ATTORNEYS FOR PLAINTIFFS: ATTORNEYS FOR DEFENDANTS:
STEPHEN L. WILLIAMS JUDY L. WOODS
Mann Law Firm Bose McKinney & Evans LLP
Terre Haute, Indiana Indianapolis, Indiana
DAVID H. POPE JAMES A. CHAREQ
Carr Tabb Pope & Freeman Lovells
Atlanta, Georgia Washington, DC
CLIFFORD W. SHEPARD ATTORNEYS FOR AMICUS CURIAE
Consumer Law Protection Offices
Indianapolis, Indiana STEVEN C. SHOCKLEY
MAGGIE L. SMITH
DANIEL A. EDELMAN Sommer & Barnard, PC
Edelman Combs & Latturner Indianapolis, Indiana
Chicago, Illinois
IN THE
SUPREME COURT OF INDIANA
LIVINGSTON, JANET, ET AL., )
)
Plaintiffs, )
) Supreme Court Cause Number
v. )
) 94S00-0010-CQ-609
FAST CASH USA, INC., ET AL., )
)
Defendants. )
)
----------------------------------------------------------------------------
------------------------------------
)
WALLACE, KELLI R., ET AL., )
)
Plaintiffs, )
) Supreme Court Cause Number
v. )
) 94S00-0010-CQ-610
ADVANCE AMERICA CASH )
ADVANCE CENTERS OF INDIANA, )
)
Defendants. )
CERTIFIED QUESTION FROM THE U.S. DISTRICT COURT, NORTHERN and
SOUTHERN DISTRICTS OF INDIANA
Cause Nos. IP-99-1226-C(B/S), IP 99-1887-C(B/S); IP-00-45-C(D/S); IP-00-46-
C(T/S); IP-00-60-C(B/S)
IP-00-121-C(H/S);IP-00-122-C(Y/S); IP-00-137-C(H/S); IP-00-138-C(B/S); IP-
00-163-C(M/S); IP-00-165-C(T/S); IP-00-166-C(H/S); IP-00-339-C(H/S); IP-00-
676-C(H/S); IP-00-902-C(H/S); IP-00-903-C(H/S); IP-00-957-C(B/S); IP-00-964-
C(B/S); IP-00-1001-C(H/S); IP-00-1101-C(H/S); and
TH-00-32-C(M/S)
Cause Nos. 2:00cv0123AS; 2:00cv0179AS; 2:00cv0189AS; 2:00cv0313AS;
2:00cv0388AS; 3:00cv0070AS; 3:00cv0072AS; 3:00cv0077AS; 3:00cv0259AS;
3:00cv0724AS; 1:00cv0101AS; 1:00cv0102AS; 1:00cv0181AS; 1:00cv0276AS; and
1:00cv0314AS.
CERTIFIED QUESTION
August 16, 2001
RUCKER, Justice
Case Summary
This cause comes to us as a certified question from the United States
District Courts for the Southern District of Indiana, Indianapolis and
Terre Haute Divisions, and for the Northern District of Indiana, Hammond
Division. Pursuant to Indiana Appellate Rule 64, which allows
certification of questions of Indiana law for consideration by this Court,
we have accepted the following question: is the minimum loan finance
charge permitted by Indiana Code section 24-4.5-3-508(7), when charged by a
licensed supervised lender, limited by Indiana Code section 24-4.5-3-508(2)
or Indiana Code section 35-45-7-2. The answer is yes.
Facts and Procedural History
The certified question arises from numerous cases pending in the
federal courts. A majority of the defendants are lenders who are in the
business of making small, short-term, single-payment, consumer loans
generally referred to as “payday” loans. Some of the defendants are
collection agencies or attorneys who do not make loans but represent
lenders in actions to collect from borrowers who have defaulted on their
loan obligations.[1] The loan amounts range from $50 to $400 and extend
for a period of less than thirty days. Lenders contract for and receive as
a finance charge an amount equal to or less than the minimum loan finance
charge permitted by Indiana Code section 24-4.5-3-508(7). Plaintiffs are
persons who have obtained loans from one or more Lenders.
