Opinion ID: 1060695
Heading Depth: 2
Heading Rank: 2

Heading: First Certified Question: Calculation of Service Charge

Text: Included in the package of reform legislation enacted in 1979 was the Industrial Loan and Thrift Companies Act, (Loan and Thrift Act), which governs the conduct of industrial loan and thrift companies, such as the defendant in this matter. See Tenn.Code Ann. §§ 45-5-101, et seq. The purpose of this legislation was described as follows: An Act to revise and restate the Industrial Loan and Thrift Companies Act; to regulate Industrial Loan and Thrift Companies; to define terms used herein; to set maximum effective rates of interest; to authorize and limit the charges made by such persons; to regulate the powers and practices of such persons; to authorize supervision and regulation of such persons by the Commissioner of Insurance and to provide for the powers of the Commissioner of Insurance; to establish procedures, remedies and penalties, civil and criminal; to declare the purposes of the Act and to provide for its construction; and to repeal Chapter 20 of Title 45, Tenn.Code Ann. and all laws in conflict herewith. 1979 Tenn. Pub. Acts 204 (emphasis added). The scope of the Loan and Thrift Act is described in Tenn.Code Ann. § 45-5-104 (1993 Repl.) as follows: This chapter applies only to persons engaged in business as industrial loan and thrift companies or industrial banks or industrial investment companies. Neither the requirement of registration nor any other provision of this chapter shall apply to any state or national bank (other than industrial banks), any state or federal savings and loan association, any state or federal credit union, any insurance company, or any other person engaged in the business of making loans whose activities in so doing are subject to supervision and regulation by a state or federal administrative agency; nor shall the requirement of registration or any other provision of this chapter apply to licensed pawnbrokers or to any other person engaged in the sale of goods or services as such. Industrial loan and thrift companies, such as the defendant in this case, which have registered under the Loan and Thrift Act are designated registrants by Tenn. Code Ann. § 45-5-102(14) (Supp.1998). The maximum interest rates that registrants can charge for loans is set forth in Tenn.Code Ann. § 45-5-401 (1993 Repl.). The maximum rates under the Loan and Thrift Act are more than twice the earlier constitutional limit of ten percent. The Loan and Thrift Act also enabled registrants to charge uniform fixed loan services charges, which had been previously prohibited by the pre-1978 version of Article 11, Section 7 and this Court's decision in Cumberland Capital Corp .. The first certified question in this appeal involves the statutory provision that permits the imposition of fixed loan service charges, Tenn.Code Ann. § 45-5-403(1)(A) (Supp.1998), which provides as follows: Limitations on loan charges.No registrant under this chapter has the power to charge loan charges other than, or in amounts greater than, the following: (1)(A) Registrants may charge a service charge in an amount equal to four percent (4%) of the total amount of the loan, which charge may be deducted in advance from the principal of the loan. This service charge shall be in lieu of all other compensation for services, expenses, detriments or commitments directly incident to the loan, except those charges which are otherwise specifically provided in this chapter. This charge is authorized and limited on the basis that it is generally reasonably related to the total costs and expenses which it is designed to cover, and in order to make the amount of such charges more certain and readily ascertainable by such registrants, their borrowers and the commissioner; and to that end, registrants shall not be required to maintain detailed records with respect to the services, expenses, detriments or commitments covered thereby. This charge shall not, however, be imposed on that portion of a loan used to pay any existing loan or part thereof owing by the same borrower or spouse, or both, to the same registrant or any affiliated lender. (Emphasis added). Thus, under this statutory provision, the amount upon which the four percent loan service charge can be imposed by a registrant is determined by subtracting from the total amount of the loan an amount that consists of that portion of a loan used to pay any existing loan or part thereof owing by the same borrower ... to the same registrant. The latter phrase is not defined by the Loan and Thrift Act. The phrase total amount of the loan is defined at Tenn.Code Ann. § 45-5-102(17) (Supp.1998) as the aggregate amount of money scheduled to be paid by a borrower to a registrant to repay a loan, including principal and any interest precomputed and deducted in advance. (Emphasis added). Principal is separately defined as the total of money paid to, received by, or paid or accredited to the account