Legislature(2001 - 2002)
04/03/2002 03:30 PM House L&C
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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 CHAIR MURKOWSKI announced the next matter before the committee, HOUSE BILL NO. 447, "An Act relating to the interest rates that may be charged on loans by the Commercial Fishing and Agriculture Bank." Number 2305 DALE ANDERSON, Staff to Representative Eldon Mulder, Alaska State Legislature, presented HB 447 on behalf of Representative Mulder, sponsor. He explained that HB 447 addresses an inequity in AS 45.45 that inhibits the ability of the Alaska Commercial Fishing and Agriculture Bank (CFAB) to serve its mandated purpose of granting loans for small businesses and business enterprises. Alaska has a usury law that limits the rates of interest for certain types of loans - usually small loans. He said AS 45.45.010 defines a small loan as one under $25,000 and establishes a maximum annual fixed-interest rate for such loans at 5 percent above the 12th Federal Reserve District discount rate. In Alaska, conventional lending institutions, including commercial banks and credit unions, are exempt from state statutes because of federal preemption provisions. MR. ANDERSON told the committee CFAB is the only Alaskan institutional lender subject to this statute, because of its organizational structure as a cooperative bank. By law, it cannot charge "too much interest." Any interest collected in excess of its needs is credited back to its member-borrowers. He said the commercial fishing community had not generated significant demand for small loans in the past, but since limited entry fishing permits began being traded in the $20,000- to-$40,000 range, there is a much greater need for small loans. MR. ANDERSON told the committee that CFAB's [being subject] to the existing statute, along with the period of the lowest market rates in the last 20 years, renders it unable to make significant numbers of small loans to Alaskan residents. This opens the potential for a drastic demographic shift of permit ownership. Mr. Anderson said the basic purpose of HB 447 is to ensure that CFAB is able to continue serving its Alaskan member- borrowers in an efficient manner, and to equitably compete with other lender institutions servicing this unique market. Number 2219 MR. ANDERSON pointed out that the fiscal note from the director of [the Division of Banking, Securities & Corporations] states that there is no fiscal impact on the operation of the division [as a result of HB 447]. He said the legislation comes at the request of both the members of CFAB and the bank examiners. The examiners filed a report that said the cap, if it remains, would have an adverse effect on the institution. Number 2177 ED CRANE, President, Commercial Fishing and Agriculture Bank (CFAB), testified before the committee. He said the sponsor statement summed up his sentiments well. He offered to answer questions. Number 2147 CHAIR MURKOWSKI requested confirmation that CFAB is the only entity subject to the usury law. MR. CRANE answered in the affirmative, adding that the usury law goes back to before 1949. He said it has applied to many institutions, but since the federal Financial Institutions Reorganization Act of 1986, credit unions and financial banks "slid out from under" [the usury law]. He said since CFAB does not fit any conventional definition of financial institutions, it is [still] subject to the usury law. Mr. Crane said the higher demand for small loans and the low lending rates have created a problem with the usury law for CFAB. Number 2046 CHAIR MURKOWSKI asked how CFAB's structure prevents it from collecting too much interest. She underlined how the public might perceive that CFAB's exemption from the usury law would allow it to charge very high rates. MR. CRANE answered that CFAB is mandated by its statute to be structured and operated as a cooperative. The customers are the owners. The only revenues come from the customers. In each fiscal year, profits are shared with the cooperative's members. He said those profits - or margins - are prorated back to the customer. He gave examples of similar cooperatives. Number 1945 CHAIR MURKOWSKI asked what CFAB's current interest rate is. MR. CRANE replied that CFAB's rates range between 8.5 and 11 percent. The past 11 years have seen a patronage refund to members in the range of 18 to 19 percent. REPRESENTATIVE ROKEBERG asked what the [federal discount rate for District 12] is. MR. CRANE said it is 1.75 percent. Number 1907 REPRESENTATIVE ROKEBERG asked how the "new mandate" to broaden the scope of the bank is going. MR. CRANE replied that it is going slowly because of recent economic events. He explained that Representative Rokeberg was referring to a move by the bank to expand its business into the realm of tourism and resource-based enterprises. He said CFAB has been cautious and slow in its approach, but he estimated that the bank has made $6 million in loans to tourism enterprises. REPRESENTATIVE ROKEBERG asked if CFAB would be forced to charge no more than 6.5 percent on those loans. MR. CRANE clarified that the figure would be 6.75 percent. He explained that part of the problem is that the statute mandates a fixed rate of interest. He said federal tax law demands that CFAB treat members alike concerning patronage refunds. Number 1822 REPRESENTATIVE CRAWFORD expressed concerns he had heard from constituents that the bill might compete with the Division of Investments. He asked if there was anything to [the belief that] CFAB and the Division of Investments would be competing for the same market. MR. CRANE underlined that CFAB is a private lending institution. He said it lends money borrowed from outside the state. There are no public funds involved, nor is there any public risk. At the end of the year, CFAB pays state corporate income tax. He asked Representative Crawford if he was really concerned with CFAB competing with the Division of Investments. REPRESENTATIVE CRAWFORD said he didn't know. Number 1725 MR. CRANE said he didn't see any impact on the Division of Investment's loan program. Number 1664 REPRESENTATIVE HALCRO moved to report HB 447 out of committee with individual recommendations and the accompanying fiscal notes. There being no objection, HB 447 was moved out of House Labor and Commerce Standing Committee.
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