FACTS Mariam Bibi and Javed Raja married and later bought a home in Anchorage with loans from IndyMac Bank, F.S.B. (IndyMac). IndyMac's loans were secured by deeds of trust on the couple's home. They later received an additional loan of around $10,000 from Kevin Elf-rink. The loan from Elfrink charged 10% interest but also included a funding fee of $4,000 rolled into the rest of the loan for payment over time rather than being charged and paid at the outset. Elfrink testified that the funding fee was to compensate him for educating himself about the Bibi businesses, inventorying their equipment, making calls, and generally ensuring that he was making a sound loan. He also testified that he only charges the fee when he decides to extend a loan, not when he declines. Over the course of six years, the couple made irregular payments, increased the loan balance three times until it exceeded $25,000, agreed to an interest rate increase to 12%, and eventually defaulted. Elfrink began foreclosure proceed-ings and then bought the house at the foreclosure sale by bidding all the money he was due to him under the modi-fied promissory note, satisfying the couple's debt to him. Following the foreclosure, Elfrink brought a suit against Bibi and Raja to remove them from the home. Bibi moved out of her home but filed a counterclaim for usury. The superior court denied Bibi's usury claim, determining that Bibi had no standing, time barred her claim, and in any event, concluded the loan did not violate Alaska's usury statute because the funding fee was not interest and the usury statute did not apply once the loan's principal rose over $25,000 Bibi appeals.

DECISION The superior court's denial of Bibi's coun-terclaim for usury is reversed, and the case is remanded for calculation of Bibi's usury award.

OPINION Stowers, C. J. Alaska's general usury statute applies to loans of $25,000 or less. [Citation.] The statute allows a borrower who has paid usurious interest to recover double the amount of interest she pays in excess of the stat-ute's cap, [citation], but the borrower's total payments have to exceed the loan principal plus legal interest before she can recover. [Citation.]

Bibi argues she is entitled to recover under the usury stat-ute. First, she argues that Elfrink's original loan was usuri-ous because (1) when one treats the funding fee as disguised interest its initial interest rate exceeded the usury statute's cap and (2) the third loan modification's interest rate of 12% violated the usury statute on its face. Second, she argues that the three modifications to the original loan were each separate loans, so every loan was under $25,000 and thus subject to the interest cap. Third, she argues that adding the escrow payments and the proceeds from Elfrink's foreclo-sure sale, she paid the principal amount plus interestboth usurious and legalon each loan, and at least one of these paymentsthe foreclosure sale proceedswas within the statute of limitations. Accordingly, Bibi contends she satisfies the requirements for recovery under the usury statute and should prevail on her claim.

While we do not agree with all of Bibi's arguments, we conclude that Bibi is entitled to recover under the usury statute based on the following: (1) it was error to conclude that Bibi had no standing to bring her usury claim; (2) it was error to conclude the funding fee was not disguised interest; (3) the superior court correctly determined that the usury statute's cap on interest did not apply to most of the loan period, but it did apply before the loan's balance exceeded $25,000; (4) a borrower must make payments that exceed a usurious loan's principal plus lawful interest before she can recover under the usury statute; (5) it was error to conclude foreclosure sale proceeds do not constitute a payment for purposes of the usury statute; and (6) in light of the foreclo-sure sale it was error to conclude that Bibi's usury claim was time barred. We hold that Bibi may recover under the usury statute, and we provide instructions to guide the superior court in calculating her award on remand. ***

In March 2007, at the time of Elfrink's initial loan to Bibi and Raja, AS 45.45.010(b) established the maximum allowable interest rate for loans under $25,000 at 11.25 %. [Citation.] Under AS 45.45.020, "[a] person may not, directly

Part III

or indirectly, receive in money, goods, or things in action, or in any other manner, a greater sum or value for the loan or use of money ... than is prescribed in AS 45.45.010. " The superior court found that Elfrink's original loan to Bibi and Raja was not usurious because the additional $4,000 fee Bibi was obligated to pay over the life of the loan was a "service fee or funding fee" rather than disguised interest. *** Bibi argues Elfrink's funding fee is simply interest in dis-guise. While she concedes that the interest rate on the face of the deed of trust promissory note was 10%, she argues that when one looks at the underlying transaction, the interest rate was actually much higher. Her math is based on a prin-cipal of $10,597, the amount of money Bibi and Raja actu-ally received from Elfrink, rather than $14,597, the amount received plus the $4,000 funding fee. Bibi argues that because she and Raja received $10,597 and were obligated to pay back $14,597 plus 10% interest through 24 monthly pay-ments of $673.58, she paid over $16,000 ($673.58 24) for a $10,597 loan, which she argues yields an effective interest rate far exceeding 11.25%, the maximum allowable interest rate at the time. [Citation.]

