Case Name: FLEET FINANCE, INC. OF GEORGIA et al. v. JONES et al.
Court: Supreme Court of Georgia
Jurisdiction: Georgia
Decision Date: 1993-06-14
Citations: 263 Ga. 228
Docket Number: S93A0185
Parties: FLEET FINANCE, INC. OF GEORGIA et al. v. JONES et al.
Judges: All the Justices concur, except Benham, J., who dissents.
Reporter: Georgia Reports
Volume: 263
Pages: 228–239

Head Matter:
S93A0185.
FLEET FINANCE, INC. OF GEORGIA et al. v. JONES et al.
(430 SE2d 352)

Opinion:
Sears-Collins, Justice.
The appellant, Fleet Finance, Inc. of Georgia (hereinafter "Fleet"), holds promissory notes and security deeds from the three appellees, who filed the present action against Fleet. The appellees contended that Fleet was charging usurious interest rates under OCGA § 7-4-18 and that therefore Fleet should be enjoined from proceeding with threatened foreclosures and should be required to forfeit all interests contracted for under the notes. The appellees also moved for a class certification, contending, among other things, that § 7-4-21, which prohibits class certification where a loan is secured by real property, was unconstitutional. Fleet opposed the appellees' motion for class certification and filed a motion to dismiss the appellees' áction, on the ground that the notes were not usurious. The trial court enjoined Fleet from proceeding with any foreclosures; granted the appellees' motion for class certification, ruling that § 7-4-21 was unconstitutional for numerous reasons; and denied Fleet's motion to dis miss. Although we do not condone Fleet's interest-charging practices, which are widely viewed as exorbitant, unethical, and perhaps even immoral, and suggest that further regulation of the lending industry is needed by our General Assembly to insure the economic survival of individuals like the appellees, we are constrained to hold that the loans in question are legal and not usurious. We thus must reverse the denial of Fleet's motion to dismiss. For that reason, we need not address the issues regarding class certification.
1. Whether the appellees' loans are usurious centers around various issues regarding the discount points and loan origination fees that Fleet charged to the appellees at the closing of their loans. These front-end interest fees ranged from 22 percent to 27 percent of the principal amount of the appellees' loans. The appellees did not pay for these fees in cash at closing. Instead, the fees were deducted from the face amount of the loans in question, thus reducing the net amount of loan proceeds actually paid to the appellees, and the appellees agreed to pay for them in a small, fixed amount over the life of the loan. The fees, however, became nonrefundable and nonrebateable at closing. In addition to these fees, Fleet charged yearly interest rates ranging from 18.9 percent per annum to 19.9 percent per annum.
In their complaint the appellees based their contention that the loans were usurious on OCGA § 7-4-18, which provides that
[a]ny person, company, or corporation who shall reserve, charge, or take for any loan or advance of money . . any rate of interest greater than 5 percent per month . . . shall be guilty of a misdemeanor.
Before the trial court, the appellees contended that the use of the phrase "per month" in § 7-4-18 means that interest must be calculated for each individual month of the loan, and that, if the interest received in any one month exceeds five percent, the loan violates the statute. The appellees also contended that interest payments must be attributed to the month in which they are received and that nonrefundable discount points and origination fees must be deemed received in the first month of a loan. Calculating the interest under the appellees' method, the interest for the first month of the appellee's loans greatly exceed five percent. For instance, the interest rate for the first month of the loan of appellee Elizabeth Jones would be 23 percent.
Fleet responded that under § 7-4-18 the "rate of interest. . . per month," must be calculated based upon the ratio of total interest paid to the total number of months in the loan. Fleet further contended that we adopted this method of calculating interest in Norris v. Sigler Daisy Corp., 260 Ga. 271, 273 (3) (392 SE2d 242) (1990), and that Norris was controlling in this case. Moreover, Fleet responded that, even if § 7-4-18 were interpreted to prohibit interest greater than five percent in any one month of the loan, it should not be construed so as to attribute nonrefundable discount points and origination fees to the first month because they are amortized and paid over the life of the loan. Calculating the interest under Fleet's method, the monthly interest rates for the appellees' loans are 1.57 percent, 1.67 percent, and 1.60 percent, well below 5 percent per month permitted by § 7-4-18.
With respect to Fleet's argument regarding Norris, the appellees conceded that in Norris we adopted the method of calculating interest urged by Fleet, but they contended that Norris was not controlling because the appropriate method of treating discount points and origination fees was not at issue in Norris and because Sigler Daisy Corp. would have lost the appeal even applying the interest calculation method most favorable to it.
The trial court ruled that under § 7-4-18 interest had to be calculated for each individual month of the loan; that if the interest in any one month exceeded five percent, the entire loan was usurious; that the discount points and origination fees had to be attributed to the first month of the appellees' loans; and that doing so caused the first month's interest for the loans to exceed five percent.
