Bank of Evening Shade v. Lindsey, 82-84

• Decision Date: 10 January 1983
• Docket Number: No. 82-84,82-84
• Citation: 644 S.W.2d 920,278 Ark. 132
• Parties: BANK OF EVENING SHADE, Appellant, v. Gene F. LINDSEY et ux., Appellees.
• Court: Arkansas Supreme Court

Page 920

644 S.W.2d 920

278 Ark. 132

BANK OF EVENING SHADE, Appellant, v. Gene F. LINDSEY et ux., Appellees.

No. 82-84.

Supreme Court of Arkansas.

Jan. 10, 1983.

Rehearing Denied Feb. 14, 1983.

David Hodges, Newport, and Phil Farris, Batesville, for appellant.

Rose Law Firm by Herbert C. Rule, III and Gary J. Garrett, Little Rock, amicus curiae for Worthen Bank.

Owens, McHaney & Calhoun by James M. McHaney, Little Rock, amicus curiae for Arkansas Bankers Ass'n.

Harkey, Walmsley, Belew & Blankenship by Leroy Blankenship, Batesville, for appellees.

HAYS, Justice.

This litigation began when Mr. and Mrs. Gene Lindsey, appellees, filed suit against the Bank of Evening Shade, appellant, alleging the bank had charged eighteen percent interest on an April 11, 1980 loan of $20,607.20, which they claimed was excessive under the Federal Deposit Insurance Act, and seeking judgment of twice the amount of interest paid. The bank answered that eighteen percent interest was permissible under the Depository Institutions Deregulation and Monetary Control Act of 1980, Public Law 96-221, which became effective on April 1, 1980. The bank then counterclaimed to foreclose a deed of trust securing the note and encumbering the Lindsey home in Evening Shade. The case was transferred from law to equity and the Lindseys asserted the defense of usury, claiming the loan was not covered by the Monetary Control Act and, hence, void under Article 19, Section 12 of our Constitution of 1874. During trial the Lindsey complaint was dismissed for failure of proof and the foreclosure suit was tried solely on the issue of usury.

After the case was closed counsel for the Lindseys wrote the bank that they had elected to rescind the transaction under the Truth-in-Lending Act, 15 U.S.C. § 1601 et seq., and over the bank's objection the Chancellor reopened the case for the limited purpose of taking proof on the rescission issue.

The evidence was generally undisputed that Mr. and Mrs. Lindsey had had two notes at the bank at ten percent interest secured by first and second mortgages on their home. The notes had been renewed several times and became due in March, 1980. There were discussions aimed at renewal and refinancing and the bank informed the Lindseys it would not renew at ten percent, but would make a new loan at eighteen percent, which it believed was permissible under the newly enacted Monetary Control Act, which became effective April 1, 1980. Mr. Lindsey questioned the rate of interest, but nevertheless he and his wife signed a new note at eighteen percent dated April 11, 1980, equal to the amount due on the existing notes and from which the old notes were paid off. The note was secured by a deed of trust covering the Lindsey home and other properties.

The Chancellor recognized that we have upheld the constitutionality of the Monetary Control Act of 1980 in the case of McInnis v. Cooper Communities, Inc., 271 Ark. 503, 611 S.W.2d 767 (1981) but he held the loan did not come under the act because he believed it applied only to loans which originated after the effective date of the act, April 1, 1980, and not to existing loans which were merely renewed after April 1. Since he found the loan was not exempted, he held it to be usurious and void. He added that if he were wrong on the usury question, he found the bank had not given proper notice to the Lindseys of their right to rescind the transaction under the Truth-in-Lending Act. On appeal, we disagree that the note was usurious or that the bank failed to give sufficient notice to the Lindseys and we reverse.

I.

The pertinent part of the Monetary Control Act, Section 501 reads:

The provisions of the constitution or the laws of any state expressly limiting the rate or amount of interest ... shall not apply to any loan, mortgage, credit sale, or advance which is (A) secured by a first lien on residential real property ... (B) made after March 31, 1980.

