Case Information

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The Attorney General of Texas

May 3, 1979 MARK WHITE Attorney General

Honorable Jerry (Nub) Donaldson Opinion No. MW-17 Chairman Re: Whether House Bill 1212 is

House Committee on Financial constitutionaL Institutions State Capitol

Austin, Texas

Dear Representative Donaldson:

You have asked if House Bill 1212 is constitutionat The bill would amend article 5069-L.02, V.T.C.S., to provide, in pertinent part: Art. L02. MAXIMUM RATES OF INTEREST. (a) Except as otherwise fixed by law, the maximum rate of interest is:

(1) one percent more than the discount rate on 90- day commercial paper in effect on the day the loan is made at the federal reserve bank in the federal reserve district where the lender is located; (2) 12 percent a year if the rate described by Subsection (1) of this section is more than 12 percent a year; or

(3) 10 percent a year if the rate described by Subsection (1) of this section is less than 10 percent a Ye=-- (b) A rate of interest that is greater than that allowed by Section (a) of this article is usurious Unless it is otherwise authorized by law.

Article 16, section ll of the Texas Constitution authorizes the legislature to classify loans and lenders, ~license and regulate lenders, define interest and fix maximum rates of interest; provided, however, in the absence of legislation fixing maximum rates of interest all contracts for a greater rate of interest than ten per centum (10%) per annum shall be deemed usurmus. . . .

p. 49 *2 Honorable Jerry (Nub) Donaldson - Page Two (MVJ-17)

This bill fixes an absolute maximum rate of interest, in that in no instance may the rate exceed 12 percent a year. Fixing such a rate is clearly within the legislature’s authority under section 11 of article 16 of the constitution.

We do not believe that the provisions of the bill suffer from the same defects which led the court in Gonzales County Savings and Loan Ass’n v. Freeman, 534 S.W.2d 903 (Tex. 19761, to hold that the legislature had not fixed a maximum rate of interest. See San Antonio Ind. Sch. Dist. v. City of San Antonio, 550 S.W.2d 262 (Tex. 1976). HoweverTf the legislature wants to insure that it has set a maximum rate of interest under any construction by the courts, it can draft a severability clause to clarify that the absolute maximum of 12 percent is applicable regardless of the validity of the other provisions.

SUMMARY

House Bii 1212 fixes a maximum rate of interest.

Attorney General of Texas JOHN W. FAINTER, JR.

First Assistant Attorney General

TED L. HARTLEY

Executive Assistant Attorney General I

Prepared by William G Reid

Assiitant Attorney General

APPROVED:

OPINION COMMITTEE

C. Robert Heath, Chairman

David B. Brooks

Tom Pollan

William G Reid

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