2. For numerous reasons, Fleet contends the trial court's ruling was in error. We first address Fleet's contention that the method of calculation used in Norris is binding in this case. We disagree with Fleet's assertion, because the competing interpretations of § 7-4-18 advanced in this case were not advanced in Norris and because the method we adopted was most favorable to Sigler Daisy Corp. and still resulted in the company losing the appeal. Moreover, although earlier decisions of this court have calculated the rate of interest "per annum" by totalling the cost of credit over the life of the loan in determining if a loan that included up-front interest charges exceeded the specified rate "per annum," those decisions also did not address the competing interpretations of the usury statute urged in this case. Green v. Equitable Mtg. Co., 107 Ga. 536, 539-540 (33 SE 869) (1899); Clarke v. Havard, 111 Ga. 242, 249 (36 SE 837) (1900); Harvard v. Davis, 145 Ga. 580, 586 (4) (89 SE 740) (1916).
3. We thus turn to Fleet's contention that § 7-4-18 must be interpreted generally to require the consideration of the total interest paid over the entire period of a loan in determining if a loan is usurious. As previously noted, the appellees contend that the statute should be interpreted to mean that a person who charges more than five percent in any given month of a loan is guilty of a misdemeanor.
With respect to this issue, we first note that § 7-4-18 is a criminal statute. It thus must be construed strictly against criminal liability and, if it is susceptible to more than one reasonable interpretation, the interpretation most favorable to the party facing criminal liability must be adopted. Carsello v. State, 220 Ga. 90, 94 (137 SE2d 305) (1964); Bankston v. State, 258 Ga. 188, 190 (367 SE2d 36) (1988). This rule applies even though a criminal statute is being construed in a civil context. F.C.C. v. American Broadcasting Co., 347 U. S. 284, 296 (74 SC 593, 98 LE2d 699) (1954); Bingham, Ltd. v. United States, 724 F2d 921, 925 (11th Cir. 1984).
We conclude that the statute is subject to multiple interpretations and that strictly construing it, we must adopt the one most favorable to Fleet. Relying on Hartsfield Co. v. Fulwiler, 59 Ga. App. 194 (200 SE 309) (1938), the appellees contend that the phrase "rate of interest . . . per month" requires an interest calculation for each individual month of the loan and that if the interest actually paid in any given month exceeds five percent, the entire loan is usurious. The appellees would thus interpret § 7-4-18 to read "rate of interest greater than 5 percent in any one month." However, "per month" is defined as "by the month," see Black's Law Dictionary, p. 1022 (5th ed. 1979), and thus does not necessarily mean "in any one month." Indeed, the method urged by Fleet, see footnote 2, supra, itself gives a rate of interest "by the month." Moreover, the phrase "per month" might merely be an integral part of the rate of interest by specifying how often the rate of interest may be charged, i.e, by the month, thus only establishing a benchmark by which some interest payment might be judged and not specifying that the interest payment to be judged is the interest actually paid in any one month or is the total interest for the loan period. Furthermore, if the phrase "any rate of interest greater than 5 percent per month" is read to require a calculation based on the actual interest paid for each individual month of the loan, it could just as easily be read to require the lender to charge more than five percent for each and every month of the loan, instead of for any one month of the loan, in order for the loan to be usurious.
Another consideration is that the construction of OCGA § 7-4-18 that is urged by Fleet is supported by § 7-4-1, which we have held must be construed with § 7-4-18; Wall v. Lewis, 192 Ga. 652 (16 SE2d 430) (1941). Section 7-4-1 provides that the "term 'usury' means reserving and taking or contracting to reserve and take . a greater sum for the use of money than the lawful interest." On a fixed-term loan, the "sum for the use of money" would appear to mean the total interest extracted over the life of the loan. Moreover, "lawful interest" would appear to mean the five percent per month specified in § 7-4-18. Thus, § 7-4-1 would appear to contemplate that a loan is not usurious under § 7-4-18 unless the total interest exceeded five percent per month.
Moreover, because the interest, including front-end points and fees, on a fixed-term, fixed-rate loan induces the lender to make the loan for the entire loan period and not for any one month or year, because the borrower has the use of the amount loaned for the entire loan period, and because the usury penalty applies to the interest for the entire contract, OCGA § 7-4-10; Norris, supra, 260 Ga. at 273 (4), it seems reasonable that the loan has to be tested for usury based on interest charged for the entire loan period. The Texas Supreme Court relied on these factors to hold that a usury statute that prohibits a specified rate of interest per annum is not violated when the interest for any one year exceeds the specified rate. Tanner Dev. Co. v. Ferguson, 561 SW2d 777, 787 (Tex. 1977). Instead, the court concluded that a usury statute is not violated so long as the aggregate amount of interest over the life of the loan, including front-end interest charges, does not exceed the amount permitted by law. Id. Relying on similar factors, other courts have reached the same conclusion on loans with front-end points and origination fees. Montgomery Fed. Sav. &c. Assn. v. Baer, 308 A2d 768, 771-773 (D.C. App. 1973); B. F. Saul Co. v. West End Park North, 246 A2d 591, 595-597 (Md. 1968); Collins v. Union Fed. Sav. &c. Assn., 662 P2d 610, 616 (Nev. 1983); French v. Mtg. Guarantee Co., 104 P2d 655, 657-659 (Cal. 1940).