Although the details vary from person to person as well as from lender
to lender, typically a payday loan works as follows. The borrower applies
for a small loan and gives the lender a post-dated check in the amount of
the loan principal plus a finance charge. Depending on the lender, the
finance charge varies from $15 to $33. In return, the lender gives the
borrower a loan in cash with payment due in a short period of time, usually
two weeks. When the loan becomes due, the borrower either repays the
lender in cash the amount of the loan plus the finance charge, or the
lender deposits the borrower’s check. If the borrower lacks sufficient
funds to pay the loan when due, then the borrower may obtain a new loan for
another two weeks incurring another finance charge.
Acting on behalf of themselves and a putative class of borrowers,
plaintiffs allege that Lenders violated Indiana law by contracting for and
receiving the minimum loan finance charge permitted by Indiana Code section
24-4.5-3-508(7) when the finance charge exceeded the 36% annual percentage
rate (“APR”) specified in Indiana Code section 24-4.5-3-508(2) or the 72%
APR specified in Indiana Code section 35-45-7-2. Each of the cases pending
in the Southern District of Indiana has been stayed pending this Court’s
determination of the certified question. The cases in the Northern
District of Indiana have been dismissed without prejudice pending this
Court’s determination.
Discussion
The 1968 Uniform Consumer Credit Code was originally adopted by this
State’s Legislature in 1971 and is referred to as the Indiana Uniform
Consumer Credit Code (“IUCCC”). Rates on loan finance charges for
supervised loans[2] are governed by Indiana Code section 24-4.5-3-508(2)
and minimum loan finance charges[3] are governed by Indiana Code section 24-
5-3-508(7). More specifically, subsection 3-508(2) provides in relevant
part:
The loan finance charge, calculated according to the actuarial method,
may not exceed the equivalent of the greater of the following: [] the
total of [] thirty-six percent (36%) per year on that part of the
unpaid balances of the principal which is three hundred dollars ($300)
. . . .
In turn, subsection 3-508(7) dictates in relevant part:
With respect to a supervised loan not made pursuant to a revolving
loan account, the lender may contract for and receive a minimum loan
finance charge of not more than thirty dollars ($30).[4]
The parties agree that a fifteen-day loan of $200 with a minimum loan
finance charge of $33 represents an APR of interest totaling 402%.
However, according to Lenders, subsection 3-508(7) is an exception to
subsection 3-508(2). Relying on various tenets of statutory construction
Lenders contend they are entitled to receive from a borrower a minimum loan
finance charge in any amount up to $33 even if the charge exceeds the
maximum APR of 36%. We rely on similar tenets but reach a different
conclusion.
Where a statute has not previously been construed, the express
language of the statute controls the interpretation and the rules of
statutory construction apply. Ind. State Fair Bd. v. Hockey Corp. of
America, 429 N.E.2d 1121, 1123 (Ind. 1982). We are required to determine
and effect the legislative intent underlying the statute and to construe
the statute in such a way as to prevent absurdity and hardship and to favor
public convenience. Superior Constr. Co. v. Carr, 564 N.E.2d 281, 284
(Ind. 1990). In so doing, we should consider the objects and purposes of
the statute as well as the effects and repercussions of such an
interpretation. State v. Windy City Fireworks, Inc., 600 N.E.2d 555, 558
(Ind. Ct. App. 1992), adopted by 608 N.E.2d 699.
Before the 1971 adoption of the IUCCC, the Indiana Legislature had
passed an array of lending and usury laws. Replaced by the IUCCC, many had
been in existence before the turn of the century.[5] One such statute,
commonly referred to as the “petty loan” statute, was specifically designed
to “provide for a limited and uniform rate of interest upon small loans for
short terms.” Cotton v. Commonwealth Loan Co., 206 Ind. 626, 190 N.E. 853,
855 (1934); Pub.L. No. 167-1913, §§ 1-5, 1913 Ind. Acts 457-60. Unlike
most lending statutes for which interest rates were generally based on an
annual rate, the petty loan statute differed in that it was based on a
monthly rate. Cotton, 190 N.E. at 855 (discussing the then existing
interest rate of 3½% per month for loans up to $300). With the 1971
enactment of the IUCCC, the legislature retreated from a monthly rate of
interest and instead set the interest rate at 36% per year for loans of
$300 or less. See I.C. § 24-4.5-3-508(2)(a)(i); Pub.L. No. 366-1971, § 4,
1971 Ind. Acts 1637-38. Of course, with this change nothing prohibited
lenders from continuing to provide “small loans for short terms.” Cotton,
190 N.E. at 855. However, the statute suggests that although the
legislature apparently contemplated the continued existence of small loans,
consistent with its stated purpose “to simplify, clarify and modernize the
law governing retail installment sales, consumer credit, small loans and
usury,” I.C. § 24-4.5-1-102(2)(a) (emphasis added), the legislature
anticipated that even though small, the loans would extend for at least one
year. Subsection 3-508(3)(b) lends support to the view that the then newly
enacted IUCCC anticipated longer term loans. That subsection refers to
“prepayment” which in turn is controlled by Indiana Code section 24-4.5-3-
210. We observe that a one or two-week payday loan is not very amenable to
a prepayment scheme.
