HOUSE BILL REPORT

HB 366

BYRepresentatives Lux, Sayan, Nelson, Cole, Rasmussen, Brekke, K. Wilson, Belcher, Fisch and Locke

Limiting certain interest rates to 15%.

House Committe on Financial Institutions & Insurance

Majority Report:     The substitute bill be substituted therefor and the substitute bill do pass.  (14)

     Signed by Representatives Lux, Chair; Zellinsky, Vice Chair; Betrozoff, Chandler, Crane, Day, Dellwo, Ferguson, Grimm, P. King, Meyers, Niemi, Nutley and Winsley.

House Staff:Harry Reinert (786-7110)

AS REPORTED BY COMMITTEE ON FINANCIAL INSTITUTIONS & INSURANCE

MARCH 2, 1987

BACKGROUND:

Retail purchases which are made using installment credit may be made under a retail installment contract.  The retail installment contract is generally entered into for the purchase of a single item or group of items with a established term for completing payments.  Additional purchases may not be added to the contract without the making of a new contract.  The maximum interest rate which may be charged on a retail installment contract is determined by calculating the average of four quarterly auctions of twenty-six week treasury bills for the year prior to the year in which the contract is made.  The maximum interest rate is six percentage points over the average.  The rate stays the same for an entire year.

SUMMARY:

SUBSTITUTE BILL:  The maximum interest rate that may be charged on a retail installment contract for the purchase of a motor vehicle is based on the auction of twenty-six week treasury bills in the quarter prior to the quarter in which the contract is made.  The maximum interest rate is six percent over the treasury bill rate for the prior quarter.

SUBSTITUTE BILL COMPARED TO ORIGINAL:  The original bill, in addition to the change relating to interest rates on motor vehicles, set a maximum interest rate of 15% on bank cards, retail credit cards, and industrial loan company open end loans.

Fiscal Note:    Not Requested.

House Committee ‑ Testified For:     Paul Taylor, Washington Labor Council; Karen Hart, Southeast Seattle Community Organization (SESCO); Pauline Epps, Citizen; and Jim Boldt, Washington Auto Dealers.

House Committee - Testified Against: Robert Devine, J.C. Penny Co.; Suzy Tracy, Washington State Financial Services Association; Ken Williamson, President, Economy Finance Company; Keith Hopper, Washington Bankers Association; and Jeff Houtteman, Household Finance.

House Committee - Testimony For:     As market rates have declined, banks and retailers have made credit more widely available and have caused more people to overextend their credit.  The state should encourage, through a lower cap on rates, creditors to tighten their credit standards.

House Committee - Testimony Against: The cost of money is only a part of the cost of extending credit.  Capping retail credit rates will cut off a major avenue for young people to develop a credit history.  Reducing the maximum rate on open end industrial loan company loans will put several small business out of business.