Opinion ID: 1794502
Heading Depth: 1
Heading Rank: 7

Heading: The Industrial Loan & Thrift Act

Text: Industrial Loan and Thrift Companies have their Tennessee origin in Chapter 226, Public Acts of 1951. We are concerned only with those portions of the original and amendatory acts as relate to interest. Initially, in this respect, the act simply authorized such companies: To lend money on the personal undertaking of a borrower or other persons, with or without security including certificates of indebtedness or investment purchased by the borrower simultaneously with the said loan transaction, or otherwise, and to deduct interest in advance on the face amount of the loan for the full term thereof. [27] See Sec. 45-2007(f) (Main vol. 8) While the act was in this posture there came before the United States District Court for the Western District of Tennessee the case of In Re Bogan, 281 F. Supp. 242 (W.D.Tenn. 1968). The question presented was whether a note forming the basis of a Loan and Thrift Company bankruptcy claim was usurious. The debtor signed a note for $612.00, received the use of $556.08 and agreed to repay at the rate of $34.00 per month, for a period of 18 months. The Court held this to be interest at the rate of approximately 12 per cent per annum. [28] Judge McRae's opinion contains the following significant language: It should be noted that this court does not consider that it was called upon to determine the constitutionality of the Industrial Loan and Thrift Act; nor does it intend to hold that any portion thereof is violative of the Constitution of the State of Tennessee. The Court does hold that the Act must be interpreted to be limited by Article 11, Section 7 of the Constitution of Tennessee. The Court, therefore, finds in the instant case that the claim note was usurious on its face because it shows that the interest provided was in excess of the constitutional maximum. 281 F. Supp. at 248. After In Re Bogan was decided, the legislature adopted Chapter 466 of the Public Acts of 1968, relating to refunds and refund credits. Then, by Chapter 260, Acts of 1969, Sec. 45-2007(f) was put in its present form. In pertinent part, it now reads as follows: To lend money on the personal undertaking of a borrower or other persons, with or without security including certificates of indebtedness or investment purchased by the borrower simultaneously with the said loan transaction, or otherwise, and to deduct interest at a rate not in excess of 7 1/2% per annum, in advance on the face amount of the loan for the full term thereof. (Emphasis supplied). The constitutionality of this portion of the act is the basic issue before the Court.