Case Name: LIVINGSTON, Janet, et al., Plaintiffs, v. FAST CASH USA, INC., et al., Defendants; Wallace, Kelli R., et al., Plaintiffs, v. Advance America Cash Advance Centers of Indiana, Defendants
Court: Supreme Court of Indiana
Jurisdiction: Indiana
Decision Date: 2001-08-16
Citations: 753 N.E.2d 572
Docket Number: Nos. 94S00-0010-CQ-609, 94S00-0010-CQ-610
Parties: LIVINGSTON, Janet, et al., Plaintiffs, v. FAST CASH USA, INC., et al., Defendants. Wallace, Kelli R., et al., Plaintiffs, v. Advance America Cash Advance Centers of Indiana, Defendants.
Judges: 
Reporter: North Eastern Reporter 2d
Volume: 753
Pages: 572–581

Head Matter:
LIVINGSTON, Janet, et al., Plaintiffs, v. FAST CASH USA, INC., et al., Defendants. Wallace, Kelli R., et al., Plaintiffs, v. Advance America Cash Advance Centers of Indiana, Defendants.
Nos. 94S00-0010-CQ-609, 94S00-0010-CQ-610.
Supreme Court of Indiana.
Aug. 16, 2001.
Stephen L. Williams, Mann Law Firm, Terre Haute, IN, David H. Pope, Carr Tabb Pope & Freeman, Atlanta, GA, Clifford W. Shepard, Consumer Law Protection Offices, Indianapolis, IN, Daniel A. Edelman, Edelman Combs & Latturner, Chicago, IL, Attorneys for Plaintiffs.
Judy L. Woods, Bose McKinney & Evans LLP, Indianapolis, IN, James A. Cha-req, Lovells, Washington, DC, Attorneys for Defendants.
Steven C. Shockley, Maggie L. Smith, Sommer & Barnard, PC, Indianapolis, IN, Attorneys for Amicus Curiae.

Opinion:
RUCKER, Justice.
Case Summary
This cause comes to us as a certified question from the United States District Courts for the Southern District of Indiana, Indianapolis and Terre Haute Divisions, and for the Northern District of Indiana, Hammond Division. Pursuant to Indiana Appellate Rule 64, which allows certification of questions of Indiana law for consideration by this Court, we have accepted the following question: is the minimum loan finance charge permitted by Indiana Code section 24-4.5-3-508(7), when charged by a licensed supervised lender, limited by Indiana Code section 24-4.5-38-508(2) or Indiana Code section 85-45-7-2. The answer is yes.
Facts and Procedural History
The certified question arises from numerous cases pending in the federal courts. A majority of the defendants are lenders who are in the business of making small, short-term, single-payment, consumer loans generally referred to as "payday" loans. Some of the defendants are collection agencies or attorneys who do not make loans but represent lenders in actions to collect from borrowers who have defaulted on their loan obligations. The loan amounts range from $50 to $400 and extend for a period of less than thirty days. Lenders contract for and receive as a finance charge an amount equal to or less than the minimum loan finance charge permitted by Indiana Code section 24-4.5-8-508(7). Plaintiffs are persons who have obtained loans from one or more Lenders.
Although the details vary from person to person as well as from lender to lender, typically a payday loan works as follows. The borrower applies for a small loan and gives the lender a post-dated check in the amount of the loan principal plus a finance charge. Depending on the lender, the finance charge varies from $15 to $33. In return, the lender gives the borrower a loan in cash with payment due in a short period of time, usually two weeks. When the loan becomes due, the borrower either repays the lender in cash the amount of the loan plus the finance charge, or the lender deposits the borrower's check. If the borrower lacks sufficient funds to pay the loan when due, then the borrower may obtain a new loan for another two weeks incurring another finance charge.
Acting on behalf of themselves and a putative class of borrowers, plaintiffs allege that Lenders violated Indiana law by contracting for and receiving the minimum loan finance charge permitted by Indiana Code section 24-4.5-3-508(7) when the finance charge exceeded the 836% annual percentage rate ("APR") specified in Indiana Code section 24-4.5-3-508(2) or the 72% APR specified in Indiana Code section 85-45-7-2. Each of the cases pending in the Southern District of Indiana has been stayed pending this Court's determination of the certified question. The cases in the Northern District of Indiana have been dismissed without prejudice pending this Court's determination.
Discussion
The 1968 Uniform Consumer Credit Code was originally adopted by this State's Legislature in 1971 and is referred to as the Indiana Uniform Consumer Credit Code ("IUCCC"). Rates on loan finance charges for supervised loans are gov erned by Indiana Code section 24-4.5-3-508(2) and minimum loan finance charges are governed by Indiana Code section 24-5-3-508(7). More specifically, subsection 3-508(2) provides in relevant part:
The loan finance charge, calculated according to the actuarial method, may not exceed the equivalent of the greater of the following: [] the total of [] thirty-six percent (386%) per year on that part of the unpaid balances of the principal which is three hundred dollars ($300). .
