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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