of the borrower, including loan charges as provided in § 45-5-403(1), (2)and (3), as applicable, and including insurance charges for which the borrower contracts to pay pursuant to § 45-5-305. Tenn.Code Ann. § 45-5-102(13) (Supp.1998). Interest is defined as compensation for the use, detention or forbearance to collect money over a period of time, and does not include compensation for other purposes, including, but not limited to: (A) Time-price differentials; (B) Loan charges as provided in § 45-5-403; and (C) Insurance charges as provided in § 45-5-305. Tenn.Code Ann. § 45-5-102(9)(Supp.1998). The plaintiffs in this case do not dispute that the defendant accurately determined the total amount of the loan in calculating the loan service charges. Rather, the dispute between the parties centers around the determination of the amount that is to be subtracted from the total amount of the loan which is that portion of a loan used to pay any existing loan or part thereof owing by the same borrower ... to the same registrant. As stated above, the latter provision is not a defined term. According to the defendant, this phrase means that portion of the refinancing loan used to pay the amount of the original loan that is outstanding as of the date of the refinancing, which latter amount does not include interest on the original loan that has not and will not accrue as a result of the refinancing transaction. The plaintiffs, on the other hand, interpret the phrase to mean the total amount of the loan, as defined in Tenn.Code Ann. § 45-5-102(17), with respect to the original loan, determined as of the date of the refinancing. Under the plaintiffs' interpretation, this amount should include the interest on the original loan that would have accrued after the date of refinancing, even though the interest never, in fact, accrues because the original loan is retired by the refinancing loan. The problem with the plaintiffs' interpretation is that no portion of the refinancing loan is used to pay such nonexistent interest. No portion of the refinancing loan is used to pay interest on the original loan that, because of the refinancing, never in fact accrues. Thus, we agree with the defendant that no subtraction is allowed under Tenn.Code Ann § 45-5-403(1)(A) (Supp.1998), for such nonexistent interest. Moreover, the General Assembly, having used the defined phrase (the total amount of the loan) to establish the first variable, could have used the same defined term to establish the second variable had it intended for the phrase, that portion of a loan used to pay any existing loan or part thereof owing by the same borrower ... to the same registrant to mean the same thing. The fact that the General Assembly did not use the same defined term demonstrates that it did not intend for that definition to apply to establish the second variable. State v. Lewis, 958 S.W.2d 736, 739 (Tenn.1997). We do not regard the disputed portion of Tenn.Code Ann. § 45-5-403(1)(A) (Supp.1998) as ambiguous, at least not ambiguous in a manner that would justify the plaintiffs' proposed interpretation. Thus, we are not persuaded by the plaintiffs' reliance on certain portions of the legislative history of the Loan and Thrift Act. As we recently stated in Storey v. Bradford Furniture Co., Inc., 910 S.W.2d 857, 859 (Tenn.1995): [i]n interpreting legislative provisions, our role is `to ascertain and give effect to the legislative intent without unduly restricting or expanding a statute's coverage beyond its intended scope.' ... If the intent can be determined from the plain language of the provision read in the context of the entire statutory scheme, we must conclude our inquiry there.... If the language is ambiguous and does not yield a clear interpretation, we may consult the legislative history for additional interpretive guidance. (Citations omitted). We note, however, that even if we were to regard the disputed portion of the statute as ambiguous, we would find more persuasive than the legislative history the fact that the Tennessee Department of Financial Institutions, [2] which has been responsible for enforcing the Loan and Thrift Act, has consistently applied the defendant's interpretation of the statute. See e.g., Covington Pike Toyota, Inc. v. Cardwell, 829 S.W.2d 132 (Tenn.1992). Therefore, with respect to the first certified question, we hold that in determining the maximum service charge that lawfully can be imposed under Tenn.Code Ann. § 45-5-403(1)(A) (Supp.1998), the amount to be subtracted from the total amount of the loan, as defined in Tenn.Code Ann. § 45-5-102(17), is the amount of the refinancing loan that is used to pay all or any portion of the outstanding balance of the initial loan from the registrant to the borrower. However, interest that had not accrued before the date of the refinancing and retirement of the initial loan should not be included as part of the outstanding balance of the initial loan which is subtracted from the total amount of the loan.