*** Our precedent demonstrates that determining whether a

fee is considered interest under Alaska's usury laws involves an application of law to fact that we review de novo, [cita-tion], though factual questions underlie the determination. We have previously identified the set of factual questions germane to this determination. [Citation.]

Among the factual questions which we think are germane are the following: what charges, if any, the loan fee is designed to defray; whether the loan fee is a one-time charge or assessed throughout the life of the loan; whether the amount of the loan fee is dependent on the amount of the loan or the risk of the enterprise being financed; whether the loan fee and interest rate are charged on the entire committed amount no matter what the size and period of the balances outstanding; and what difference, if any, there is between [the bank's] inter-nal accounting treatment of the loan fee and that of interest. *** [Citation.] We also explained that "[i]f the loan fee is either substan-tially similar to interest in all material respects or unrea-sonably large, the loan fee, or a portion thereof, could well be treated as an interest charge in computing the effective interest rate for purposes of AS 45.45.010(b)." [Citation.] ***

These decisions establish two principles. First, while a loan transaction may facially comply with the cap on interest rates found in AS 45.45.010, it may nevertheless be charging an effective interest rate in violation of that cap because of disguised interest. [Citation.] Second, whether this is the case requires a court to determine if, given the facts regarding the substance of a given transaction, the transaction "come[s] within the broad terms of the Alaska usury law" [citation] or, stated alternatively, whether the service fee is "treated as an interest charge in computing the effective interest rate for purposes of AS 45.45.010(b)." [Citation.] This determina-tion is an application of law to fact.

Here the superior court failed to consider some of the

"factual questions ... germane" to the funding fee issue we identified in [citation]. We find two questions particularly relevant to the issue before us. First, the court did not con-sider whether the funding fee was "a one-time charge or assessed throughout the life of the loan." [Citation.] The fee was rolled into the rest of the loan for payment over time rather than charged and paid at the outset. Thus it was assessed throughout the life of the loan, which favors concluding that it was interest. [Citation.] Second, the court did not consider whether the funding fee was unreason-ably large. [Citation.] Elfrink claims his work investigating the [Bibi] business assets, meeting with Bibi and Raja, and making calls was worth $4,000, all to ensure that a loan for around $10,000 was sound. But the funding fee was

The legal effect of a usurious loan varies from state to

state. In a few states, the lender forfeits both principal and interest. In some jurisdictions, the lender can recover the principal but forfeits all interest. In other states, only that portion of interest exceeding the permitted maximum is forfeited, whereas in still other states, the amount forfeited is a multiple (double or treble) of the interest charged. How the states deal with usurious interest already paid also varies. Some states do not allow the borrower to recover any of the usurious interest she has paid; others allow recovery of such interest or a multiple of it.

Violations of publiC poliCy [13-2] The reach of a statute may extend beyond its language. Sometimes the courts, by analogy, use a statute and the policy it embodies as a guide in determining a person's rights under a private contract. Conversely, the courts frequently must express the "public policy" of the state without significant help from statutory sources. This judi-cially declared public policy is very broad in scope, it often being said that agreements having "a tendency to be injurious to the public or the public good" are contrary to public policy. Contracts raising questions of public policy include agreements that (1) restrain trade, (2) excuse or exculpate a party from liability for his own negligence, (3) are unconscionable, (4) involve tortious conduct, (5) tend to corrupt public officials or impair the legislative process, (6) tend to obstruct the administration of justice, or (7) impair family relationships. This section focuses on the first five of these types of agreements.

over 37% of the value of the loan Bibi and Raja received. *** This establishes that the funding fee was unreasonably

large. Lastly, given the language of AS 45.45.020, which defines interest as value "for the loan or use of money," Elfrink's own testimony that his funding fee is charged only if the loan is made, rather than regardless of whether it is made, places the funding fee squarely "within the broad terms of the Alaska usury law" [citation] because it is charged "for the loan or use of money," not for services. [Citation.]

INTERPRETATION Usury statutes establish a maxi-mum rate of interest for which a lender may charge a bor-rower, and some fees are considered to be interest under usury statutes.

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