The early version of subsection 3-210 also supports the view that the
IUCCC anticipated loans for longer than a week or two. In 1971 for
example, in the case of prepayment for a loan in excess of $75, a lender
was allowed to receive a minimum loan finance charge provided it did not
exceed $7.50 or the finance charge contracted for. See I.C. § 24-4.5-3-210
(1971). Thus a $200 two-week loan would generate $2.77 in interest, i.e.,
“the finance charge contracted for.” It would have been more than an
anomaly if a lender were allowed to receive a minimum loan finance charge
of $2.77 for a two-week loan paid at the end of the term but receive $7.50
as a minimum loan finance charge if that same two-week loan were paid off a
week early.
Subsection 3-508 has been amended three times since 1971. However,
each amendment has referred to the prepayment subsection 3-210. At
present, subsection 3-508 as well as subsection 3-210[6] works
substantially the same as it has always worked: a lender is allowed to
charge up to the amount specified in subsection 3-508(7), limited by the
total finance charge that was originally provided for in the contract.
Hence, a two-week $200 loan still generates $2.77 in maximum interest. The
principal difference between the 1971 version of subsection 3-508 and the
current version is that the minimum loan finance charge is now $33 for
loans up to $300. If subsection 3-508(7) represents an exception to
subsection 3-508(2), as Lenders contend, then there would exist an even
greater anomaly today than that which would have existed under the 1971
version of the statute. Specifically, if Lenders are correct, then they
would be entitled to receive $2.77 for a two-week loan paid at the end of
the term, but entitled to an incredible $33 if the two-week loan were paid
off early, for example after a week or even one day. To interpret the
statute as Lenders suggest - allowing a minimum finance charge of $33 for a
loan that otherwise would generate what amounts to pennies in interest - is
inconsistent with the purposes and policies of the IUCCC and creates an
absurd result which the legislature could not have intended when the
statute was enacted or when the various amendments were adopted.
Lenders complain that reading the statute inconsistent with their own
interpretation either renders subsection 3-508(7) a nullity or treats it as
mere surplusage. We disagree. Subsection 3-508(7) would be rendered a
nullity or mere surplusage only if subsection 3-508(2) can be read as
anticipating short term loans. As we have attempted to demonstrate, we do
not believe that is the case. In essence these statutes simply do not work
very well when applied to short-term payday type loans. By contrast,
subsections 3-508(2) and (7) work together harmoniously for loans of at
least a year. For example, a $200 one-year loan would entitle the lender
to $72 in interest if the loan were paid at the end of the term. In the
event of prepayment - even after one day - the lender would be entitled to
a minimum loan finance charge of $33. This seems to make sense. Even
though the lender would not receive the full amount of interest originally
anticipated, the lender is still afforded a modest but reasonable return on
an investment and also allowed to recoup administrative costs associated
with setting up a small loan. Only because Lenders have made a business
decision to offer short-term payday loans are they faced with a dilemma
which in their view justifies a $33 minimum loan finance charge. See Reply
Br. of Def. at 6 (complaining “annual rates of interest do no not
adequately compensate the lender.”). This Court can offer Lenders no
refuge. Even if short term payday loans were never contemplated by the
IUCCC, they are nonetheless subject to and controlled by that statute.