The appellees advance several other contentions to support their "in any month" construction of § 7-4-18. They contend that Fleet's interpretation of § 7-4-18 will lead to the absurd result of permitting Fleet to charge as much as 200 points at closing and 19.9 percent interest per year without violating § 7-4-18. This contention, however, reflects displeasure not so much with spreading points and origination fees but with the fact that § 7-4-18 does not regulate points and permits 60 percent interest a year, as Fleet could simply extract the same amount of interest as that posed by the appellees' hypothetical by charging interest of 60 percent per year. The "absurd result" advanced by the appellees is thus permitted by law. The appellees' displeasure with this result is a matter better expressed to the General Assembly. Moreover, the hypothetical posed by the appellees is offset by the equally troubling hypotheticals posed by Fleet if we were to adopt the appellees' position.
The appellees also contend that Fleet's construction of § 7-4-18 should not be adopted because it is possible that, if a borrower took out a loan with high nonrebateable front-end interest charges and made an early prepayment of the loan, the payoff of the loan would include interest in excess of five percent per month. However, it is well-established that usury cannot be based upon speculation of such a contingent event. See 47 CJS 255, Interest & Usury; Consumer Credit, § 139 & 140.
Having evaluated the foregoing reasons advanced in support of the conflicting interpretations of § 7-4-18, we conclude that Fleet's construction of the statute is at least as reasonable, if not more so, than the construction advanced by the appellees. Because § 7-4-18 is a criminal statute, we must adopt the interpretation urged by Fleet. We thus now expressly approve the method of calculating usury for purposes of § 7-4-18 employed in Norris. To the extent that Fulwiler, supra, 59 Ga. App. 194, and Crowe v. State, 44 Ga. App. 719 (162 SE 849) (1931), are inconsistent with this opinion, they are overruled.
4. Furthermore, even adopting the appellees' interpretation that interest must be calculated under § 7-4-18 based on the interest re ceived in any given month, we conclude that § 7-4-18 cannot be construed so as to attribute nonrefundable points and origination fees to the first month of a loan when those items are actually paid over the life of the loan.
The purpose of construing § 7-4-18 to prohibit lenders from charging more than five percent interest in any one month would be to permit borrowers to know the status of their principal and interest payments on a monthly basis and to prevent lenders from assessing a high interest charge in any one month. Hartsfield Co. v. Fulwiler, supra, 59 Ga. App. 195-196. Here, the structure of the loans do not violate the intent of the statute as so construed. Under their agreement with Fleet, the appellees have fixed payments every month, faced no threat of default at closing by the deduction of the points and origination fees, and similarly face no threat of default through high interest charges in any given month, as it is undisputed that the appellees pay a set amount of interest every month that is well under the five percent permitted by law.
For this reason, and because § 7-4-18 is a criminal statute that must be strictly construed, we conclude that even if § 7-4-18 prohibited a lender from charging in excess of five percent in any one month, the front-end interest charges could not be attributed to the first month of the loan. With these items attributed to the month in which they were paid, the loans in question are not usurious.
Judgment reversed.
All the Justices concur, except Benham, J., who dissents.
In Norris v. Sigler Daisy Corp., 260 Ga. 271 (392 SE2d 242) (1990), we held that discount points and loan origination fees must be treated as interest under § 7-4-18, Norris at 272-273 (2), and that borrowers may rely on our criminal usury statute to seek civil penalties such as the forfeiture of interest, id. at 271-272 .(1).
Under Fleet's method, the interest on the loan of appellee Elizabeth Jones is calculated as follows:
Face amount of note $16,140.00
Less upfront interest fees $ 2,895.00
Net principal received by Jones $13,245.00
Sum of payments due under note $50,808.60
Minus net principal $13,245.00
Total cost of credit $37,563.60
Total cost of credit $37,563.60
Divided by months in loan 180
Simple interest per month $208.69
Interest per month $208.69
Divided by principal $13,245.00
Monthly interest rate 1.57%
Fulwiler interpreted the Small Loan Act of 1920, which prohibited a rate of interest greater than 3 Vi percent per month, consistently with the interpretation of § 7-4-18 that is advanced by the appellees.
We express no opinion as to the proper rule to apply in cases dealing with variable interest, indefinite term loans.
The appellees do not contend that Fleet has accelerated any of their loans and made a demand for payment, including all front-end interest, that would amount to usury when the interest rate is calculated from the inception of the loan to the date of acceleration. Whether such circumstances would warrant the truncation of the loan period from that agreed to by the parties is not now before us. Compare Savannah Sav. Bank v. Logan, 99 Ga. 291 (25 SE 692) (1896), and Knight v. First Federal Sav. &c. Assn., 151 Ga. App. 447, 450 (260 SE2d 511) (1979), with Williams v. First Bank &c. Co., 154 Ga. App. 879, 881-883 (4) (269 SE2d 923) (1980) and Goodwin v. Trust Co., 144 Ga. App. 787, 790-791 (3) (242 SE2d 302) (1978).