Opinion ID: 2538609
Heading Depth: 2
Heading Rank: 3

Heading: Statutory Interpretation of IPFCA

Text: The central issue in this case is the interpretation of the IPFCA maximum service charge provision. The interpretation of a statute is a question of law, subject to de novo review. State v. J.P., 149 Wash.2d 444, 449, 69 P.3d 318 (2003). When called upon to interpret a statute, our primary obligation is to give effect to the legislature's intent. Lacey Nursing Ctr. v. Dep't of Revenue, 128 Wash.2d 40, 53, 905 P.2d 338 (1995). Our review always begins with the plain language of the statute. Id. In determining plain meaning, we may look to `all that the Legislature has said in the statute and related statutes which disclose legislative intent about the provision in question.' J.P., 149 Wash.2d at 450, 69 P.3d 318 (quoting Dep't of Ecology v. Campbell & Gwinn, L.L.C., 146 Wash.2d 1, 11, 43 P.3d 4 (2002)). Further, a court must not add words where the legislature has chosen not to include them. A court also must construe statutes such that all of the language is given effect, and `no portion [is] rendered meaningless or superfluous.' Id. (quoting Davis v. Dep't of Licensing, 137 Wash.2d 957, 963, 977 P.2d 554 (1999)). If a statute is subject to more than one reasonable interpretation, this court may look to the legislative history of the statute and the circumstances surrounding its enactment to determine legislative intent. See Philip A. Talmadge, A New Approach to Statutory Interpretation in Washington, 25 SEATTLE U.L.REV. 179, 203 (2001).
IPFCA was passed in 1969, before the widespread use of computers, and most of the chapter remains unchanged. RCW 48.56.020(2) allows for a service charge to be included in the premium finance agreement: Premium finance agreement means an agreement by which an insured ... promises to pay to a premium finance company the amount advanced ... under the agreement to an insurer ... in payment of premiums on an insurance contract together with a service charge as authorized and limited by this chapter and as security therefor the insurance premium finance company receives an assignment of the unearned premium. IPFCA also provides for a maximum service charge: (1) A premium finance company shall not charge, contract for, receive, or collect a service charge other than as permitted by this chapter. (2) The service charge is to be computed on the balance of the premiums due (after subtracting the down payment made by the insured in accordance with the premium finance agreement) from the effective date of the insurance coverage, for which the premiums are being advanced, to and including the date when the final installment of the premium finance agreement is payable. (3) The service charge shall be a maximum of ten dollars per one hundred dollars per year plus an acquisition charge of ten dollars per premium finance agreement which need not be refunded upon cancellation or prepayment. RCW 48.56.090 (emphasis added). A survey of state statutes that impose maximum finance charges reveals that the formula, maximum of x dollars per one hundred dollars per year, can be characterized as a term of art whose use consistently, and perhaps exclusively, denotes the add-on calculation. [3] See KEEST & RENUART, supra, § 4.3.2, at 129 (many add-on interest rate statutes do not use the words `add-on' to describe the rates therein. They may, for example, use such terms as `$8.00 per $100 per annum' to describe an 8% add-on rate.). Further, various courts have construed statutes similar to Washington's to create maximum rates according to the add-on calculation. In Auto-Train, 9 B.R. at 163, a federal bankruptcy court applied a statute identical in all relevant respects to RCW 48.56.090. The statute in question limited the allowable service charge to `$6.00 per $100 per year, plus an additional charge of $10 per Premium Finance Contract which need not be refunded upon cancellation or prepayment.' Id. n. 11 (quoting 35 D.C.Code § 1369). The Auto-Train court calculated the maximum allowable finance charge according to the add-on method. Id. Moreover, in a case decided in the same year that IPFCA was enacted, the Minnesota Supreme Court interpreted a maximum finance charge of $8 per $100 per year. Ruona v. Freeway Dodge, Inc., 285 Minn. 23, 171 N.W.2d 212, 214 (1969). The Ruona court stated: The legislature, however, chose to express the maximum authorized finance charges in terms of a ratio of dollars per hundred dollars per year. This is commonly known in the finance industry as an add-on rate. Id. at 216. RDI has not pointed to any case interpreting a statute using the formula x dollars per one hundred dollars per year, in which the court found that language to require anything other than an add-on calculation. [4] See In re Armstrong, 288 B.R. 404, 425-26 (Bankr.E.D.Pa.2003) (calculating a maximum of $8 per $100 per annum as add-on); In re Corcoran, 268 B.R. 882, 886 (Bankr.M.D.Fla. 2001) (interpreting maximum of $17 per $100 per year to contemplate add-on calculation); Yates Ford, Inc. v. Ramirez, 692 S.W.2d 51, 53-54 (Tex.1985) (interpreting $7.50 per $100 per annum to set a maximum add-on interest rate); Centennial Assocs., Ltd. v. Clark, 384 So.2d 616, 617 (Ala.1980) (interpreting $8 per $100 terminology to mean the add-on calculation, not simple interest); Falcone v. Palmer Ford, Inc., 242 Md. 487, 219 A.2d 808, 814 (1966); Van Asperen v. Darling Olds, Inc., 254 Minn. 62, 93 N.W.2d 690, 697-98 (1958). Although each of these courts also referred to relevant surrounding statutory language, these cases speak to the consistency with which this formula denotes the add-on calculation. Additionally, references to commercial terms should be given the meaning commonly used in the regulated industry, absent clear legislative intent to the contrary. See City of Spokane, ex rel. Wastewater Mgmt. Dep't v. Dep't of Revenue, 145 Wash.2d 445, 452, 38 P.3d 1010 (2002); 2A NORMAN J. SINGER, STATUTES AND STATUTORY CONSTRUCTION § 47:31, at 366-67 (6th ed.2000). In using x dollars, per one hundred dollars per year, the various state legislatures that have employed that terminology may have recognized a standard practice in the finance industry. Rest. Dev., Inc., 114 Wash.App. at 199, 55 P.3d 680 ([A] finance charge expressed `in terms of a ratio of dollars per hundred dollars per year' is `commonly known in the finance industry as an add-on rate.') (quoting Ruona, 171 N.W.2d at 216). Moreover, it appears the industry has interpreted Washington's insurance premium finance maximum rate as 10% add-on plus flat $10. FIN. PUBL'G CO. (PUBLICATION NO. 830), THE COST OF PERSONAL BORROWING IN THE UNITED STATES WA-01, Foreword (1991) (interpreting and noting that [i]n general the figures in this book will be based on the way things are done [in the industry].). In addition to employing this term of art, the Washington State Legislature also defined the manner in which the service charge should be calculated: The service charge is to be computed on the balance of the premiums due (after subtracting the down payment made by the insured in accordance with the premium finance agreement) from the effective date of the insurance coverage, for which the premiums are being advanced, to and including the date when the final installment of the premium finance agreement is payable. RCW 48.56.090(2). RDI argues that because RCW 48.56.090(2) does not require computation of the service charge based on the original amount financed, the simple interest method is required. [5] However, RDI ignores the parenthetical definition of balance of the premiums due, specifically, (after subtracting the down payment made by the insured in accordance with the premium finance agreement), which accomplishes the same result. This provision does not direct calculation of the service charge based on the unpaid balance, but instead indicates that the service charge should be computed based on the balance after subtracting the down payment. In fact, this language is common in statutes that refer to the add-on calculation. [6] Similarly, RDI argues that the time for calculating the service charge, namely from the effective date of the insurance coverage, for which the premiums are being advanced, to and including the date when the final installment of the premium finance agreement is payable, RCW 48.56.090(2), requires periodic calculation of interest charges on the declining balance. But this clause simply establishes the time period over which the interest rate must be calculated, which is a necessary element of the add-on formula. [7] In sum, the plain language of RCW 48.56.090, [ x ] dollars per one hundred dollars per year, is a term of art, whose use consistently refers to the add-on method for calculating service charges. RCW 48.56.090(2) instructs insurance premium finance companies to calculate the service charge after subtracting the down payment, but not on a periodic basis. Therefore, the plain language of the statute supports calculating service charges by using an add-on method.
The circumstances surrounding the 1969 enactment of IPFCA also support the add-on interpretation. A commentator, writing just after the enactment of IPFCA, reflected upon the then recent boom in the insurance premium financing business and the need for effective regulation. Frank A. Valenti, Comment, Insurance Premium Financing, 19 BUFF. L.REV. 656, 660-61 (1970). He noted that many legitimate premium finance agencies were seeking legislation because state usury statutes were often unduly restrictive when applied to this industry. The typical small account size meant that usury rates would render the business unprofitable. [8] Id. at 661. As a result, there was a movement from within the industry for authorization of a rate which would yield a return more in line with that of other businesses. Id. In fact, several state premium finance laws, enacted during the same general time period, include language that is very similar to Washington's. [9] This legislative history may explain why the legislature would have allowed an add-on calculation method for this industry, even though it results in a higher effective APR than the simple interest calculation.