Anderson Financial Services, LLC v. Miller

• Decision Date: 24 July 2009
• Docket Number: No. 07-1096.,07-1096.
• Citation: 769 N.W.2d 575
• Parties: ANDERSON FINANCIAL SERVICES, LLC d/b/a Loan Max and Loan Smart, Appellant, v. Thomas J. MILLER, Attorney General of the State of Iowa in His Official Capacity, Appellee.
• Court: Iowa Supreme Court

769 N.W.2d 575

ANDERSON FINANCIAL SERVICES, LLC d/b/a Loan Max and Loan Smart, Appellant, v. Thomas J. MILLER, Attorney General of the State of Iowa in His Official Capacity, Appellee.

No. 07-1096.

Supreme Court of Iowa.

July 24, 2009.

Mark McCormick, Mark E. Weinhardt, and Edward M. Mansfield of Belin Lamson McCormick Zumbach Flynn, P.C., Des Moines, for appellant.

Thomas J. Miller, Attorney General, William L. Brauch, Special Assistant Attorney General, and Jessica J. Whitney, Assistant Attorney General, for appellee.

TERNUS, Chief Justice.

This case presents the question whether legislation that went into effect on July 1, 2007, capping finance charges on car title loans applies to post-July 1, 2007 advances made under pre-July 1, 2007 agreements that provided for higher interest rates on such advances. The district court held the new statute, Iowa Code section 537.2403(1) (Supp.2007), prohibited the appellant, Anderson Financial Services, LLC, from charging a contracted interest rate that exceeded the rate allowed under the new law on advances made after July 1, 2007, on pre-July 1, 2007 loan agreements. Anderson Financial's appeal brings this issue to us.

Upon our review of the record and the governing legal authorities, we conclude the new statute applies prospectively only and does not affect contractual rights under loan agreements executed prior to July 1, 2007. Accordingly, we reverse the district court's judgment and remand for entry of a declaratory judgment in favor of Anderson Financial.

I. Background Facts and Proceedings.

On July 1, 2007, legislation regulating the permissible interest rate on car title loans went into effect. See 2007 Iowa Acts. ch. 26, §§ 2-3; Iowa Const. art. III, § 26 (providing legislation with no express effective date becomes effective on July 1 of the year of enactment). This legislation amended Iowa Code section 537.2402(1) (2007), which permits the extension of credit without limitation as to the amount or rate of any finance charge. 2007 Iowa Acts ch. 26, § 2. Under the amendment, open-ended credit secured by title to personal or family motor vehicles is excluded from section 537.2402(1). Id. (codified at Iowa Code § 537.2402(1)). The 2007 legislation also added a new section to chapter 537, section 537.2403, which provides in pertinent part:

A lender shall not contract for or receive a finance charge exceeding twenty-one percent per year on the unpaid balance of the amount financed for a loan of money secured by a certificate of title to a motor vehicle used for personal, family, or household purpose except as authorized under chapter 536 or 536A.

Id. § 3 (codified at Iowa Code § 537.2403(1)). Thus, the effect of the new legislation was to impose limits on the finance charges for car title loans where none had previously existed.

Anderson Financial does business as Loan Max and Loan Smart, providing small-dollar loans to Iowans that are secured by liens against the borrowers' motor vehicles.¹ Such loans are known as "car title loans." These loan agreements provide an open line of credit with an annual interest rate typically between 264% and 300%. A borrower may repay his loan as promptly or slowly as desired, subject to monthly payment of a minimum amount and a finance charge assessed against the outstanding balance. The loan agreement allows the borrower to "take cash advances . . . from time to time, up to the credit limit established [by the lender], provided that no portion of any minimum monthly payment is past due at the time of the advance." The borrower's credit limit is determined at the initial credit screening based on his ability to repay and the value of his motor vehicle. Loan Max reserves the right to raise or lower a borrower's personal credit limit based on any changes in the borrower's income or the value of his collateral. The borrower has no obligation to take advances after the first loan is made. Correspondingly, Loan Max "may suspend making future cash advances . . . at any time and in [its] sole discretion if [it] in good faith believe[s] that [it] is in jeopardy of not being repaid as agreed. . . ."

After the new legislation was enacted, but before its effective date, Anderson Financial requested an opinion from the appellee, Iowa Attorney General Thomas J. Miller, as to whether the new cap on finance charges prohibited Loan Max from charging its contracted interest rates on car title loans entered into before July 1, 2007. Anderson Financial believed two existing Iowa statutes would prohibit such a result: (1) Iowa Code section 535.2(3)(b), which permits the continuation of interest rates lawful at the time of contracting, including their application to future advances; and (2) Iowa Code section 4.13(2), which states that the amendment of a statute does not affect the validity of any right previously acquired under the statute. The Attorney General responded that new section 537.2403(1) would not apply to finance charges accruing on or after July 1, 2007, on advances that had been made before that date under pre-July 1, 2007 loan agreements. Rejecting Anderson Financial's reliance on section 535.2(3)(b) and section 4.13(2), the Attorney General also opined that any advances made on pre-July 1, 2007 car title accounts on or after July 1, 2007, would be subject to the finance-charge limits of the new law.

