Session: State Capitol, Room 507 Juneau, AK 99801-1182 Phone: (907) 465-2647 Fax: (907) 465-3518 Interim: 716 W 4th Avenue, Suite 310 Anchorage, AK 99501-2133 Phone: (907) 269-0265 Fax: (907) 269-0264

Sponsor Statement for HB 447
Com Fish & Agricultural Bank Interest Rate

"An Act relating to interest rates that may be charged on loans by the Commercial Fishing and Agriculture Bank."

House Bill 447 addresses an inequity in Alaska Statute 45.45 that inhibits the ability of the Alaska Commercial Fishing and Agriculture Bank (CFAB) to serve it's mandated purpose of granting loans for Alaskan small business enterprises.

Like most states, Alaska has what is commonly called a "usury law"; a limitation on the rate of interest for certain types of loans - usually small loans. AS45.45.010 defines a small loan as one under $25,000 and establishes a maximum annual fixed interest rate for such loans of 5.0 percent above the Twelfth Federal Reserve District discount rate.

In Alaska, conventional lending institutions - including commercial banks and credit unions - are exempt from state statutes by reason of Federal pre-emptive provisions. Because of CFAB's organizational structure as a cooperative bank, it is the only Alaskan institutional lender subject to AS45.45 and by law, cannot charge "too much" interest. In reality, any interest collected in excess of its needs is credited back to its member-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 a $20,000 - $40,000 range, there is a much greater need for small loans. CFAB's subjectivity to the existing statute along with a period of the lowest financial market rates in over twenty 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 ensure that CFAB is able to continue serving its Alaskan member-borrowers in an efficient manner and equitably compete with other lending institutions servicing their unique market.

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