Court Opinion

ID: 5369809
Source: CourtListenerOpinion
Date Created: 2022-01-08 08:06:51.06474+00
Date Added: 2024-06-11T08:29:59.893820
License: Public Domain

Townley, J.
(dissenting). The question in this case is whether plaintiff is exacting compound interest in violation of section 352 of the Banking Law on the following facts: On November 9, 1940, on an original loan of $120 repayable at two and one-half per cent per month on the unpaid principal balance, there was outstanding an unpaid principal balance of $68.42 plus accrued interest of forty-six cents. On the said date it was agreed to renew the loan and a new note for $125 was given. The lender paid over the difference, in cash, namely, $56.12. Installments under the new note have not been paid, on the ground that the new note includes an accrued interest of forty-six cents and, therefore, involves a claim for compound interest.
Section 352 of the Banking Law provides in part:
“ No interest, consideration, or charge for the use of money shall be deducted or received in advance or compounded, and all interest, consideration and charges for the use of money shall be computed on unpaid principal balances. * * *
*530“ If any interest, consideration or charges in excess of those permitted by this act are charged, contracted for, or received the contract of loan shall be void and the licensee shall have no right to collect or receive any principal, interest, or charges whatsoever.”
On precisely similar facts, the United States Circuit Court of Appeals of the Second Circuit (Madison Personal Loan v. Parker, 124 F. [2d] 143) followed certain Georgia decisions and the trend of cases in other States and held that a transaction such as above described amounts to the adding of interest to principal and is, therefore, both a compounding and an illegal or excessive charge.
It seems obvious that any other holding will easily enable unscrupulous lenders to make short term notes which cannot possibly be paid off and which will need similar renewing. It would not be long under such conditions before the unpaid interest far exceeded the principal. The avoidance of such a state of things is the primary purpose of the statute. The result reached by the United States Circuit Court of Appeals is in accordance with the letter and spirit of the law and it should be followed here.
Judgment should be entered for the defendants.
Martin, P. J., concurs.
Judgment directed in favor of the plaintiff for the sum of $125, with interest. Settle order on notice.