‘Lower interest rates of existing CDA loans’

Gov. Benigno R. Fitial has asked the Commonwealth Development Authority to reduce its interest rates for outstanding loans.

Fitial noted a significant discrepancy between loan interest rates in the U.S. mainland and rates in the Commonwealth.

“In general, CNMI borrowers pay more in interest payments than U.S. citizens on the U.S. mainland. CNMI loan interest rates are higher for a variety of loan categories, such as auto loans, personal loans, revolving lines of credit, and home equity loans,” he said in a March 10, 2006 letter to acting CDA chief executive officer Oscar C. Camacho.

CDA offers two types of direct loan, with a maximum term of 30 years. The interest rate on agricultural and marine loans is a fixed 4.5 percent, while the rate on commercial loans is a fixed 7 percent.

The authority also offers a loan guarantee program, using its limited resources to help local entrepreneurs secure loans from banks. Currently, CDA is doing business with Bank of Guam, Bank of Hawaii, Bank of Saipan, and City Trust Bank. Interest rates are set at the bank’s prevailing rate.

According to Fitial, a review of loan interest rates posted on www.bankrate.com shows a huge discrepancy between rates in the U.S. mainland and in the CNMI.

He cited, for example, a 60-month car loan, which can be secured in the U.S. mainland for a mere 6.51 percent. In the CNMI, he said, the interest rate for the same loan would be more than double the prevailing U.S. rate.

“Although U.S. interest rates are rising due to Federal Reserve monetary policy, interest rates in the CNMI still significantly exceed the average loan rates in the States. For this reason—basic fairness and equity—I ask CDA to lower its interest rate for all outstanding loans. A lower rate will most certainly help CNMI borrowers better meet their financial obligation to CDA, particularly in this distressed CNMI economy,” the governor said.

“As the Speaker of the 14th House of Representatives, I asked CDA to consider lowering its rate. As governor, I am again asking CDA to lower its interest rate. Such a move would bring our rates more in line with prevailing U.S. market rates,” he added.

In May 2005, the CDA board of directors lifted a five-year moratorium on direct loans and lowered loan interest rates.

The interest rate for commercial loans was reduced from 9 percent to 7 percent, while that for fishing and farming loans was cut from 5 percent to 4.5 percent.