Can the NC Banking Commission raise or lower the maximum interest rate on larger consumer finance loans, or only on the smaller loans?

Plain-English summary

NC's Consumer Finance Act (Article 15 of Chapter 53) was the licensing and rate-control regime for small-loan companies. It set two parallel loan tracks. Track one (G.S. § 53-173) authorized loans up to $3,000 at a maximum interest rate of 36% per year. Track two (G.S. § 53-176) authorized larger loans up to $10,000 with a tiered rate: 30% per year on the first $1,000 of principal, 18% per year on the rest, with the 30% rate cap applying only to loans not exceeding $7,500. A consumer finance company could choose which track to use for any given loan.

Banking Commissioner William T. Graham asked the AG whether the State Banking Commission could redetermine and refix the maximum rates on either or both tracks based on changed conditions. The answer mattered a lot: rate-setting authority is the difference between a regulator who can respond to market shifts and one who has to wait for the legislature.

Chief Deputy AG Andrew A. Vanore, Jr. and Chief Counsel John R. McArthur drew a sharp line.

Track one (§ 53-173): Commission has authority. § 53-173(f) explicitly grants the Banking Commission authority to "from time to time, upon the basis of changed conditions or facts, redetermine and refix any such maximum rates of charge," subject to notice and an opportunity for licensees to be heard.

Track two (§ 53-176): Commission has no authority. § 53-176 specifies which provisions of § 53-173 apply to the larger loans: only subsections (b), (c), and (d), plus various subsections of § 53-180. Subsection (f) is conspicuously absent. The General Assembly chose what to include and chose to leave (f) out. Under the plain-language rule and the canon that legislative choices are deliberate, the omission means the Commission's rate-changing authority does not extend to § 53-176 loans.

The legislative history reinforced the conclusion. The original 1961 enactment said § 53-176 loans were subject to "all the other provisions of this Act" except certain enumerated provisions. A 1983 amendment changed the structure to an enumerated inclusion list rather than an enumerated exception list, and (f) was not on the inclusion list. A 1989 amendment refined the language but did not add (f). Three opportunities to bring (f) into § 53-176, three legislative passes.

The practical effect: the Commission could keep up with inflation, market interest rate cycles, and consumer protection concerns for the smaller § 53-173 loans through rulemaking. But the rates for the larger § 53-176 loans were frozen at whatever the General Assembly had set, and the Commission's only recourse was to ask the legislature for a change.

Currency note

This opinion was issued in 1993. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here. NC consumer finance law has been overhauled multiple times since 1993, including amendments adjusting loan ceilings and rate structures. Current statutory text and any reorganization of Article 15 should be confirmed before relying on any specific dollar amount or interest rate figure.

Background and statutory framework

The two-track Consumer Finance Act. § 53-173 covers smaller loans; § 53-176 covers larger loans. A consumer finance licensee could elect to operate under either or both. Each track has its own rate, term, and loan-amount caps.

Why have two tracks? Smaller loans typically had higher rates because of higher per-loan fixed costs (origination, servicing). Larger loans could amortize those costs over more principal, justifying lower marginal rates. The tiered rate structure in § 53-176 (30% on the first $1,000, 18% on amounts above $1,000) reflected that economics.

The Banking Commission's rate-setting role. State-level rate setting is a legacy of the early 20th century reaction to usury and predatory lending. Most states gave their banking regulators authority to adjust rates based on market conditions, subject to statutory ceilings.

Plain-language statutory construction. NC courts apply the plain-meaning rule when statutory text is clear. Burgess v. Your House of Raleigh (1990) and Electric Supply Co. v. Swain Electrical Co. (1991) are the cited NC Supreme Court cases. Here the text was clear: § 53-176 incorporates (b), (c), and (d) but not (f). End of inquiry.

Legislative history as confirmation. When plain meaning yields a conclusion, legislative history is supplementary support. The 1961-1983-1989 amendment trajectory showed the General Assembly considered and rejected including (f) in § 53-176 three times.

The remedy for the Commission. If the Commission wanted to adjust § 53-176 rates, it had two options: ask the General Assembly to amend § 53-176 to incorporate (f), or ask the General Assembly to change the rates directly by statute.

Common questions

Q: Could the General Assembly amend § 53-176 to give the Commission rate-setting authority?

A: Yes. That is the legislative remedy. The Commission could propose such an amendment, and the General Assembly could enact it.

Q: Did the General Assembly act on this later?

A: NC's Consumer Finance Act has been amended multiple times since 1993, including changes to both loan ceilings and the Commission's authority. Current statutes should be checked for the present allocation.

Q: What happens if a consumer finance company charges more than the § 53-176 cap?

A: The Consumer Finance Act has remedies for usurious lending, including loss of interest and penalty provisions. Borrowers can also bring private actions for violations.

Q: How does this affect ordinary consumer loans from banks?

A: Banks operate under a different regulatory regime (Chapter 53 generally, with various federal preemptions for national banks). Consumer finance companies are a specific licensed category distinct from chartered banks.

Q: Could the Commission cap rates lower than § 53-176 by regulation?

A: The opinion held the Commission had no authority over § 53-176 rates at all. That includes lowering them. Only the General Assembly can change those rates.

Q: Does this principle apply to other parallel statutory rate-setting regimes?

A: The reasoning applies whenever the legislature creates a regulator with limited cross-referenced authority. The reach of the regulator depends on what the statute specifically incorporates.

