Opinion ID: 779716
Heading Depth: 3
Heading Rank: 1

Heading: sbia

Text: 10 The SBIA provides consequences in the event that a lender charges a small business borrower an interest rate that exceeds the maximum limit authorized by statute. No case has interpreted the remedial provisions of the SBIA at issue in this case, which state: 11 (A) If the maximum rate of interest authorized under paragraph (2) on any loan made by a small business investment company exceeds the rate which would be authorized by applicable State law if such State law were not preempted for purposes of this subsection, the charging of interest at any rate in excess of the rate authorized by paragraph (2) shall be deemed a forfeiture of the greater of (i) all interest which the loan carries with it, or (ii) all interest which has been agreed to be paid thereon. 12 (B) In the case of any loan with respect to which there is a forfeiture of interest under subparagraph (A), the person who paid the interest may recover from a small business investment company making such loan an amount equal to twice the amount of interest paid on such loan. Such interest may be recovered in a civil action commenced in a court of appropriate jurisdiction not later than two years after the most recent payment of interest. 13 15 U.S.C. § 687(i)(4) (emphasis added). 14 In this case, both parties agree that PMF charged TTI an interest rate greater than that permitted under the statute, and PMF concedes that it must pay TTI twice the interest that TTI paid on the usurious loan, in accordance with 15 U.S.C. § 687(i)(4)(B). The sole point of disagreement between the two parties on this issue is how to interpret the remedial provisions of § 687(i)(4), and specifically, whether the return of the promissory notes, as ordered by the district court, is a remedy permitted by the statute. 15 PMF contends that the forfeiture of interest provision stated in § 687(i)(4)(A) provides a defense to borrowers if a lender sues to recover interest on a usurious loan. In contrast with § 687(i)(4)(B), which provides borrowers with an affirmative recovery of interest paid, PMF argues that § 687(i)(4)(A) provides a remedy when usurious interest has been charged, but not collected. Thus, it argues that § 687(i)(4)(A) has no relevance to this case. TTI, on the other hand, contends that because PMF retained the promissory notes largely on account of forfeited interest, PMF ran afoul of § 687(i)(4)(A), and thus, the district court correctly ordered the notes returned to TTI. The issue, in short, is whether § 687(i)(4)(A) provides an aggrieved debtor with a basis for affirmative recovery. 16 When interpreting a statute, the plain meaning controls. See Robinson v. Shell Oil Co., 519 U.S. 337, 340-41, 117 S.Ct. 843, 136 L.Ed.2d 808 (1997). By its terms, the statute establishes an affirmative recover[y] of interest paid in § 687(i)(4)(B) and does not contain language of recovery in § 687(i)(4)(A). For example, paragraph (B) states who may recover (the person who paid the interest), what they may recover (amount equal to twice the amount of interest paid on the loan), how they may recover (by commencing a civil action), where they must act (in a court of appropriate jurisdiction), and when they may recover (not later than two years after the most recent payment of interest). 15 U.S.C. § 687(i)(4)(B). Paragraph (A) contains none of these details and instead contains self-executing bar language (shall be deemed a forfeiture). When compared with the language of paragraph (A), the level of specificity detailed in paragraph (B) about how a borrower may recover supports PMF's position that paragraph (B) provides the sole vehicle for a borrower's recovery of interest paid. 17 Although no court has yet decided whether § 687(i)(4)(A) of the SBIA allows for return of retained collateral, cases interpreting usury statutes similar to the SBIA support PMF's contention that the forfeiture provision of § 687(i)(4)(A) provides only a defense to borrowers, as opposed to a vehicle for recovery. Usury statutes providing remedies both for interest charged — forfeiture of all interest — and for interest paid — recovery of twice the interest paid — have been interpreted as providing separate defensive and affirmative remedies. For example, the Supreme Court explained in Talbot v. First Nat'l Bank of Sioux City that a similar usury statute 6 provided for two cases. 185 U.S. 172, 180, 22 S.Ct. 612, 46 L.Ed. 857 (1902). These two scenarios were (1) where illegal interest has been taken, received, or charged; 7 and (2) where illegal interest has been paid. Id. The Court explained that in the first case, the entire interest ... shall be deemed forfeited, and that in the second case, the person who has paid `the greater rate of interest may recover twice the amount of interest thus paid.' Id. 18 A more illustrative explanation of the difference between the two remedies in a similar statute 8 is found in Dietz v. Phipps (In re Sunde), 149 B.R. 552 (Bankr. D.Minn.1992). In Dietz, the court highlighted the different types of relief afforded by the two different remedies. Id. at 559, n. 5. 19 [T]he first sentence allows prospective relief — the lender may be barred from recovering all future interest and from collecting all unpaid, past-matured interest. The second sentence makes retrospective relief available to the borrower by allowing the recovery of all previously-paid interest, plus a penalty in an equal amount. If the borrower defends on a usury theory, relief under the first sentence would seem to be mandatory. If, however, the borrower chooses to sue in his own right, he can obtain affirmative relief under the second sentence. 20 Id. (emphasis in original). 21 Similarly, the Court of Appeals of New York has explained the difference between a lender's forfeiture of interest and its penalty of paying the borrower twice the interest actually paid. Szerdahelyi v. Harris, 67 N.Y.2d 42, 499 N.Y.S.2d 650, 490 N.E.2d 517 (1986). The statute at issue in that case provided two separate remedies when a bank issued a usurious loan: any interest on the loan was forfeited and [a] penalty is also assessed: any excess interest paid by a borrower to the [lender] may be recovered from [the lender] in twice the amount paid. Id. at 521. The court articulated the difference between the forfeiture and penalty provisions, namely that forfeiture required a lender to forego his right to interest on the loan, whereas the penalty provision required actual payment of money received. A penalty is commonly understood to be the exacting of a sum of money as punishment for performing a prohibited act ... ( see, Black's Law Dictionary, at 1020 [5th ed 1979]), e.g., the payment of double the amount of excess interest.... A forfeiture is the loss of a right by the commission of a crime or fault ( id. at 584), e.g, the forfeiture of interest. Id. (Emphasis added.) 22 Secondary authority generally describing usury statutes also discusses the two types of remedies those statutes usually contain. Typically, a usury statute ... creates one of two scenarios: it may require payment of a penalty upon payment of usurious interest by the borrower, or in the alternative require forfeiture of interest where there has been no payment made on a note which is otherwise deemed usurious. 45 Am.Jur.2d Interest and Usury § 310 (1999). Forfeiture of interest is characterized as a defensive mechanism, being available only when a lender presses a borrower for the interest. The right [under a similar usury statute] to the forfeiture of usurious interest ... generally is asserted as a defense to an action by the [lender]. Id. § 314; see also id. (Provisions for the forfeiture of unpaid interest as a penalty for the exaction of an agreement to pay interest at a usurious rate appear to attach only when an effort is made to enforce a usurious contract.); Consumer Usury and Credit Overcharges § 2.4.1, National Consumer Law Center (1982) (Usury remedies usually allow the borrower to recover any interest paid and to discharge obligations for outstanding interest amounts.) (emphasis added). 23 Therefore, we read § 687(i)(4) as affording the same type of remedies as similar usury statutes: the forfeiture provision, § 687(i)(4)(A), provides a defense to borrowers in the event that a lender tries to collect any interest on a usurious loan. If interest has already been paid on the loan, the borrower may recover in a civil action twice the interest paid, provided that the action is commenced within the two year statute of limitation. § 687(i)(4)(B).