Paulman v. Filtercorp, Inc.

Talmadge, J.

(concurring) — While I concur with the majority’s analysis of the issues in this case, I write separately to emphasize that the Legislature must address the issue of usurious interest rates for small businesses.

The majority is plainly correct that the Legislature, over the period from 1969 to 1981, has eliminated any usury defense for loans to business entities or individuals for agricultural, commercial, investment, or business purposes, regardless of the size of the loan. RCW 19.52.080.2 See also Brown v. Giger, 111 Wn.2d 76, 80, 757 P.2d 523 (1988).

Filtercorp here does not assert a valid rationale by which this court can limit the application of RCW 19.52.080. There is no question but that this loan was for a business or commercial purpose. RCW 19.52.030 does not create an effective exemption to the policy of RCW 19.52.080. This court is obliged to apply the law the Legislature has written.

Nevertheless, this case illustrates with unusual clarity the reasons the Legislature should reexamine whether the complete elimination of the usury defense for business or commercial loans is just. The loan agreement in this case involved a nominal 60 percent annual rate of interest, in *396addition to $35,000 of loan and consulting "fees”. In days of yore, a 60 percent rate of interest plus "consulting fees” and "loan fees” would have made a loan shark proud.3 Indeed, at one point, the creditor charged $27,000 for a two-week extension on the loan. Majority, at 389.

The majority notes that the purpose of the usury defense is to ameliorate the "oppression of the borrower 'who by adversity and necessity of economic life [is] driven to borrow money at any cost’ ”. Majority, at 392 (quoting Brown v. Giger, 111 Wn.2d 76, 757 P.2d 523 (1988) (quoting Baske v. Russell, 67 Wn.2d 268, 273, 407 P.2d 434 (1965))). The Brown court asserted that a person who borrows for an agricultural, commercial, or business purpose "is not subject to such oppression, as he does not borrow out of 'adversity and necessity of economic life’ ”, Brown, at 81. The Brown court’s conception of the marketplace for many businesses is out of touch with reality.

Just as individuals are driven by economic necessity to secure credit at any cost, many small businesses and farmers are driven to seek credit by the same economic imperative. Small enterprises whose need or unequal bargaining position forces them to secure credit at usurious rates of interest or with excessive fees should be protected by our usury laws. As the law now stands, there appears to be no upper limit on the rates or "fees” that can be charged for agricultural, business, or commercial loans. I concur in the majority’s analysis of RCW 19.52.030 and RCW 19.52.080 in this case, but the Legislature should address the obvious injustice of circumstances like those present here, and enact an appropriate usury defense statute for small commercial and agricultural enterprises.

In 1969, the Legislature enacted the first version of RCW 19.52.080. It barred the usury defense for loans over $100,000 to business entities making loans or developing real estate. In 1970, usury protection was eliminated for loans over $100,000 to any natural persons in such businesses. In 1975, the Legislature eliminated usury protection for loans over $50,000 to any business entity for commercial or business purposes. In 1981, the Legislature eliminated usury protection for a loan of any amount to any listed business entity or natural person primarily for agricultural, commercial, investment or business purposes. See Laws of 1969, 1st Ex. Sess., ch. 142, § 1; Laws of 1970, 1st Ex. Sess., ch. 97, § 2; Laws of 1975, 1st Ex. Sess., ch. 180, § 1; Laws of 1981, ch. 78, § 2.

The actual return to the lender here for the third note was substantial. (The loan sued upon involved $175,000 in principal and approximately $35,000 in "fees”; interest on the $210,000 face amount was five percent per month for a term of three months.) Majority, at 389. Thus, the lender stood to earn $66,500 in fees and interest in three months.