Consolidated Credit Corp. of Athens, Inc. v. Peppers, 54903

• Decision Date: 05 December 1977
• Docket Number: No. 54903,No. 1,54903,1
• Citation: 144 Ga.App. 401,240 S.E.2d 922
• Parties: CONSOLIDATED CREDIT CORPORATION OF ATHENS, INC. v. Buddy PEPPERS et al
• Court: Georgia Court of Appeals

Page 922

240 S.E.2d 922

144 Ga.App. 401

CONSOLIDATED CREDIT CORPORATION OF ATHENS, INC. v. Buddy PEPPERS et al.

No. 54903.

Court of Appeals of Georgia, Division No. 1.

Dec. 5, 1977.

Rehearing Denied Dec. 19, 1977.

Stanley R. Durden, Athens, for appellant.

Marcus B. Brown, Jr., Jane E. Ferguson, Gainesville, Charles M. Baird, Atlanta, for appellees.

W. Rhett Tanner, Atlanta, amicus curiae.

SHULMAN, Judge.

Appellant filed suit against appellees on a note governed by the Industrial Loan Act. Appellees failed to answer the suit and a default judgment issued against them. When appellant caused a levy to be made on certain personalty of appellees, a motion was made to set aside the judgment, claiming that appellant charged an excessive loan fee, making the loan usurious, and therefore void. This appeal is from the granting of that motion. We affirm.

The sole issue for our determination is the meaning of the phrase, " face amount of the contract" (hereinafter, FAC), as used in Code Ann. § 25-315(b). The phrase is used in subsections (a) and (b) of § 25-315, setting out permissible charges on loans governed by the Industrial Loan Act: "(a) Basic interest; advance discounts. Charge, contract for, receive and collect interest at a rate not to exceed eight per cent. per annum of the face amount of the contract, whether repayable in one single payment or repayable in monthly or other periodic installments. On loan contracts repayable in 18 months or less, the interest may be discounted in advance, and on contracts repayable over a greater period, the interest shall be added to the principal amount of the loan . . . (b) Fee for making loan. In addition thereto, charge, contract for, receive, or collect at the time the loan is made, a fee in an amount not greater than eight per cent. of the first $600 of the face amount of the contract, plus four per cent. of the excess: . . ."

Although subsection (a) expresses the authorized interest rate as a percentage of a computational base, the FAC, this court has required the use of different computational bases depending on the length of the note's term. Robbins v. Welfare Finance Corp., 95 Ga.App. 90, 95, 96 S.E.2d 892, involved a note repayable in 18 months. It was there held that the FAC was the total payback amount of the loan. Ten years later, in McDonald v. G.A.C. Finance Corp., 115 Ga.App. 361(2) 154 S.E.2d 825, involving a note repayable in more than 18 months, Judge Eberhardt refused to overturn Robbins. He also used the phrase "face amount of the contract" as meaning the total payback figure of the loan. However, he held that the computational base for calculating interest on the loan was the "principal amount," of the FAC exclusive of interest.

We have, therefore, the anomalous situation of a statute giving a single computational base for determining authorized interest and judicial decisions requiring the use of two different bases. There is, however, a definition of FAC provided in Robbins which resolves the tensions inherent in this situation, reconciles the holdings in Robbins and McDonald with each other and with the statute, and provides a basis for our decision in this case.

The Robbins court was faced with a case in which a borrower was contending that the note was usurious because interest was charged on the fees, the insurance premium and on the interest itself. The court approved the method used to compute the interest and held: "The contract is for not only the amount the debtor desires for his own use, but for the amount it is necessary for him to borrow in order to obtain what he needs for his own use." Id. 95 Ga.App. at 95, 96 S.E.2d at 895. Since the note was repayable in 18 months, the interest was discounted (see subsection (a) ), the effect of which was to lend the amount of the interest. The interest was therefore, to be included in "the amount it is necessary . . . to borrow."

In applying the above definition of FAC to the $984.00 note in McDonald, we look to see what the debtor had to borrow to get what he wanted. He wanted to obtain $627.48. To do so, he had to borrow an additional $220.80 to pay the fees and insurance premiums. "Since the lender is entitled to his fees for making the loan, and does not receive them at that time, but by means of instalment payments during the (term of the loan), he is entitled to charge interest thereon." Robbins, supra at 95, 96 S.E.2d at 896. The debtor, therefore, had to borrow $848.28 in order to obtain what he needed for his own use. For purposes of calculating interest, then, the FAC (as...