occurs we capture that part of that said all okay thank you Mr chairman thank you Sir thank you any other questions about the committee. Represent Ferguson you're recognized. we've had some situations where at Clarke Sir people's style embezzle money but then prosecutors failed to prosecute can they still can you also collected under this system if it was a prosecuted yes ma'am I've actually seen some presented to the board where if it could have been prosecuted it doesn't require a conviction I would say most of them there is a conviction in place but that's the standard is not that high for this board to pay out a claim and then for us to seek this intercepted because paying that claim out is another part of creating the debt to a I. D. in the government funding board. So yes. Thank you any further questions from the committee. Saying nine is there anyone in the office would like to speak against this bill. Saying nine and there is no one signed up rector Lowery would you like to close for your bill I would close for the bill if the freesheet the questions that you've made in presheaf the the help that I have here in explaining this issue so I I would to ask of make the motion to pass. Okay we have a motion do pass on the floors any discussion on the motion. There's no discussion so a motion do pass all in favor say aye. Any opposed say nay. And the the motion carries your bill is passed congradulations joint of Lowery thank you. Thank members I have of Senate skews me house bill twelve thirty eight and there is an amendment same amendment that we had a while ago which is to add senator Hendren S. lead sponsor over the Senate and retain Senator hindering as a co sponsor of that ask for approval of the amendment. Any discussion on the moment to add the Senate co sponsor. Do pass on the amendment all in favor of passing the amendment say aye any opposed no and they mimic carries the member passes you're recognized to present the bill as amended thank you very much members this is the the omnibus bill for the insurance department that comes before insurance and commerce every two years as you will see if you're if you're looking at it. And you'll hear the explanation their number of sections of code that are just you know in some cases there's obsolete language and their their changes of I did have an opportunity to go over some of the Provisions are some of the sections that the department wanted to include in the omnibus bill there there were some sections I think we discussed that that probably would have been a little bit controversial and we try to not have the omnibus bill be controversial so those sections were removed so there has been some bedding this bill to make sure that we've got something that's pretty straightforward that it's mostly dealing with statutory code revision things issues like that and so having said that I'll go ahead and turn it over to the Commissioner and he has a staff person that also will be coming up in addition to legal counsel to give an explanation thank represent you are recognized thanks L. McLean again Insurance Commissioner and I don't have much more to add to the Representative Lowery to reduction to our under this bill which does have a lot of modernization language and some things just to bring the code up up to date again we. Purposely try to avoid anything controversial in in the bill but happy to answer any questions generators going take the first part of it and then ours one of our staff attorney is Amanda rose will will follow up on some the latter parts of it and we don't belabor it a a to get get kind of granular but we certainly don't want to go to to faster gloss over anything that you're interested in so feel free to stop answer any question that let us answer any questions. The Committee are there any questions. Okay saying ninety do say that we want you want to present another witness to also testifies that correct or our plan is that Mr brighter go through if you section of these for you to to summarize them and then bring up one more witness to to finish I guess so thank you percent plus thank you again generator general counsel the insurance department we've got about twenty to twenty three sections and total here and we've broken these up in a way we can explain kind of instead of one at a time going through the end of the board is issue I'm gonna take sections one through eight which and then also sections ten and twenty three which are related and they'll have a colleague come up and explain the other sections hopefully this'll make it it'll give you a detailed today what we're talking about what we're doing here but also save time in the standard of what's controversy not it literally we we don't want any controversy with our general omnibus bill someone stopping and saying wait a minute raise their hand would be considered controversy so as these were vetted these wall I don't want to say innocuous these things we need but I don't think anybody in the industry or consumer wise would have any problems with these so the sections one through eight this goes back to the as we were discussing the for bill the government bonding or program that program has been in place since nineteen eighty seven and this is cleaning up the language the the statue to create it back then thirty some odd years ago the practice always you know kinda kind of doesn't matter it's something as it's written and created what we're trying to do is click the language and make sure that the the triggering events that that result in coverage and who is covered are more clear in the statutes it would for instance we're taking the ward sure the ballot for referring to sure the bonds it is a fidelity bond that that this program is that were as a surety bond is going to cover failure performance on the con. After some obligation like that a fidelity bond is going to cover losses for fraudulent acts as we discussed earlier it's when a. Governmental entity that is covered under the program has a staff person who has committed an act of fraud or some sort of active misrepresentation resulting in a loss to the government entity the fidelity bond portion of this government bonding program will cover that loss up to three hundred thousand dollars with it it doesn't