In turn, subsection 8-508(7) dictates in relevant part:
With respect to a supervised loan not made pursuant to a revolving loan account, the lender may contract for and receive a minimum loan finance charge of not more than thirty dollars ($30).
The parties agree that a fifteen-day loan of $200 with a minimum loan finance charge of $33 represents an APR of interest totaling 402%. However, according to Lenders, subsection 3-508(7) is an exception to subsection 3-508(2). Relying on various tenets of statutory construction Lenders contend they are entitled to receive from a borrower a minimum loan finance charge in any amount up to $33 even if the charge exceeds the maximum APR of 36%. We rely on similar tenets but reach a different conclusion.
Where a statute has not previously been construed, the express language of the statute controls the interpretation and the rules of statutory construction apply. Ind. State Fair Bd. v. Hockey Corp. of America, 429 N.E.2d 1121, 1123 (Ind.1982). We are required to determine and effect the legislative intent underlying the statute and to construe the statute in such a way as to prevent absurdity and hardship and to favor public convenience. Superior Constr. Co. v. Carr, 564 N.E.2d 281, 284 (Ind.1990). In so doing, we should consider the objects and purposes of the statute as well as the effects and repercussions of such an interpretation. State v. Windy City Fireworks, Inc., 600 N.E.2d 555, 558 (Ind.Ct.App.1992), adopted by 608 N.E.2d 699.
Before the 1971 adoption of the IUCCC, the Indiana Legislature had passed an array of lending and usury laws. Replaced by the IUCCC, many had been in existence before the turn of the century. One such statute, commonly referred to as the "petty loan" statute, was specifically designed to "provide for a limited and uniform rate of interest upon small loans for short terms." Cotton v. Commonwealth Loan Co., 206 Ind. 626, 190 N.E. 853, 855 (1934); Pub.L. No. 167-1913, § 1-5, 1913 Ind. Acts 457-60. Unlike most lending statutes for which interest rates were generally based on an annual rate, the petty loan statute differed in that it was based on a monthly rate. Cofton, 190 N.E. at 855 (discussing the then existing interest rate of 34% per month for loans up to $300). With the 1971 enactment of the IUCCC, the legislature retreated from a monthly rate of interest and instead set the interest rate at 36% per year for loans of $300 or less. See I.C. § 24-4.5-3-508(2)(a)(1); Pub.L. No. 366-1971, § 4, 1971 Ind. Acts 1687-88. Of course, with this change nothing prohibited lenders from continuing to provide "small loans for short terms." Cotton, 190 N.E. at 855. However, the statute suggests that although the legislature apparently contemplated the continued existence of small loans, consistent with its stated purpose "to simplify, clarify and modernize the law governing retail installment sales, consumer credit, small loans and usury," 1.C. § 24-4.5-1-102(2)(a) (emphasis added), the legislature anticipated that even though small, the loans would extend for at least one year. Subsection 3-508(8)(b) lends support to the view that the then newly enacted IUCCC anticipated longer term loans. That subsection refers to "prepayment" which in turn is controlled by Indiana Code section 24-4.5-3-210. We observe that a one or two-week payday loan is not very amenable to a prepayment scheme.
The early version of subsection 3-210 also supports the view that the IUCCC anticipated loans for longer than a week or two. In 1971 for example, in the case of prepayment for a loan in excess of $75, a lender was allowed to receive a minimum loan finance charge provided it did not exceed $7.50 or the finance charge contracted for. See I.C. § 24-4.5-3-210 (1971). Thus a $200 two-week loan would generate $2.77 in interest, ie., "the finance charge contracted for." It would have been more than an anomaly if a lender were allowed to receive a minimum loan finance charge of $2.77 for a two-week loan paid at the end of the term but receive $7.50 as a minimum loan finance charge if that same two-week loan were paid off a week early.
Subsection 3-508 has been amended three times since 1971. However, each amendment has referred to the prepayment subsection 3-210. At present, subsection 3-508 as well as subsection 3-210 works substantially the same as it has always worked: a lender is allowed to charge up to the amount specified in subsection 8-508(7), limited by the total finance charge that was originally provided for in the contract. Hence, a two-week $200 loan still generates $2.77 in maximum interest. The principal difference between the 1971 version of subsection 3-508 and the current version is that the minimum loan finance charge is now $33 for loans up to $300. If subsection 8-508(7) represents an exception to subsection 3-508(2), as Lenders contend, then there would exist an even greater anomaly today than that which would have existed under the 1971 version of the statute. Specifically, if Lenders are correct, then they would be entitled to receive $2.77 for a two-week loan paid at the end of the term, but entitled to an incredible $38 if the two-week loan were paid off early, for example after a week or even one day. To interpret the statute as Lenders suggest-allowing a minimum finance charge of $33 for a loan that otherwise would generate what amounts to pennies in interest-is inconsistent with the purposes and policies of the IUCCC and creates an absurd result which the legislature could not have intended when the statute was enacted or when the various amendments were adopted.