Accordingly, Lenders may contract for and receive a loan finance charge of
not more than $33 as set forth in subsection 3-508(7) provided the
resulting APR does not exceed the interest limit established by 3-508(2) or
Indiana’s loansharking statute.[7]
Conclusion
We conclude that the minimum loan finance charges for supervised loans
provided for in Indiana Code section 24-4.5-3-508(7) are limited by the
maximum 36% APR allowed in Indiana Code section 24-4.5-3-508(2). We
further conclude that minimum loan finance charges for supervised loans
provided for in Indiana Code section 24-4.5-3-508(7) are limited also by
Indiana Code section 35-45-7-2.
DICKSON and SULLIVAN, JJ., concur.
BOEHM, J., concurs with separate opinion.
SHEPARD, C.J., dissents with separate opinion.
ATTORNEYS FOR PLAINTIFFS
Stephen L. Williams
Terre Haute, Indiana
David H. Pope
Atlanta, Georgia
Clifford W. Shepard
Indianapolis, Indiana
Daniel A. Edelman
Chicago, Illinois
ATTORNEYS FOR DEFENDANTS
Judy L. Woods
Indianapolis, Indiana
James A. Chareq
Washington, D.C.
ATTORNEYS FOR AMICUS
CURIAE
Steven C. Shockley
Maggie L. Smith
Indianapolis, Indiana
_________________________________________________________________
IN THE
SUPREME COURT OF INDIANA
__________________________________________________________________
LIVINGSTON, JANET et al., )
)
Plaintiffs, )
)
v. ) Indiana Supreme Court
) Cause No. 94S00-0010-CQ-609
FAST CASH USA, INC. et al., )
)
Defendants. )
CERTIFIED QUESTION FROM THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN
DISTRICT OF INDIANA
Cause Nos. IP-99-1226-C(B/S), IP 99-1887-C(B/S): IP-00-45-C(D/S): IP-00-46-
C(T/S): IP-00-60-C(B/S):IP-00-121-C(H/S): IP-00-122-C(Y/S): IP-00-137-
C(H/S): IP-00-138-C(B/S): IP-00-163-C(M/S): IP-00-165-C(T/S): IP-00-166-
C(H/S): IP-00-339-C(H/S): IP-00-676-C(H/S): IP-00-902-C(H/S): IP-00-903-
C(H/S): IP-00-957-C(B/S): IP-00-964-C(B/S): IP-00-1001-C(H/S): IP-00-1101-
C(H/S): and TH-00-32-C(M/S)
_________________________________
WALLACE, KELLI R. et al., )
)
Plaintiffs, )
)
v. ) Indiana Supreme Court
) Cause No. 94S00-0010-CQ-610
ADVANCE AMERICA CASH )
ADVANCE CENTERS OF INDIANA, )
)
Defendants. )
CERTIFIED QUESTION FROM THE UNITED STATES DISTRICT COURT FOR THE NORTHERN
DISTRICT OF INDIANA
Cause Nos. 2:00cv0123AS: 2:00cv0179AS: 2:00cv0189AS: 2:00cv0313AS:
2:00cv0388AS:3:00cv0070AS: 3:00cv0072AS: 3:00cv0077AS: 3:00cv0259AS:
3:00cv0724AS: 1:00cv0101AS:1:00cv0102AS: 1:00cv0181AS: 1:00cv0276AS: and
1:00cv0314AS.
__________________________________________________________________
CERTIFIED QUESTION
__________________________________________________________________
August 16, 2001
BOEHM, Justice, concurring.
I agree with the majority’s answer to the certified question. I offer
additional support for their answer. In capsule form, the plaintiffs
contend that the provision in subsection 508(7)1 permitting a minimum
finance charge of $33 per loan does not apply to a payday loan if the
loan’s annual interest rate exceeds the APR permitted under subsection
508(2). The “Payday Lenders” respond that this view renders subsection
508(7) surplusage. The plaintiffs counter that claim by
saying that subsection 508(7) permits collection of a minimum $33 loan
finance charge in the case of a prepaid loan, assuming the loan was for a
time period for which a $33 loan finance charge would be lawful under
subsection 508(2), but does not validate a minimum charge that is in excess
of the subsection 508(2) limits calculated over the initial term of the
loan.
