# The Attorney General of Texas April 10, 1981 MARK WHITE AttorneyGeneral Honorable Carl A. Parker, Chairman Senate Committee on Financial Institutions P. 0. BoxUO68 Austin, Texas 78711 Opinion No. MW-319 Re: Whether article XVI, section 11 of the Texas Constitution requires that legislation tying the interest rate to a moving index fii anabsolute maximum rate Dear Senator Parker: You ask whether article XVI, section ll of the Texas Constitution requires that an absolute maximum interest rate be fixed inall cases where the authorized rate is tied to a moving index. Article XVI, section 11 provides inpertinent part:

The Legislature shall have authority to..

. define interest and fix maxmum rates of interest; provided, however, in the absence of legislation fixing maximum rates of interest all contracts for agreater rate of interest gan ten per centum 00%) per annum shall be deemed usurious.

. . . Webelieve your question is answered byLetter Advisory No. 146(1977) issued by this office. That letter addressed the question of whether the legislature could authorize the Finance Commission to establish maximum interest rates for small loans. Itstated asfollows:

Article 16,section 11autho&es the LegMature ‘to fix’ maximum rates of interest. The word ‘fix’ hasa variety of meanings, depending uponthe context. See Gist v. Rackliffe-Gibson Const. Co., 123 S.W. 92I [MO. 19091 Webelieve the followine definition from .~~.~~~~~,~ ~~~ ~~~ Webster’s Second International DictLnary states the meaning of ‘fix’ as it appears in this constitutional provision: to set or place definitely; to

establish;.

. . to determine; to assign precisely. We note that Texas courts have assumed ‘fix’ in this provision to be interchangeable with ‘establish.’ See -

p. 1024Honorable Carl A. Parker - Page Two (MN-319)

Freeman v. Gonzales County Savings & Loan Ass’n, 526 S.W. 2d 774, 777 (Tex. Civ. App. - Corpus Christi 1975) lafPd, 534 S.W. 2d 903 (Tex. 197611; Home Savings Ass’n of Dallas County v. Crow, 514SW. 2d 160, 165(Tex. Civ. App. - Dallas 1974),ati’d, 522 S.W. 2d 457 (Tex 1975). We believe the Constitz authorizes the Legislature to enact statutes establishing a precise figure as the maximum interest rate. If it does not enact such statutes, or if for other reasons there is no legislation fixing maximum interest rates for any class of transactions, the Constitution itself fries a ten percent maximum. InAttorney General Opinion MW-17(19791,weconsidered the constitutionality of a bill whichstated the interest rate asone percent more than the discount rate on 90- day commercial paper in effect on theday the loan is made. The bill, however, gave a minimum interest rate of 10% and a maximum rate of 12%. We found that the bill

‘Ifties an absolute maximum rate of interest, in that in no instance may the rate exceed 12 percent a year.” We noted that if the legislature wished to ensure the validity of the bill, it could draft a severability clause to render the 12 percent maximumapplicable regardless of the validity of the other provisions. It is clear from Attorney General Opinion MW-17and Letter Advisory No. 146 that a numerical maximum interest rate must be stated inlegislation which attempts to set the interest rate. We do not believe that the legislature would infact fix the maximum interest rate if it were to enact a formula permitting the computation of maximum interest from economic indicators. Such a statute might permit the computation of a precise maximum interest rate at any given time; however, it only fixes the interest rate in a relative sense. We believe the constitution requires the legislature to fix anabsolute maximuminterest rate. SUMMARY Article XVI, section 11of the Texas Constitution requires that legislation fixing the Interest rate state a numerical maximuminterest rate. 

# AMARK WHITE Attorney General of Texas JOHN W.FAINTER, JR. First Assistant Attorney General RICHARD E.GRAY III Executive Assistant Attorney General. .

Honorable Carl A. Parker - Psge Three (MlrJ-319)

Prepared by SusanL. Garrison Assistant Attorney General APPROVED: OPINIONCOMMlTTEE SusanL. Garrison, Chairman Jon Bible Rick Gilpin ThomasM.Pollan