HOUSE BILL REPORT
SHB 2497
As Passed House:
February 7, 2006
Title: An act relating to assistance for business owners who are active duty national guard members.
Brief Description: Providing assistance for business owners who are active duty national guard members.
Sponsors: By House Committee on Financial Institutions & Insurance (originally sponsored by Representatives Kilmer, Buri, Hudgins, Skinner, Green, Morrell, Linville, Ormsby, Lantz, Williams, McCoy, Appleton, Moeller, Chase, Conway, P. Sullivan, Haler, Wallace, Sells, Morris, Ericks, Upthegrove and Woods).
Brief History:
Financial Institutions & Insurance: 1/17/06, 1/26/06 [DPS].
Floor Activity:
Passed House: 2/7/06, 98-0.
Brief Summary of Substitute Bill |
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HOUSE COMMITTEE ON FINANCIAL INSTITUTIONS & INSURANCE
Majority Report: The substitute bill be substituted therefor and the substitute bill do pass. Signed by 11 members: Representatives Kirby, Chair; Ericks, Vice Chair; Roach, Ranking Minority Member; Tom, Assistant Ranking Minority Member; Newhouse, O'Brien, Santos, Serben, Simpson, Strow and Williams.
Staff: Jon Hedegard (786-7127).
Background:
The Department of Financial Institutions regulates financial institutions chartered in
Washington. These institutions include banks, credit unions, mutual savings banks, and
savings and loan associations. Federally chartered financial institutions are regulated by one
of several different federal agencies.
The Servicemembers Civil Relief Act of 2003 (SCRA) provides financial protections for
servicemembers. "Servicemember" includes:
(1) a member of the United States military called to active duty; and
(2) a member of the National Guard under a call of active service:
The SCRA covers issues including rental agreements, security deposits, prepaid rent,
eviction, installment contracts, credit card interest rates, mortgage interest rates, mortgage
foreclosure, civil judicial proceedings, and income tax payments.
Impact of the SCRA on loans.
If the ability of a servicemember to repay a loan is materially affected by his or her service
then the loan incurred by a servicemember or by a servicemember and his or her spouse may
not accrue interest at over 6 percent during the time of military service. There is a
presumption that the service does materially affect the ability to repay the loan that may be
rebutted by the lender. The SCRA only applies to loans made prior to the time of active
service.
Summary of Substitute Bill:
If a service member is called to military service, the interest rate on a business loan must be
conformed to the interest rate in the federal Servicemembers Civil Relief Act (this interest
rate is 6 percent). This applies to business loans to entities where a service member is either
the sole proprietor or owns at least 50 percent of the entity. To qualify, the loans must have
an outstanding balance of less than $100,000 at the time the service member is called to
military service. The business must experience a material reduction in revenue due to the
service member's military service. The service member must notify the lender five days prior
to military service. The Act applies only to business loans executed on or after January 1,
2007.
Appropriation: None.
Fiscal Note: Not requested.
Effective Date: The bill takes effect 90 days after adjournment of session in which bill is passed.
Testimony For: I am very proud to have a strong National Guard presence in my district.
The bill is intended to aid National Guard members whose businesses suffer during their
deployment. The concern was brought to my attention by a constituent who lost their small
business when he was deployed. The Servicemembers Civil Relief Act (SCRA) provides
some assistance but it is not enough. A servicemember (Member) may not lose their home
until they return but when they return and have lost their business, they can't afford their
home. I am willing to work with all interested parties to resolve any technical or policy
concerns.
The bill should be expanded to include all reservists. We know that many veterans owned
businesses that suffered mightily during their deployment. The SCRA can cap interest and
does apply to members of the National Guard (Guard). The SCRA does not stop the required
payments. There are programs to help veterans and programs to help small businesses but no
program that can help if the deployment will cause a person to be unable to keep their
business going. The bill is very important to our community, particularly the young members
of our community. They are patriotic and they are entrepreneurs. This problem is serious
and growing. The Guard is deployed more than ever due to security concerns and disaster
relief. We need the National Guard to be healthy and strong. One issue that may need to be
addressed at some point is the requirement for active duty. The order of the President or the
Secretary of Defense may not be clear or may not be imminent. The Guard may be mobilized
slowly. They may know they are going abroad but not know when. This does not need to be
addressed at this time but it is an area that should be watched. Shortly after the deployment
of Guard units, many members began to find themselves in financial trouble. Members are
generally young and often married. The financial strains added to the stress of deployment
lead to a significant increase in the divorce rate of members. The bill goes a long way to help
people who are in need of help. Members bring unique skills to a community. They are
usually older and more mature than members of the general military. Local banks in the
community have supported efforts to assist members. Community efforts are important but
they often redirect aid that ordinarily would be directed to the poor in the community. Many
reservists were called back to duty in Iraq on five days notices. That is not enough time to
prepare for deployment. Business affairs and personal affairs can't be addressed in five days.
Consequently many businesses went bankrupt and members lost their homes. The bill should
be expanded to include all reservists.
(With concerns) Last year, financial institutions worked on issues related to the SCRA.
Washington has the best and broadest provisions in the United States. The SCRA addresses
personal loans. The bill addresses business loans. We could support the business loan
concept in certain circumstances, but we can't support the bill as written. The bill could have
the unintended consequence of restricting access to credit or raising the cost of credit for the
National Guard. If the loan may not be repaid for an indeterminate time and no interest can
be charged, the institution may not want to lend. Business loans are based on different
interest and collateral.
Testimony Against: None.
Persons Testifying: Bryan Petro and John Forster, Military Affairs Port Orchard Chamber;
Tom Riggs, Washington Department of Veteran Affairs; Harvey Brooks, National
Association of Black Veterans; and Larry Sequist.
(With concerns) Gary Gardner, Boeing Employee Credit Union and Brad Tower,
Washington Community Bankers Association.