Does Alaska cap the interest rate this contract can charge?
Yes, with a size-based exemption. The default legal rate is "10.5 percent a year and no more on money after it is due" (AS 45.45.010(a)). For a contractually agreed rate, the cap is "the greater of 10 percent or five percentage points above the annual rate charged member banks for advances by the 12th Federal Reserve District on the day on which the contract or loan commitment is made", but "[a] contract or loan commitment in which the principal amount exceeds $25,000 is exempt from the limitation of this subsection" (AS 45.45.010(b)).
The trap
The $25,000 exemption in (b) is keyed to the PRINCIPAL amount of the contract or loan commitment, not to the aggregate interest that will ultimately be charged: a small-principal, long-term loan stays subject to the rate cap even if total interest paid over time would exceed $25,000. The section's own last subsection then yields to other statutes entirely: "[i]f the limitations on interest rates provided for in this section are inconsistent with the provisions of any other statute covering maximum interest, service charges, or discount rates, then the provisions of the other statute prevail" (AS 45.45.010(h)), so clearing (b) is not the end of the inquiry for a regulated lender or a regulated product. Subsection (f) imposes a SEPARATE and different restriction on certain regulated lenders (a bank, credit union, savings and loan institution, pension fund, insurance company, or mortgage company): none of them "may ... require or accept any percent of ownership or profits above its interest rate," subject to its own carve-outs for large loans ($1,000,000+, five-year+ term) and certain government-sponsored negatively amortizing loans secured by owner-occupied property. Do not conflate the rate-cap exemption in (b) with the equity/profit-participation restriction in (f): a $25,000+ loan can be exempt from the rate cap while the SAME lender, if it is one of the listed regulated institutions, is still barred by (f) from taking an equity or profit share on top of its interest. One more mandatory term sits in the same section and a prepayment-penalty clause cannot drafted around it: "[l]oan contracts and commitments covering one- to four-family dwellings may be prepaid without penalty, except federally insured loans that require a prepayment penalty" (AS 45.45.010(g)).
5 authorities
- statuteAS 45.45.010enactment date not established
The words that state the rule
The rate of interest in the state is 10.5 percent a year and no more on money after it is due except as provided in (b) of this section.
- statuteAS 45.45.010enactment date not established
The words that state the rule
Interest may not be charged by express agreement of the parties in a contract or loan commitment that is more than the greater of 10 percent or five percentage points above the annual rate charged member banks for advances by the 12th Federal Reserve District on the day on which the contract or loan commitment is made. A contract or loan commitment in which the principal amount exceeds $25,000 is exempt from the limitation of this subsection.
- statuteAS 45.45.010enactment date not established
The words that state the rule
A bank, credit union, savings and loan institution, pension fund, insurance company, or mortgage company may not require or accept any percent of ownership or profits above its interest rate. This subsection does not apply to a loan if the principal amount of the loan is $1,000,000 or more and the term of the loan is five years or more, or to a negatively amortizing loan secured by owner-occupied real property originated under a program approved or sponsored by (1) the federal government, including congressionally chartered national corporations; or (2) the state if (A) the real property that secures the loan is not subject to forced sale provided the owner has not violated the terms of the loan agreement including terms regarding (i) payment of property taxes; (ii) payment of hazard or fire insurance premiums; (iii) keeping the property in reasonable repair; (iv) not vacating the property for a period longer than 12 months; (B) the owner may not be evicted from the real property that secures the loan unless a term of the loan agreement regarding a matter listed in (A)(i) — (iv) of this paragraph has been violated; (C) neither the estate nor any heir of the former owner may be compelled to pay a deficiency judgment related to the loan; and (D) the estate or an heir of the former owner has a right of first refusal and may either pay off the loan balance in full, if the former owner had equity in the property, or pay a sum not to exceed 95 percent of the value of the property at the time of exercise of the right of first refusal as determined by an independent real estate appraiser licensed under AS 08.87 .
- statuteAS 45.45.010enactment date not established
The words that state the rule
Loan contracts and commitments covering one- to four-family dwellings may be prepaid without penalty, except federally insured loans that require a prepayment penalty.
- statuteAS 45.45.010enactment date not established
The words that state the rule
If the limitations on interest rates provided for in this section are inconsistent with the provisions of any other statute covering maximum interest, service charges, or discount rates, then the provisions of the other statute prevail.
“Defective” means that reading found something to correct. What you are reading is the rule as it stands after that reading.