Home > Finance > Usury, not just a funny word

Usury, not just a funny word

 Several of our fellow Realtors are currently in Juneau meeting with State Legislators.  They are there to discuss the impacts new and existing laws have on our state and industry.  One new law that caught my attention and being introduced is HB 188.  The following is from the Alaska Association of Realtors.

 HB 188 – “An Act relating to the interest that may be charged by one express agreement.”
Sponsor:  House Labor & Commerce Committee

 The Alaska Association of REALTORS® supports HB 188, which would allow land owners who wish to finance the sale of their property that is valued at $25,000 or less, be allowed to charge an interest rate that would be the greater of 10% or 5% above the Federal Reserve rate at the time of the loan.

 Currently, Alaska Statute 45.45.010(b) sets the maximum interest rate for loans below $25,000 at 5 percentage points above the rate charged to banks by the 12th Federal Reserve District. In 1981, the last time this section was addressed, the Federal Reserve Rate was 14%. Thus the maximum allowed was 19%. Today the 12th Federal Reserve Rate is approximately 0.75%. Thus the current maximum interest allowed is 5.75%.

It is doubtful anyone contemplated such a low rate when Alaska’s usury laws were adopted. Currently, landowners who wish to finance the sale of their property are limited to an interest rate of 5.75%. Such a low rate is a strong disincentive to individuals offering financing on such transactions and buyers who are willing to pay a more reasonable rate of interest are losing out on the ability to participate in real estate ownership due to the current restrictions.

The rate charged is constantly changing since it fluctuates with interest rates. 

If you are caught charging an excessive or illegally high rate of interest the consequences can be severe…….

Alaska Statute § 06.20.310 provides that if a loan for $25,000 or less provides for a greater rateof interest than is permitted, the loan may not be enforced in the state.

Alaska Statute § 45.45.030 provides that the person paying the usurious interest may,by action brought within two years, recover twice the amount of interest paid. 

Alaska Statute § 45.45.040 provides that if a court determines that the rate ofinterest is usurious, it will free the borrower of the entire interest on the debt. The court shall give judgment for the amount due, without interest, on the sum loaned or the debt contracted,against the defendant and in favor of the plaintiff and against the plaintiff for costs of action, whether the action is contested or not.

Loans in excess of $25,000, the rate is set by contract and is exempt from the usury law.

If you have vacant land you were thinking of selling give us a call.  The longer warmer days are bringing people out of hibernation.  We are seeing increased active, especially for those wanting vacant land to build on this summer.

907-373-4300 or teamrogers@mtaonline.net

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