Lenders complain that reading the statute inconsistent with their own interpretation either renders subsection 3-508(7) a nullity or treats it as mere surplusage. We disagree. Subsection 3-508(7) would be rendered a nullity or mere surplusage only if subsection 3-508(2) can be read as anticipating short term loans. As we have attempted to demonstrate, we do not believe that is the case. In essence these statutes simply do not work very well when applied to short-term payday type loans. By contrast, subsections 83-5082) and (7) work together harmoniously for loans of at least a year. For example, a $200 one-year loan would entitle the lender to $72 in interest if the loan were paid at the end of the term. In the event of prepayment-even after one day-the lender would be entitled to a minimum loan finance charge of $83. This seems to make sense. Even though the lender would not receive the full amount of interest originally anticipated, the lender is still afforded a modest but reasonable return on an investment and also allowed to recoup administrative costs associated with setting up a small loan. Only because Lenders have made a business decision to offer short-term payday loans are they faced with a dilemma which in their view justifies a $33 minimum loan finance charge. See Reply Br. of Def. at 6 (complaining "annual rates of interest do no not adequately compensate the lender."). This Court can offer Lenders no refuge. Even if short term payday loans were never contemplated by the IUCCC, they are nonetheless subject to and controlled by that statute. Accordingly, Lenders may contract for and receive a loan finance charge of not more than $33 as set forth in subsection 3-508(7) provided the resulting APR does not exceed the interest limit established by 3-508(2) or Indiana's loansharking statute.
Conclusion
We conclude that the minimum loan finance charges for supervised loans provided for in Indiana Code section 24-4.5-8-508(7) are limited by the maximum 36% APR allowed in Indiana Code section 24-4.5-3-508(2). We further conclude that minimum loan finance charges for supervised loans provided for in Indiana Code section 24-4.5-8-508(7) are limited also by Indiana Code section 85-45-7-2.
DICKSON and SULLIVAN, JJ., concur.
BOEHM, J., concurs with separate opinion.
SHEPARD, C.J., dissents with separate opinion.
. For ease of reference we refer to all defendants collectively as "Lenders."
. A "supervised loan" is defined as a "consumer loan in which the rate of the loan finance charge exceeds twenty-one percent (21%) per year...." Ind.Code § 24-4.5-3-501(1).
. In relevant part, "loan finance charge" is defined as "all charges payable directly or indirectly by the debtor and imposed directly or indirectly by the lender as an incident to the extension of credit...." LC. § 24-4.5-3-109(1)(a).
. Since 1994, the minimum loan finance charge has been subject to bi-annual indexing on July 1 of even numbered years and thus is adjusted automatically once every two years. I.C. § 24-4.5-3-508(6); I.C. § 24-4.5-1-106. The current minimum loan finance charge is $33.
. See Pub.L. No. 125-1917, § 2, 1917 Ind. Acts 404 (allowing lenders of "small loans" to charge 34% interest per month on loans not exceeding $300); LC. ch. 80, § 7043 (1901) (allowing interest rate of up to 6% per year in absence of written agreement and up to 8% per year if a written agreement exists); I.C. ch. 74, § 5198 (1888) (same); LC. ch. 5, § 1 (1870) (capping interest rate chargeable to a borrower by a lender at 6% per year); 1.C. ch. 57, § 1 (1852) (same); LC. art. 3, § 25 (1843) (same).
. The statute provides in relevant part:
Upon prepayment in full of a consumer loan, refinancing, or consolidation, other than one (1) under a revolving loan account, if the loan finance charge earned is less than any permiited minimum loan {i-nance charge (IC § 24-4.5-3-2-1(6) or IC § 24-4.5-3-508(7)) contracted for, whether or not the consumer loan financing, or consolidation is precomputed, the lender may collect or reiain the minimum loan finance charge, as if earned, not exceeding the loan finance charge contracted for.
1.C. § 24-4.5-3-210(2).
. The statute provides in relevant part:
A person who, in exchange for the loan of any property, knowingly or intentionally receives or contracts to receive from another person any consideration, at a rate greater than two (2) times the rate specified in IC § 24-4.5-3-508(2)(a)(i), commits loansharking, a Class D felony.
I.C. § 35-45-7-2.