Legislature(2001 - 2002)
04/19/2002 03:32 PM Senate RES
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 447-COM FISH & AGRICULTURE BANK INTEREST RATE MR. DALE ANDERSON, staff to Representative Mulder, said that HB 447 addresses language in AS 45.45 that inhibits the ability of the Alaska Commercial Fishing and Agriculture Bank (CFAB) from serving its mandated purpose. He explained: Like most states, Alaska has what is commonly called a usury law: the limitation on the rate of interest for certain types of loans, usually small loans. AS 45.45.010 defines a small loan as under $25,000 and establishes a maximum annual fixed interest rate for such loans at 5% above the Twelfth Federal Reserve District discount rates, currently 2%. In Alaska, conventional lending institutions, including commercial banks and credit unions, are able to gain exemption from state statutes by means of federal preemption provisions. Because of CFAB's organizational structure as a cooperative bank, it has no such option for exemption. Subject to federal law, the organization cannot charge too much interest. In reality a percentage of the interest collected in excess of its needs is given back to the borrowers. In the past the commercial fishing community has not generated significant demands for small loans. However, because limited entry permits have recently begun trading in the $20,000 - $40,000 range, there is a much greater need for small loans. CFAB's subjectivity to the existing statutes along with the period of lowest financial market rates in over 20 years renders it unable to make significant numbers of small loans to Alaskan residents, opening the potential for a drastic shift of permit ownership demographics. The basic purpose of HB 447 is to insure that CFAB is able to continue serving its Alaskan member borrowers in an efficient manner and equitably compete with other lending institutions. MR. ED CRANE, President, Alaska Commercial Fishing and Agriculture Bank, said this is a simple issue from their standpoint. He supported HB 447 and said he would answer questions. MR. JERRY WEAVER, Senior Vice President, Wells Fargo, and Secretary of the Alaska Bankers' Association, said he wanted to make a technical correction in what's been said as to whether or not Alaska banks are subject to that statute or to the usury limitations on loans below $25,000. The actual wording to the 1980 Federal Depository Institution Deregulatory Act basically states that: Interest may not be charged that is 5% above the annual rate of interest charged member banks by the Twelfth Federal Reserve District. However, a loan or a contract that exceeds $25,000 is exempt from this provision. In essence that means that the banks making loans in Alaska are subject to the usury statute. They believe it would set a very poor precedent to excuse one of the senior lenders in the state from that usury standard. They don't disagree with the position CFAB is in, in regard to limited entry permit loans, and believe it would be useful to the state to keep the laws consistent and add a short line to the end of HB 447 that says something like: "money under this chapter in connection with extension of credit using the security of limited entry permits." MR. CRANE said he had an informal legal opinion, dated 1986, on the Deregulatory Act of 1980 and it appears that Mr. Weaver may be reading only part of that law. In addition, by coincidence, it was a former senior vice president of National Bank of Alaska who discussed this at length with him several years ago and explained what is called "the most favored lender" doctrine and how it applies to commercial banks in Alaska and preempts the state usury law. The federal law that is being referred to appears to have a limitation related to business and agricultural loans. He noted: Empirical evidence over the years has suggested to me that there's some misinterpretation occurring here. The limitations being suggested, frankly, I don't know whether that would be any particular problem or not. I guess I would observe that the reason CFAB seems to, at least in my view, appear so frequently in the legislature is because our statute, AS 44.81, has set forth a business plan, if you will, in stone in a sense, and we operate in a rather dynamic and evolving industry and we have quite consistently found over the years that things have outgrown what the statute says and I frankly hate to see just little limitations thrown in here and there. We're here today because of the fact that the legislature created a platypus and we don't fit anywhere else. At least from that standpoint, I tend to think it's really not a good idea to throw in some additional little limitation for CFAB. I'm not suggesting that it would hinder us. CHAIRMAN TORGERSON said the banking community is concerned about the loans that they make on the last authority they give [CFAB] for the tourism business and not having the same rules that they do. MR. CRANE said that some members of that community have been happy to refer applicants to him. CHAIRMAN TORGERSON said they would hold the bill for a legal opinion. MR. WEAVER responded that sounds like a very reasonable thing to do. CHAIRMAN TORGERSON said he didn't want just an opinion from a banker's point of view. He wanted them to actually quote some federal laws that they are trying to get back to. MR. CRANE suggested checking with Representative Murkowski who had looked into this issue at one point. The applications they cannot entertain tend to be loans for gear or vessel improvements. SENATOR TAYLOR asked if he foresaw having to make loans where the security of the limited entry permit itself might not be the primary security that they would be looking to. MR. CRANE replied, "Exactly." CHAIRMAN TORGERSON said they had to check that out. There being no further business to come before the committee, he adjourned the meeting at 4:00 p.m.
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