Anderson Financial immediately sought a declaratory judgment in district court that Iowa Code section 537.2403(1) did not prohibit Loan Max from charging the contract interest rate on any past or future advances made under pre-July 1, 2007 loan agreements. After hearing, the district court entered a declaratory ruling adopting the conclusions of the Attorney General. Anderson Financial appealed.²

II. Standard of Review.

This case presents an issue of statutory construction. We review district court rulings on such issues for the correction of errors of law. Iowa Dep't of Transp. v. Soward, 650 N.W.2d 569, 571 (Iowa 2002).

The polestar of statutory interpretation is to give effect to the intention of the legislature. Bahl v. City of Asbury, 725 N.W.2d 317, 321 (Iowa 2006). We determine that intent from the language of the statute. Iowa Ass'n of Sch. Bds. v. Iowa Dep't of Educ., 739 N.W.2d 303, 309 (Iowa 2007).

III. Discussion.

Anderson Financial contends section 537.2403(1) operates prospectively only and, therefore, applies only to loan agreements entered into after July 1, 2007. In considering this contention, we will apply the following principles of law:

It is well established that a statute is presumed to be prospective only unless expressly made retrospective. Statutes which specifically affect substantive rights are construed to operate prospectively unless legislative intent to the contrary clearly appears from the express language or by necessary and unavoidable implication. Conversely, if the statute relates solely to a remedy or procedure, it is ordinarily applied both prospectively and retrospectively.

. . . Substantive law creates, defines and regulates rights. Procedural law, on the other hand, "is the practice, method, procedure, or legal machinery by which the substantive law is enforced or made effective." Finally, a remedial statute is one that intends to afford a private remedy to a person injured by a wrongful act. It is generally designed to correct an existing law or redress an existing grievance.

Baldwin v. City of Waterloo, 372 N.W.2d 486, 491 (Iowa 1985) (quoting State ex rel. Turner v. Limbrecht, 246 N.W.2d 330, 332 (Iowa 1976)) (citations omitted); accord Iowa Beta Chapter of Phi Delta Theta Fraternity v. State, 763 N.W.2d 250, 266 (Iowa 2009); Iowa Code § 4.5 (2009) ("A statute is presumed to be prospective in its operation unless expressly made retrospective.").

We first examine the statute to determine if it was expressly made retrospective. A retrospective act operates "on transactions that have occurred or rights and obligations that existed before passage of the act."³ 2 Norman J. Singer and J.D. Shambie Singer, Sutherland Statutory Construction § 41:1, at 383 (7th ed. 2009) [hereinafter "Sutherland Statutory Construction"]. The legislation in question did not expressly address the subject of retroactivity, nor did it state that the new interest-rate limitations applied to existing contracts. We conclude, therefore, that the legislature has not expressly made section 537.2403(1) retroactive.

The next step in our analysis is to determine whether the statute affects substantive rights or relates merely to a remedy, as the Attorney General contends. See Iowa Beta Chapter of Phi Delta Theta Fraternity, 763 N.W.2d at 266. If the statute is substantive, we presume it operates prospectively only unless "by necessary and unavoidable implication," a legislative intent that it be applied retrospectively clearly appears. Baldwin, 372 N.W.2d at 491. If the statute is remedial, we presume a retrospective operation and employ a three-part test to determine if retroactive application is consistent with legislative intent. Iowa Comprehensive Petroleum Underground Storage Tank Fund Bd. v. Shell Oil Co., 606 N.W.2d 370, 375 (Iowa 2000); Janda v. Iowa Indus. Hydraulics, Inc., 326 N.W.2d 339, 344 (Iowa 1982) (same); Appleby v. Farmers State Bank of Dows, 244 Iowa 288, 294-95, 56 N.W.2d 917, 921 (1953) (same). "We examine the language of the act, consider the manifest evil to be remedied, and determine whether there was an existing statute governing or limiting the mischief which the new act is intended to remedy." Janda, 326 N.W.2d at 344; accord Iowa Comprehensive Petroleum Underground Storage Tank Fund Bd., 606 N.W.2d at 375; Appleby, 244 Iowa at 295, 56 N.W.2d at 921.

As noted, the Attorney General argues the statute is remedial; he asserts the legislature intended "to close the loophole in open-end credit lending and to remedy the defect in the law by putting usury protections back into...