FINAL BILL REPORT

HB 1239

                                  C 138 L 89

BYRepresentatives P. King, Schmidt and Scott

Exempting qualified pension plans from the state usury statute.

House Committe on Financial Institutions & Insurance

Senate Committee on Financial Institutions & Insurance

SYNOPSIS AS ENACTED

BACKGROUND:

The Washington State usury statute governs consumer loans and limits the amount of interest chargeable by a lender.  Under the statute, a lender may charge the greater of 12 percent or 4 percent above the average 26 week treasury bill rate as published by the Federal Reserve Bank of San Francisco.  The statute also permits a lender to charge an administrative fee on loans under $500.  No other provision authorizes the charging of administrative fees on general loans.

Many employee retirement plans permit participating employees and beneficiaries to obtain loans.  The cost of administering these loans must be borne either by the borrower or the plan itself.  If the plan bears the costs, all participating employees and beneficiaries indirectly pay for loan administration.  Depending upon the dates of the loan and the floating rate of interest in effect at that time, charging the borrower for the costs of loan administration may violate the state usury statute when the costs are calculated into the overall rate that must be paid by the borrower.

Although the federal Employee Retirement Income Security Act (ERISA) governing employee retirement plans arguably preempts the application of the state usury statutes to retirement plan loans, the lack of certainty makes plan administrators reluctant to charge the borrower for loan administration.

SUMMARY:

The state usury statute does not apply to any loan from a tax-qualified retirement plan to a plan participant or beneficiary that is permitted under applicable federal law and regulations.

VOTES ON FINAL PASSAGE:

      House 95   0

      Senate    45     0

EFFECTIVE:July 23, 1989