As I see it, the issue is whether the $33 minimum loan finance charge
provided by subsection 508(7) is collectible if it exceeds the loan finance
charge allowed under subsection 508(2) for the loan as written for its full
term. I think it is not. If a loan is prepaid, subsection 210(2)
authorizes the collection of the “minimum loan finance charge, as if
earned, not exceeding the loan finance charge contracted for.” In this
context, I take “as if earned” to mean the loan charge prorated to the date
of prepayment. Similarly, the “loan finance charge contracted for” in
subsection 210(2) is the amount of loan finance charge that would be
collected if the loan were held to its full term. That amount, for a
“supervised loan,” is capped by subsection 508(2). Thus, in the prepayment
context, the minimum charge is capped by the “loan finance charge
contracted for,” and the full $33 cannot lawfully be collected if it
exceeds that amount.
Given this limitation in the prepayment of a loan that is within the
allowable finance charges, it would be more than anomalous to permit the
full $33 to be collectible in the case of a loan that carries a finance
charge vastly in excess of the allowable charges. By way of example, a
lender who makes a $100 loan for six months may lawfully collect a loan
finance charge of $18 when the loan is repaid in full at the end of the six-
month term ($18 is 36% per annum on $100 for one half year). Because
subsection 210(2) limits the prepayment minimum charge to “the loan charge
contracted for,” only $18—not the $33 minimum charge provided in subsection
508(7)—is collectible if this loan is prepaid, say at three months when
only $9 is “earned.” The payday lender nevertheless contends it can
collect $33 for a two-week loan of the same amount. This result seems to
fly in the face of the statutory scheme.
Another way to make the same point is to say that subsection 210
provides for recovery of a minimum charge on prepayment even if that charge
exceeds the initially contracted charge prorated to the date of prepayment.
Subsection 508(7) sets the amount of the minimum charge, but it does not
constitute an independent exception to the limits imposed by subsection
508(2) on the loan charge authorized in the loan to full term. Simply put,
I agree with the Court that the Uniform Consumer Credit Code (UCCC) is
based on an assumption, but it is not the assumption that loans are
necessarily for at least one year. Rather, I think the legislation assumes
lawful loans, i.e. it assumes a lender cannot initially contract for a loan
finance charge greater than the limits imposed by subsection 508(2).
Although this line of reasoning is less than fully clear from the
language of the statute, I think it is the only sensible way to read these
intertwined provisions. First, it is notable that subsection 508(2) does
not provide that the loan finance charge may be “the greater of the minimum
finance charge” or the percentages allowed under (a) and (b) of that
subsection. If it meant what the lenders contend in this case, that would
be a much simpler way to provide a fixed dollar minimum loan charge
irrespective of the term or amount of the loan. But subsection 508(2) does
not do that. Rather, it allows the loan finance charge to be “the greater
of” the percentages in (a) or (b). Separately, subsection 508(7) provides
the amount of the minimum charge, in the case of a supervised loan,2 that
is then incorporated into the provisions of subsection 210(2) dealing with
prepayment.
The only conclusion I can reach from this is that the court is quite
clearly correct in concluding that payday loans were not contemplated at
all by the drafters of the IUCCC. This view of the structure of the act is
fully consistent with the history of consumer credit legislation outlined
by the majority. In oversimplified terms, the legal environment of the
1960s did not contemplate the revolving credit lines that are now familiar
to everyone and form the basis of the credit cards most consumers use
routinely. Usury laws, small loan acts and similar legislation presented
significant legal issues to credit forms that, although very useful to a
consumer economy, require more than 8% simple interest charges and do not
fit into fixed payment schedules. The UCCC and its Indiana version were
drafted to address these emerging forms of consumer finance. They assumed
the problems of that day and assumed transactions in the then known forms,
but they did not contemplate doing away altogether with regulation of
excessive charges.
Subsection 508(7)—the provision the defendants rely on—has been in the
IUCCC since 1982. Its function—to permit recovery of initial loan
processing costs in case of prepayment—is perfectly plausible and
consistent with the overall scheme of the statute. We are told payday
loans first appeared in this state in 1994. That fortifies my view that
the statute assumes that a loan will be written in compliance with the loan
finance charge limits of subsection 508(2), and that the minimum charges
will be allowed only to the extent they do not exceed the amounts
collectible under a lawful loan held to full term.
