Opinion ID: 1441151
Heading Depth: 3
Heading Rank: 2

Heading: Usury and the Small Loan Laws

Text: The American colonies adopted English usury laws prior to independence to limit the amount of interest a lender could charge on a loan. See generally Howard J. Alperin & Roland F. Chase, Consumer Law: Sales Practices and Credit Regulation § 497 (1986). While usury laws prevented one evil, they fostered another: loansharking. Usury interest limits were so low that small loans were not profitable. Many people needed to take out small loans, and turned to loansharks for small loans at illegal interest rates. Because these loans could not legally be enforced, lenders used extra-legal means for collection. 54 Am.Jur.2d Moneylenders & Pawnbrokers § 7 (1971); National Consumer Law Center, Usury and Consumer Credit Regulation §§ 2.3.3.1, 9.3.5.2 (1987). In an attempt to curb the loanshark problem, legislatures began passing small loan acts in the early 1900s. These acts often were modeled after the Uniform Small Loan Law drafted by the Russell Sage Foundation. National Consumer Law Center, supra, §§ 2.3.3.1, 9.3.5.2. Small loan laws were special usury statutes, intended to be an exception to the general usury laws. Small loan laws primarily provided a licensing framework by which lenders could become licensed to offer small loans at interest rates higher than those allowed under general usury laws. These laws also prohibited unlicensed lenders from making small loans at rates higher than the general usury rates. Barbara A. Curran, Trends in Consumer Credit Legislation 15-45 (1965); F.B. Hubachek, Small Loan Series: Annotations on Small Loan Laws  Based on the Sixth Draft of the Uniform Small Loan Law (1938). Alaska followed this general trend. Alaska's usury laws are codified at AS 45.45.010.090. Under AS 45.45.010(a) the rate of interest is 10.5 percent a year and no more ... except as provided in (b) of this section. Subsection (b) provides that interest charged by express agreement may not exceed five percentage points above the annual rate charged member banks for advances by the 12th Federal Reserve District on the day the agreement is made, and that an agreement greater in amount than $25,000 is exempt from the limitation of this subsection. [3] Borrowers are provided with civil remedies if their lender charges too much interest. AS 45.45.010, .030. In 1955 the legislature passed the Alaska Small Loans Act, modeled after the sixth draft of the Uniform Small Loan Law. [4] Ch. 73 SLA 1955. ASLA describes the licensing process, AS 06.20.010-.220, and provided civil and criminal [5] penalties for both licensed and unlicensed lenders who violate its provisions. AS 06.20.320. ASLA also prohibits unlicensed lenders from lending less than $25,000 with interest higher than the legal rate. AS 06.20.300. It is this clause that the State claims Berger violated. However, before discussing whether Berger violated ASLA, we must first address whether the State can raise ASLA as a defense.