Call to Order and Roll Call
The 2nd meeting of the Interim Joint Committee on Banking and Insurance was held on Tuesday, October 28, 2014, at 10:00 AM, in Room 171 of the Capitol Annex. Representative Jeff Greer, Chair, called the meeting to order, and the secretary called the roll.
Present were:
Members: Senator Tom Buford, Co-Chair; Representative Jeff Greer, Co-Chair; Senators Jared Carpenter, Julian M. Carroll, Julie Denton, Chris Girdler, Dennis Parrett, Dorsey Ridley, Albert Robinson and Brandon Smith; Representatives Johnny Bell, Dwight D. Butler, Ron Crimm, Robert R. Damron, Joseph M. Fischer, Jim Gooch Jr., Mike Harmon, Dennis Horlander, Dennis Keene, Thomas Kerr, Adam Koenig, David Meade, Michael Meredith, Brad Montell, David Osborne, Ruth Ann Palumbo, Ryan Quarles, Steve Riggs, Jonathan Shell, Kevin Sinnette, Fitz Steele, Wilson Stone, Tommy Thompson, John Tilley, and Ken Upchurch.
Guests: Charles Vice, Commissioner, Department of Financial institutions; Ballard Cassady, President/CEO, Kentucky Bankers Association; Debra Stamper, General Counsel, Kentucky Bankers Association; and John Cooper, Government Affairs Consultant, Kentucky Bankers Association.
LRC Staff: Rhonda Franklin, Sean Donaldson, and Marlene Rutherford.
The minutes of the September 23, 2014 meeting were approved.
State of Financial Institutions in Kentucky
Charles Vice, Commissioner of the Department of Financial institutions, gave an update on deferred deposit transactions. He stated that currently there are eight complaints against brick and mortar payday lenders, 78 complaints against internet payday lenders, and 51 other complaints, bringing the total to 137 complaints against payday lenders at this time in Kentucky. He stated that the total number of deferred deposit transactions for 2013 was 2,192,018. The average amount per transaction was $335.17, the average fee per transaction was $55.38, total number of borrowers was 211,660, and the average length of the transaction was 20.2 days. Commissioner Vice gave an update on the status of banks in Kentucky. He stated that when compared to surrounding states Kentucky ranked 2nd for net interest margins, 4th for return on average assets, and 1st in capital. He addressed the new regulations coming from the federal government and said for the average community bank it required an additional $150,000 in expenses and 3,411 hours last year to keep up with the new regulations. He discussed non-qualified mortgages and said that a recent survey of community banks in Kentucky showed that 37 percent would no longer make such loans, and 44 percent would only do so on an exceptions basis. He also discussed the important nature and financial impact of community banks.
Representative Koenig asked about the nature of the complaints on payday lending, and about the fines. Commissioner Vice stated that the complaints are usually dealing with collection practices or keeping the loan’s open status after it should have closed. Fines have increased because they are meant to be punitive, and they are incorporated into the operating budget of DFI.
Representative Fischer asked what the legislature can do to help banks with regard to federal regulations. Commissioner Vice stated that the General Assembly can put pressure on and talk to federal legislators and agencies.
Representative Kerr asked whether a decrease in nonqualified mortgages would have an impact on the number of mortgages received in Kentucky. Commissioner Vice stated that that is what they expect to see.
Discussion Regarding the Present State of the Banking Industry in Kentucky
Ballard Cassady, President/CEO, Kentucky Bankers Association, discussed the industry’s perspective on the state of banking in the Commonwealth. There are 183 banks headquartered in Kentucky, which is down 11 since 2012. He stated that 49 percent of those 183 have been in business for more than 100 years, and 40 percent have asset totals less than $100 Million. The Kentucky Bankers Association’s has an alternative to judicial foreclosure in which the consumer would not be subject to a deficiency judgment, eviction laws would still have to be complied with, both parties must agree to the non-judicial foreclosure, and the consumer could opt out at any time prior to ten days before the sale.
Senator Carroll stated that he is in favor of the Kentucky Bankers Association’s non-judicial foreclosure proposal.
Representative Sinnette stated the he is in favor of the removal of the deficiency judgment against the homeowner.
Representative Thompson asked if this proposal or something similar was prevalent in other states. Ballard Cassady stated that it was present in least 38 states.
Representative Quarles asked which federal issues are important to the Kentucky Bankers Association. Mr. Cassady said that Association members feel that Congressman Andy Barr’s bill regarding non-qualified mortgages and formulating a definition of a “traditional” bank are important.
Representative Kerr asked about junior lienholders under non-judicial foreclosure. Mr. Cassady stated that they would be treated in the same manner as judicial foreclosures.
Representative Meredith discussed the need to update the “rural” bank designation.
Representative Thompson asked if the Kentucky Bankers Association is seeing increased consolidations and mergers due to the number of federal regulations and the new capital requirements. Mr. Cassady stated yes, and that it will be inevitable to have more mergers and closures.
With no further business, the meeting was adjourned.