My confidence in this reading is bolstered because I think the logic
of the defendants’ position produces demonstrably absurd results. The same
arguments advanced to justify a $33 minimum charge for a two-week loan of
$100 equally justify a $33 charge for a two-minute loan of $1. I find that
result clearly not within the contemplation of the legislature. There must
be a bright line between permissible and impermissible lending practices.
The only line that seems to me to make sense, and the only one suggested by
the statute itself, is the one plaintiffs propose: the initial term of the
loan must be sufficient to support the minimum charge consistent with the
limitations of subsection 508(2).
It also seems to me that the justifications offered by payday lenders
do not hold water. The costs of setting a loan up on the lender’s books,
etc., are cited as the basis for a minimum charge. This makes sense in the
context of a loan that is initially contemplated to carry a finance charge
allowed by subsection 508(2). But ease of making the loan, lack of
paperwork, and the lender’s assumption of credit risk are cited as economic
reasons justifying payday loans. These justifications are somewhat
inconsistent with those offered to explain the minimum charge in the first
place. To return to the two-minute loan of $1, presumably that business
would be highly profitable despite the large uncollectible receivables
generated by assumption of any and all credit risks and extremely informal
lending practices. At that rate of return a prudent lender would shovel
money out the door as fast as it could and hope for the best on the costs
of business represented by default rates, credit risks, poor documentation,
etc. Although that example is unrealistic, the payday lending practices
seem only quantitatively, not qualitatively, different from this extreme.
The rates charged by the lender here—hundreds of percent per year—would
seem to justify the same willy nilly lending.
Finally, defendants point to the traditional arguments against
regulation and in favor of free election of choices afforded in the
marketplace. But it seems clear to me that the legislature has chosen in
the IUCCC to prohibit some lending practices and to restrict the parties’
ability to contract for whatever is agreed. In short, it is very clear
that some forms of lending practices are prohibited, and the only question
is whether payday loans are among the practices proscribed by the statute.
For the reasons given above, I conclude they are. I agree that the
“multiple contracts” provision referred to by the Chief Justice may also be
relevant to the ultimate issues in this case, but because the federal court
declined to certify that question, I express no view as to it.
ATTORNEYS FOR PLAINTIFFS ATTORNEYS FOR DEFENDANTS
Stephen L. Williams Judy L. Woods
Mann Law Firm Bose McKinney & Evans LLP
Terre Haute, Indiana Indianapolis, Indiana
David H. Pope James A. Chareq
Carr Tabb Pope & Freeman Lovells
Atlanta, Georgia Washington, D.C.
Clifford W. Shepard ATTORNEYS FOR AMICUS CURIAE
Consumer Law Protection Offices
Indianapolis, Indiana Steven C. Schockley
Maggie L. Smith
Daniel A. Edelman Sommer & Barnard, PC
Edelman Combs & Latturner Indianapolis, Indiana
Chicago, Illinois
IN THE
SUPREME COURT OF INDIANA
LIVINGSTON, JANET, ET AL., )
)
Plaintiffs, )
) Supreme Court Cause
v. ) Number
) 94S00-0010-CQ-609
FAST CASH USA, INC. ET AL., )
)
Defendants. )
-----------------------------------------------------------
)
WALLACE, KELLI R., ET AL., )
)
Plaintiffs, )
) Supreme Court Cause
v. ) Number
) 94S00-0010-CQ-610
ADVANCE AMERICA CASH and )
ADVANCE CENTERS OF INDIANA, )
)
Defendants. )
CERTIFIED QUESTION FROM THE U.S. DISTRICT COURT, NORTHERN and SOUTHERN
DISTRICTS OF INDIANA
August 16, 2001
SHEPARD, Chief Justice, dissenting.
I read subsection 508(7) to mean what it says, in straightforward
terms: “With respect to a supervised loan not made pursuant to a revolving
loan account, the lender may contract for and receive a minimum loan
finance charge of not more than thirty dollars ($30).”1
I think subsection 508(2) limiting annual interest and subsection
508(7) permitting a minimum finance charge were adopted by the legislature
on the premise that the two would work together like this: a lender can
charge no more than 36% per year, but if the loan period is so short or the
loan so small that this rate might produce just a few dollars, a minimum of
$33 may be charged. This harmonizes both provisions by
treating subsection 508(7) as an exception to subsection 508(2), and it
makes $33 a true “minimum loan finance charge” using the common meaning of
the words.
