Opinion ID: 1794502
Heading Depth: 1
Heading Rank: 8

Heading: Constitutionality of Sec. 45-2007(f)

Text: Sec. 45-2007(f), T.C.A. must be construed to provide for a conventional rate of interest. This construction is a necessary consequence of the conclusion that conventional interest arises by contract and is an agreed rate. That this was the evident intent of the legislature may be gleaned from the fact that Section 47-14-104, T.C.A., the general law regulating interest fixes both a legal and a conventional rate and excepts Industrial Loan and Thrift Companies from the application of the conventional interest provision. Chapter 61, Acts of 1969 became effective April 10, 1969, twenty-five days before the effective date of Chapter 260 of the Acts of 1969 amending the Industrial Loan and Thrift Act. The latter act specifically regulates the rate of interest charged by Industrial Loan and Thrift Companies, and, as the latest, and as a specific act, it would supersede all others. Section 45-2007(f) must, therefore, be tested against Article 11, Section 7 of the Constitution. If it provides for an interest rate within the ten per cent constitutional limitation on conventional interest, it is constitutional; but if the rate provided results in a yield in excess of ten per cent it is unconstitutional and void. Section 45-2007(f) expressly authorizes Industrial Loan and Thrift Companies to deduct interest at a rate not in excess of seven and one-half per cent (7 1/2%) per annum, in advance on the face amount of the loan for the full term thereof. This is discounting in its purest form. But this fact, standing alone does not render the act unconstitutional. This determination rests upon mathematical computations. The notes involved in this litigation were, in legal effect, monthly installment obligations, discounted in advance. In the Appendix we have made calculations showing the effective interest rate upon the advance discounting of such installment loans. The inescapable result of these computations is that Section 1 of Chapter 260 of the Public Acts of 1969, which appears in the Code Supplement as Sec. 45-2007(f) is unconstitutional and void, insofar as it is applied to any note or obligation, discounted at 7 1/2% per centum and payable in monthly installments, or to any other transaction, regardless of how payment is programmed, if the end result is an effective rate of interest in excess of ten per cent.