Opinion ID: 544790
Heading Depth: 2
Heading Rank: 2

Heading: Merits of Usury Claim

Text: 41 The trial court based its opinion to deny the motion for summary judgment on its determination that the Georgia general usury statute, O.C.G.A. Sec. 7-4-2, did not foreclose plaintiffs'-appellees' action under O.C.G.A. Sec. 7-4-18. In other words, the court held that the definition of interest in Sec. 7-4-2, which did not include [a]mounts paid or contracted to be paid as either an origination fee or discount points, or both, on any loan secured by an interest in real estate, did not define interest as used in the criminal statute Sec. 7-4-18. 42 The relevant parts of Sec. 7-4-2 for the purpose of the present discussion are: 43 (3) As used in this Code section, the term interest means a charge for the use of money computed over the term of the contract at the rate stated in the contract or precomputed as a stated rate on the scheduled principal balance or computed in any other way or any other form. Principal includes such charges to which the parties may agree under paragraph (1) of subsection (a) of this Code section. Amounts paid or contracted to be paid as either an origination fee or discount points, or both, on any loan secured by an interest in real estate shall not be considered interest and shall not be taken into consideration in the calculation of interest and shall not be subject to rebate as provided in paragraph (1) of subsection (b) of this Code section. 44 O.C.G.A. Sec. 7-4-2(a)(3) (emphasis added). 45 The relevant parts of Sec. 7-4-18, as amended in 1983, are as follows: 46 7-4-18. Criminal penalty for excessive interest. 47 (a) Any 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, either directly or indirectly, by way of commission for advances, discount, exchange, ... or by any contract, contrivance, or device whatsoever shall be guilty of a misdemeanor; ... 48 . . . . . 49 (c) Nothing contained in Code Section 7-4-2 ... shall be construed to amend or modify the provisions of this Code section. 50 (Emphasis added). 51 (1) Civil Remedy under Section 7-4-18 52 The seven appellants, in their brief for this Court, concede that, if there was usury, the borrowers would have a civil action, as contended for by the plaintiffs below. Appellants' brief says: 53 If Appellees can prove usury violations under either code section, their only arguable remedy is the forfeiture of all interest and a recovery back of any interest paid within one year prior to the filing of suit. O.C.G.A. Sec. 7-4-10; Pave Way Construction Co. v. Parrish, 187 Ga.App. 428, 370 S.E.2d 495 (1988). 54 Appellants' Br., p. 17. This is the same case relied upon by the appellees before this Court. We, therefore, conclude that there was a civil action available under this section of the Code. 2 55 (2) Were there issues of material fact warranting the trial court's denial of summary judgment? 56 Appellees do not contend that they are entitled to a finding that the charges for the use of money made by Land Bank in the promissory notes would exceed the five percent per month permitted under the criminal statute, if measured over the entire life of the loans. These loans varied from 10 to 15 years. This would be true in spite of the outrageous amount of the finance charges. 3 57 We consider these annual percentage rates to be outrageous in light of the figures shown in the Statistical Abstract of the U.S. 1989, 109th ed., U.S. Dept. of Commerce, Bureau of the Census, Chart 1256, p. 712. This abstract showed that, as contrasted with the points charged here, ranging from 20 to 38, the initial fees in the year 1984 averaged 2.54 percent and in 1985 2.5 percent. At the same time, the average interest rate on residential mortgages for 1984 was 12.0 and in 1985 11.1 percent. 4 58 Moreover, one of the appellants, Federal Deposit Insurance Corporation as receiver for Yankee Bank for Finance and Savings, at least partially concedes the outrageous nature of these loans. It states in its brief here: Although these loans are not usurious, the FDIC does not wish to be viewed as advocating or encouraging loans with high discount points or other fees. FDIC then stated that it had the responsibility to protect the receivership estate against claims which [were] without merit. Appellant's Br., p. 21. 59 As FDIC states, it is within the province of the state legislature to determine what interest rates may become usurious. The State of Georgia has, by enacting Section 7-4-2(a)(3), apparently left the door wide open for any lender to charge any rate of interest on a loan secured by real estate that may be agreed to by the borrower. It is the appellees' contention that the criminal statute, Section 7-4-18, does, however, put a restriction on the amount of interest chargeable to five percent per month, or 60 percent per annum. We must, therefore, consider the conflicting claims by construing the terms of these two code sections. 