The majority concludes that subsection 508(7) comes into play only in
the event of loan prepayments, because it is referenced in § 210 (“Rebate
Upon Prepayment”). Although subsection 508(7) does perform this additional
function, I still find its primary purpose in its plain language. If the
legislature had intended to permit a minimum loan finance charge but limit
it to prepayment situations, surely the logical approach would have been to
state the minimum charge, in dollars, in the prepayment section and
eliminate subsection 508(7) entirely, or at least to clarify this
limitation in subsection 508(7).
This is not to say that the legislature contemplated allowing lenders
to collect $33 every two weeks on what is for all practical purposes one
continuing loan. Lawmakers probably recognized that they could not
anticipate all possible schemes and adopted a general provision aimed at
preventing such possibilities. Ind. Code § 24-4.5-3-509, “Use of Multiple
Agreements,” prohibits lenders from permitting borrowers to “become
obligated in any way under more than one loan agreement with the lender . .
. with intent to obtain a higher rate of loan finance charge than would
otherwise be permitted by the provisions on loan finance charge[s] for
supervised loans . . . .” This provision effectively prohibits sequential
fee-charging practices.
It has been awhile since we last encountered a statute in such serious
need of revision. Our federal cousins might take comfort in knowing that,
like them, we found the task of parsing its various provisions very
difficult (but had nowhere else to send out for help).
-----------------------
[1] For ease of reference we refer to all defendants collectively as
“Lenders.”
[2] A “supervised loan” is defined as a “consumer loan in which the
rate of the loan finance charge exceeds twenty-one percent (21%) per year.
. . .” Ind. Code § 24-4.5-3-501(1).
[3] In relevant part, “loan finance charge” is defined as “all
charges payable directly or indirectly by the debtor and imposed directly
or indirectly by the lender as an incident to the extension of credit. . .
. ” I.C. § 24-4.5-3-109(1)(a).
[4] Since 1994, the minimum loan finance charge has been subject to
bi-annual indexing on July 1 of even numbered years and thus is adjusted
automatically once every two years. I.C. § 24-4.5-3-508(6); I.C. § 24-4.5-
1-106. The current minimum loan finance charge is $33.
[5] See Pub.L. No. 125-1917, § 2, 1917 Ind. Acts 404 (allowing
lenders of “small loans” to charge 3½% interest per month on loans not
exceeding $300); I.C. ch. 80, § 7043 (1901) (allowing interest rate of up
to 6% per year in absence of written agreement and up to 8% per year if a
written agreement exists); I.C. ch. 74, § 5198 (1888) (same); I.C. ch. 5, §
1 (1870) (capping interest rate chargeable to a borrower by a lender at 6%
per year); I.C. ch. 57, § 1 (1852) (same); I.C. art. 3, § 25 (1843) (same).
[6] The statute provides in relevant part:
Upon prepayment in full of a consumer loan, refinancing, or
consolidation, other than one (1) under a revolving loan account, if
the loan finance charge earned is less than any permitted minimum loan
finance charge (IC § 24-4.5-3-2-1(6) or IC § 24-4.5-3-508(7))
contracted for, whether or not the consumer loan financing, or
consolidation is precomputed, the lender may collect or retain the
minimum loan finance charge, as if earned, not exceeding the loan
finance charge contracted for.
I.C. § 24-4.5-3-210(2).
[7] The statute provides in relevant part:
A person who, in exchange for the loan of any property, knowingly or
intentionally receives or contracts to receive from another person any
consideration, at a rate greater than two (2) times the rate specified
in IC § 24-4.5-3-508(2)(a)(i), commits loansharking, a Class D felony.
I.C. § 35-45-7-2.
1 All statutory references are to Indiana Code 24-4.5-3.
2 Indiana Code subsection 24-4.5-3-201(6) supplies the minimum charge to be
incorporated into subsection 210(2) in the case of an unsupervised
“consumer loan not made pursuant to a revolving loan account.”
1 This $30 amount is periodically adjusted to reflect inflation, as the
majority explains, and is currently set at $33.