Tennessee Amends Provisions Regarding Interest Rate Limits

• April 7, 2018
• Adam Faria

Tennessee has enacted HB1944 to amend interest rate limits under its Industrial Loan and Thrift Companies Act. The bill changes current law so that interest rates apply to the amount financed instead of the total amount of the loan. These amendments only apply to certain loans made by industrial loan and thrift companies.

HB1944 amends Tennessee Code Annotated, Section 45-5-301 by deleting subdivision (2) and substituting the following:

(2)

(A) Charge interest:

(i) On loans where the amount financed is less than one hundred dollars ($100), at a nominal rate not in excess of seven and one-half percent (7.5%) per annum, deducted in advance, on the principal for the full term thereof without regard to the payment schedule; but no interest shall be charged on the loans in excess of a maximum effective rate of eighteen percent (18%) per annum;

(ii) On loans where the amount financed is one hundred dollars ($100) or more, up to five thousand dollars ($5,000), on the principal at any rate not in excess of a maximum effective rate of thirty percent (30%) per annum;

(iii) On loans where the amount financed is more than five thousand dollars ($5,000), on the principal at any rate not in excess of the maximum effective rate of twenty-four percent (24%) per annum; and

(iv) On loans made under open-end credit plans, which are plans under which a registrant contemplates repeated loans that may be without fixed maturities or limitation as to the length of term, and that are subject to prepayment at any time, at any rate not in excess of a maximum effective rate of twenty-four percent (24%) per annum;

(B) All the interest shall be contracted for and computed in accordance with § 45-5-401;

HB1944 also amends Section 45-5-401 by deleting subsection (a) and substituting the following:

(a)

1. With respect to loans where the amount financed is less than one hundred dollars ($100), this chapter permits, but does not require, interest to be contracted for by way of discount. Interest may also be contracted for at an effective rate that results in the same amount being paid as if interest had been contracted by way of discount at a nominal rate not in excess of the maximum nominal rate specified in § 45-5-301(2) for loans of this category, always subject to the maximum effective rate provided in § 45-5-301(2) for loans of this category.

2. With respect to loans where the amount financed is one hundred dollars ($100) or more, this chapter does not limit or restrict the manner or method of contracting for interest, whether by way of add-on, discount, or otherwise, so long as the maximum effective rate of interest for loans of this category does not exceed that authorized by § 45-5-301(2) for the loans.

3. With respect to loans made under open-end credit plans, interest shall be computed on the principal balance unpaid from time to time, always subject to the maximum effective rate provided in § 45-5-301(2) for loans of this category.

HB1944 also amends Section 45-5-401 by deleting subsection (c) and substituting the following:

(c) Interest may be contracted for on the unpaid balance due after the maturity date of the loan:

1. Where the amount financed is less than one hundred dollars ($100), at an effective rate not to exceed eighteen percent (18%) per annum;

2. Where the amount financed is one hundred dollars ($100) or more, up to five thousand dollars ($5,000), at an effective rate not to exceed thirty percent (30%) per annum;

3. Where the amount financed is more than five thousand dollars ($5,000), at an effective rate not to exceed twenty-four percent (24%) per annum; and

4. Where the loan is made under an open-end credit plan, at an effective rate not to exceed twenty-four percent (24%) per annum.

The full text of HB1944 can be found here: https://legiscan.com/TN/text/HB1944/id/1706811/Tennessee-2017-HB1944-Draft.pdf

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