Opinion ID: 2445246
Heading Depth: 1
Heading Rank: 3

Heading: interest payment

Text: Mr. McElroy first contends that the trial court erred in determining the amount of interest he paid on the loan. Ark. Const, art. 19, § 13(a) provides that the maximum rate of interest shall not exceed 5% per annum above the applicable Federal Reserve Discount Rate. This was established at trial to be 10.5%. Art. 19, § 13 further provides that all contracts having a rate of interest in excess of the maximum lawful rate will be void as to the unpaid interest. Although the chancellor determined that the usurious transaction at issue involved the initial loan of $80,000 at a repayment of $120,000 (i.e. interest in the amount of $40,000), he erroneously relied on appellee Doshier's calculation of interest under the second contract for deed, which called for a payment of $125,000 to be made in installments at a 10% interest rate. These figures were calculated by Mr. Doshier during a discussion with Mr. McElroy concerning his repayments under the contract for deed and the chancellor understandably relied on them as no other calculations regarding the amount of interest already paid by Mr. McElroy were offered. The calculations showed that of a total of $46,000 paid by Mr. McElroy, $10,866 of that amount went to interest under the terms of the contract. In determining whether a contract is usurious, it must be viewed as of the time it is entered into. Hayes v. First Nat'l Bank of Memphis, 256 Ark. 328, 507 S.W.2d 701 (1974). Since the usurious transaction began with the original loan of $80,000 to be repaid at $120,000, the amount of interest paid must be calculated on the basis of that initial transaction, rather than the second contract for deed. At trial, Mr. Danny Criner, President of Newton County Bank, testified that an $80,000 loan, repaid at $40,000 in one year and $80,000 the following year, would result in an annual interest rate of 30 to 35%. No further testimony or calculations were offered to explain these figures. Mr. McElroy's computations place the illegal rate at approximately 25%. Because of these discrepancies, we remand the case so that the correct annual interest rate of the original transaction can be calculated. In addition, we instruct the trial court to determine, in accordance with the dates and amounts of payments made by Mr. McElroy, how much of the payments already made constitutes payment toward the principal debt and how much constitutes interest. There is sufficient evidence of the exact dates and amounts of the payments in the record from which to calculate the interest. Mr. McElroy has suggested a method of calculation using a 25% rate of interest, and a 365 exact-day interest formula. We note that this is one of four acceptable methods of computing simple interest, and refer the trial court to our discussions in Martin's Mobile Homes v. Moore, 269 Ark. 375, 601 S.W.2d 838 (1980), and Ford Motor Credit Co. v. Hutcherson, supra , for guidance as to the appropriate method of calculation.