The Lindseys argue that theirs was not a new loan, but simply a consolidation and renewal of old loans and, therefore, not covered by the act. We find convincing authority to the contrary.

Pursuant to Section 501(f) of the act, the Federal Home Loan Bank Board is authorized to "issue rules and regulations and to publish interpretations governing the implementation of this section." The deference that must be given such administrative rulings is stated in Ford Motor Credit Co. v. Milhollin, 444 U.S. 555, 100 S.Ct. 790, 63 L.Ed.2d 22 (1980). In reversing a Court of Appeals ruling that had rejected a Federal Reserve Board's interpretation of a Truth-in-Lending provision, the Supreme Court held that, "Unless demonstrably irrational, Federal Reserve Board Staff opinions construing the Act or Regulation should be dispositive..." Milhollin at 567, 100 S.Ct. at 797.

The Federal Home Loan Bank Board has issued interpretations of the type of transaction involved in this case, and it is clear from those interpretations that on the facts of this case, the loan by the bank would qualify for exemption under the Monetary Control Act. A staff opinion interpreting the same provision of Public Law 95-161 (the temporary predecessor to Public Law 96-221) dealt with the effect of this section on renewals of short term mortgage notes which became due during the statutory preemption period. The Board stated:

In our view, a lender would not be permitted to raise the interest rate if it is already obligated to refinance the note after maturity ... etc. If however, the lender making such a short-term loan would not have an absolute obligation to The Board has issued opinions for Section 501 of Public Law 96-221, affirming that position. (See opinions No. S 26, March 9, 1981, and No. S 52, September 1, 1981.) We find the interpretations rational and persuasive. In this case, the loans were due in March 1980, and the bank was under no obligation to renew them. Under the above interpretation of Section 501, we find the appellees' loan qualified under the act.

renew or refinance a note falling due during the statutory preemption period the renewal would be the making of a new loan for the purposes of Pub.L. 161. In these circumstances, a lender would be authorized to charge interest at a rate in excess of that specified by state law. 45 FR 15921, March 12, 1980.

The appellees also argue that the legislative history of Public Law 96-221 indicates that the purpose of the act was to provide adequate housing by creating sources to finance that housing, and was not intended for other purposes. The appellees' loan was not used to acquire their home and thus they contend the loan would not come within the exemption. We cannot agree with that conclusion. The language in Section 501 gives no indication that the purpose for which the loan is to be used has any bearing on qualification for the exemption. The plain language of the act states the interest limit of a state "shall not apply to any loan ..." The purpose and scope of the act as stated in 12 C.F.R. 590.1 gives no cause for so restrictive a reading and simply states the purpose is "to ensure that the availability of [these] loans is not impeded in states having restrictive interest limitations."

Although we have found the legislative history not to support such a narrow purpose, we need not consider the history when the language, as in this statute, is unambiguous. In H. Wetter Mfg. Co. v. U.S., 458 F.2d 1033 (1972), when the government introduced legislative history to show what Congress intended, the Court, quoting from an earlier opinion, stated:

We may not under the guise of construction, find a Congressional intent that is contrary to the clear language employed by it. Where a statute is unambiguous, it should be given effect according to its literal language. Wetter at 1035

We find the language applying the act to "any loan" unambiguous, and find no need to consider the legislative history. The loan to the Lindseys was a first lien on real property and, as provided in the act, was exempt from the interest ceiling of ten percent under our constitution.

II.

This case was tried solely on the issue of usury. Rescission came into the case entirely as an afterthought. The Truth-in-Lending Act requires a written notice to the borrower that he has three days following any transaction which results in a mortgage on real property to notify the creditor that he elects to cancel. If the notice is not given the right to cancel continues.

During the trial the bank routinely introduced a number of documents which accompanied the transaction with the Lindseys, including a Rescission Statement which gave the required notice of their...