pay obligations on the fault of a contract that's not what this is about. A lot of times that the folks that the folks there operate this program I've got them here just in case there's more depth questions though it calls from around the state folks who work for government any thinking that the what they've the loss the record will be covered by this this is just kind of a road map for anybody who goes to the statue that was so what it does what it covers and what what triggers that coverage the public employees or officials is currently in there were striking at any participating government entity P. G. E. that's what is actually covered here the sheriff of the county does not get reimburse the county itself gets reimbursed and so that's. Basically those first eight sections clear that up and the if the sum of it some of the sections are just truly replacing a word here or there and so it's true clean up on a you hear that a lot actually for the self insured fidelity bond program that's really what we're doing on this one. on sections ten and twenty three this is modernization we've got sick the industry approaches on this and ask us to do this and we we agreed that it was probably necessary there's two sections in the insurance code on settlement and paying of claims by insurance companies that require warrants or checks to be. How that is process and in today's mail modern age a lot of times it's electronic funds transfer as other cars and that's by consent of both parties and so sections ten and section twenty three truly just adds the ability for when you're selling your paying claims insurance company with permission of course what was by the consumer to use electronic funds transfer. And so those of the sections I'm going to cover their any questions I'll be happy to answer those thank you so much for your testimony are there any questions by the committee. Okay saying none thank you again I believe you have we have a record of what we have another witness you'd like to to testify in this matter yes and. Call them up if you would. Good morning ma'am would you to identify yourself for the record and you can proceed with the testimony. Thank you Amanda rose associate counsel the insurance department. I'll start with section nine of our general one of those this is a really antiquated statute that requires us charge twenty five cents per page for facsimile and microfiche. so we want to repeal that we obviously don't need that anymore. Sections eleven through thirteen. as all of you are probably aware we've worked in the last several sessions to make our captive laws more friendly and we've gained several captive companies in the process but these are pretty easy section eleven just adds the definition. As to the definition of a captive insurance company a branch captive so that we can apply rule seventy three we've been unable to do that because we didn't have the definition of rich captive in their. section twelve removes the requirement that a producer for a captive owned producer reinsurance captive company has to be an Arkansas resident and that just makes it more friendly again. Section thirteen makes all information regarding captives confidential as it should be there no. Stockholders that's we all know what a captive company is in right now it's not all considered confidential so we want to make that clear. Section fourteen in last session we passed the corporate governance annual disclosure act and it has shown itself to be burdensome to some of our single smaller insurance companies that are single state so we'd like to limit the application of that to multi state companies. And section fifteen. Surplus lines companies are not allowed to write accident health coverage but that's not clear in our law so we're just making that amendment to clarify that. Section sixteen again this is pretty antiquated it requires in order. Issued by the insurance department to be filed with the circuit court. we think that sets a bad precedent for other transactions that require regulatory approval. And again it's not something that we practice I'm not even sure the courts would know what to do if we came in there with an order that we would want them to certify. Section seventeen through twenty one. Our fraudulent insurance acts prevention statutes apply to almost all of our insurance entities but there were five that it did not apply to so section seventeen through twenty one apply that fraud insurance prevention act to stipulated premium insurers mutual assessment licenses disability insurers farmers mutual aid associations fraternal benefit societies and hospital and medical service corporations. And finally for me section twenty two. In the last session we added H. demos to the guarantee fund so that they now have protection for insolvency so we like to repeal the requirement that H. and those have their own set out their own separate. A planned for protection against insolvency that that's not required for other insurers it was only there because they were not part of the guarantee fund so we like to repeal that that one section of the agent okay. Okay thank you so much for that any questions by the committee. Okay saying none thank you for your testimony reservoir you have any other witnesses yes but for the bill I I do not appreciate the the help that they provided in being able to present this to you at as promised it was non controversial I know we were not always able to keep that especially we're dealing with consumers and their protections and regulatory authority but I I would appreciate a good vote on this and I make a motion to pass. Okay. Thank you for that as amended yes thank you thank you so we have a motion do pass as amended on the bill is there any discussion on the motion. Saying no discussion on the motion with a motion do pass as amended on H. B. twelve thirty eight all in favor say aye I've any opposed say nay. And the motion carries graduation virtually Lowery of past your bill thank you very much thank you Committee. We have an. Okay. Okay so let him come. Those are important. Members of thank you very much we were. I know we got a little bit bogged down on one bill but I think we did a lot of good business today cleared a lot off our agenda so members of if