60 Plaintiffs claim that these notes may be usurious if the remaining principal balance is prepaid within a short enough time to cause the interest as defined in Section 7-4-18 to exceed five percent a month. They also claim that the same result would occur if there is a default by plaintiffs, followed by a foreclosure of the real property, if the foreclosure sale does not produce sufficient money to pay off the balance of the notes. These claims are based on the provision of Section 7-4-2(a)(3): 61 Amounts paid or contracted to be paid as either an origination fee or discount points, or both, on any loan secured by an interest in real estate shall not be considered interest and shall not be taken into consideration in the calculation of interest and shall not be subject to rebate as provided in paragraph (1) of subsection (b) of this Code section. 62 (Emphasis added). Subsection (b)(1) states: 63 Upon acceleration of the maturity of any loan, [or] advance of money, ... upon which interest has been precomputed, unearned interest shall be rebated to the debtor in such amount as would result in the rate of interest earned being no greater than the rate of interest established by the original contract.... 64 Appellants contend that the provisions of Sec. 7-4-2(a)(3) define the meaning of interest in all the Georgia statutes dealing with usury and, therefore, the provision of subsection (a)(3) that precomputed interest should not be rebated precludes appellees' contention in this regard. 65 (3) Does Section 7-4-2(a)(3) define interest for the purposes of Section 7-4-18? 66 Appellants contend that the definition of interest in O.C.G.A. Sec. 7-4-2(a)(3) must be used in construing the language any rate of interest contained in Section 7-4-18. Appellants base this contention on the language of Section 7-4-18(b) which states: This Code section shall not be construed as repealing or impairing the usury laws now existing but shall be construed as being cumulative thereof. 67 In making such argument, they overlook the language of Section 7-4-18(c) which states: Nothing contained in Code section 7-4-2 or 7-4-3 shall be construed to amend or modify the provisions of this Code section. Not only does this section contain subsection (c), but it is to be noted that Section 7-4-2 expressly states that the term interest was as used in this Code section, thus excluding its use in other Code sections. 68 Notwithstanding the opinion of the Department of Banking and Finance of the State of Georgia, in which the deputy banking commissioner opined to the contrary, we are of the opinion that Section 7-4-18 has its own definition of interest. This appears from the language forbidding charging of any rate of interest greater than five percent per month, either directly or indirectly, by way of commission for advances, discount, [or] exchange, ... or by any contract, contrivance or device whatsoever.... 69 By the use of this language, it is clear that the Georgia statute contemplated Section 7-4-18 should be enforced against any person, company or corporation that reserved or charged or took for any loan or advance of money, whether it was done directly or indirectly, by way of commission for advances, by discount, or by any other device whatsoever. Thus, no matter what the charge or withholding might be called by the parties to the contract, it would be considered interest for the purpose of Section 7-4-18. 5 70 It is, therefore, clear that the question whether any such device is a collection of interest or a payment for services rendered presents an issue of fact. We must then determine whether such of these charges as may be found to be interest were sufficient to violate the five percent per month rate permitted to be charged under this criminal code section. 71 (4) The Rebate Issue 72 These notes all contain a provision that if the payment of the indebtedness was accelerated, either voluntarily or on account of default, there would be no rebate of precomputed interest. 73 Thus, it becomes necessary for the trial court to determine whether these extraordinary charges, as discussed above, were a device by which Land Bank took additional interest for the advance of money to the borrowers. The Georgia courts have consistently held that, except as limited by usury statutes, an agreement by a borrower to pay more than the legal rate of interest in connection with the loan must be carefully analyzed to determine whether it is a charge for services actually rendered or is an attempt to charge a usurious rate of interest. As far back as 1887, the Georgia Supreme Court held: 74 The theory that a contract will be usurious or not, according to the kind of paper bag it is put up in, or according to the more or less ingenious phrases made use of in negotiating it, is altogether erroneous. The law intends that a search for usury shall penetrate to the substance. 75 Pope v. Marshall, 78 Ga. 635, 4 S.E. 116, 118 (1887); see also First Federal Savings & Loan Ass'n v. Norwood Realty Co., 212 Ga. 524, 93 S.E.2d 763 (1956). There, the Georgia Supreme Court stated: [T]his court has uniformly and consistently held that a lender's charge for service, where no service was in fact rendered or to be rendered the borrower, is a charge for the use of the money advanced and is therefore interest. 212 Ga. at 531, 93 S.E.2d at 768 (citing Pope v. Marshall, supra ).