FINAL BILL REPORT

HB 1485

                                  C 166 L 89

BYRepresentatives Jacobsen, Dellwo and Heavey

Modifying the interest rates that non-profit corporations may charge on postsecondary education loans.

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 four 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 fees on general loans.

Increasing restrictions on participation in the federal guaranteed student loan program have created a demand for private student loans.  While federally guaranteed student loans are exempt from the state usury statute, private student loans are not exempt.  Because of the long time period between loan origination and loan payback, student loans are backed by a guarantor to protect the lender against the risk of borrower default.  However, charging a fee to pay for guarantor protection may result in a violation of the state usury statute when the fee is calculated into the rate that the student must pay for the loan.

SUMMARY:

Student loans made by non-profit corporations are exempt from the state usury statute.  Interest rates for these student loans cannot exceed the rate permitted under federal or state laws for loans made by chartered financial institutions.

VOTES ON FINAL PASSAGE:

      House 98   0

      Senate    45     0

EFFECTIVE:July 23, 1989