Citations from the opinion

• N.C.G.S. §§ 53-173; 53-173(a); 53-173(b); 53-173(c); 53-173(d); 53-173(f); 53-176; 53-180(b)-(i); 53-141; 53-166; 53-171.1; 53-174; 53-175(a); 53-175(b)
• Article 15, Chapter 53 (Consumer Finance Act)
• Session Laws 1961, ch. 1053, § 1; 1983, ch. 126, § 14; 1989, ch. 17, § 6
• Burgess v. Your House of Raleigh, Inc., 326 N.C. 205, 388 S.E.2d 134 (1990)
• Electric Supply Co. v. Swain Electrical Co., 328 N.C. 651, 403 S.E.2d 291 (1991)
• 12 N.C. Index 3d Statutes § 5.5

Source

• Landing page: https://ncdoj.gov/opinions/consumer-finance-act-authority-of-state-banking-commission-to-set-maximum-interest-rates-for-loans/

Original opinion text

You request that this Office issue an opinion regarding the authority of the State Banking Commission to set the maximum interest rate for loans made by licensees pursuant to N.C.G.S. § 53-176 of the Consumer Finance Act (Art. 15, G.S. Chap. 53) (the Act).

For reasons which follow, we conclude that the State Banking Commission does not have any authority to redetermine and refix the maximum interest rate for loans made by licensees pursuant to N.C.G.S. § 53-176. The State Banking Commission does, however, have the authority to redetermine and refix the maxmum interest rate for loans made by licensees pursuant to N.C.G.S. § 53-173.

Licensees under the Act may elect to make loans either pursuant to N.C.G.S. § 53-173(a), which sets the maximum loan amount at $3,000.00 and the maximum interest rate at thirty-six percent (36%) per annum, or pursuant to N.C.G.S. § 53-176, which sets the maximum loan amount at $10,000.00 and the maximum interest rate, with regard to loans not exceeding $7,500.00, at thirty percent (30%) per annum on that part of the unpaid principal balance not exceeding $1,000.00 and eighteen percent (18%) per annum on all other loan amounts. Subsection (f) of N.C.G.S. § 53-173 contains the following pertinent language:

Subject to the limitations contained in this Article [15] as to maximum rates, the [State Banking] Commission may from time to time, upon the basis of changed conditions or facts, redetermine and refix any such maximum rates of charge, but, before determining or redetermining any such maximum rates, the Commission shall give reasonable notice of its intention to consider doing so to all licensees and a reasonable opportunity to be heard and introduce evidence with respect thereto.

The language of N.C.G.S. § 53-176 which is pertinent to this opinion reads as follows:

The provisions of G.S. 53-173(b), (c) and (d) and G.S. 53-180(b), (c), (d), (e), (f), (g), (h) and (i) shall apply to loans made pursuant to this section.

The plain words of N.C.G.S. § 53-176 quoted above provide that only subsections (b), (c), and (d) of N.C.G.S. § 53-173 shall apply to loans made pursuant to N.C.G.S. § 53-176. Subsection (f) is omitted from the list of applicable provisions. We conclude, therefore, that it is the intent of the Legislature that Subsection (f) of N.C.G.S. § 53-173 shall not apply to the maximum interest rate set for loans under N.C.G.S. § 53-176.

Where the language of a statute is clear and unambiguous, there is no room for construction, and the statute must be given its plain meaning. When construction is necessary, the primary rule of construction is to ascertain the intent of the Legislature and to carry out such intention to the fullest extent. The intent must be found from the language of the statute, its legislative history, and the circumstances surrounding its adoption which throw light upon the evil sought to be remedied. Burgess v. Your House of Raleigh, Inc., 326 N.C. 205 at 209, 388 S.E.2d 134 (1990); 12 N.C. Index 3d Statutes §5.5.

The North Carolina Supreme Court has said:

In matters of statutory construction, our primary task is to ensure that the purpose of the Legislature, the legislative intent, is accomplished. (Citation omitted.) Legislative purpose is first ascertained from the plain words of the statute. (Citation omitted.) Moreover, we are guided by the structure of the statute and certain canons of statutory construction. Electric Supply Co. v. Swain Electrical Co., 328 N.C. 651 at 656, 403 S.E.2d 291 (1991) (emphasis added).

The legislative history of N.C.G.S. § 53-176 also supports this conclusion. The Consumer Finance Act was first enacted in 1961 and appears in Session Laws 1961, Chap. 1053, Sec. 1. The language of N.C.G.S. § 53-173(e), subsequently codified as subsection (f), as originally enacted, read the same as the current subsection (f). The pertinent language of N.C.G.S. § 53-176, however, read as follows:

In lieu of making loans in the amount, for the term and at the charges stated respectively in Sections 53-166, 53-173 and 53-180, a licensee may at any time elect to make loans in any amount including loans in excess of six hundred dollars ($600.00), for any term including more than 24 months, subject to all the other provisions of this Act, provided that the charges for the entire amount for each such loan made by such electing licensee…shall not exceed the same fees and interest set forth in G.S. 53-141. [Emphasis added.]

As originally enacted, therefore, all of the provisions of the Consumer Finance Act applied to loans made under N.C.G.S. § 53-176 except (i) the amount, (ii) the term, and (iii) the charges stated in N.C.G.S. §§ 53-166, 53-173, and 53-180. A subsequent amendment to N.C.G.S. § 53-176, however, provided, inter alia:

The provisions of G.S. 53-171.1, G.S. 53-174 and G.S. 53-175(a) and (b) shall not apply to loans made pursuant to this section. The provisions of G.S. 53-173(b), (c) and (d) and G.S. 53-180(b), (c), (d), (e), (f), (g) and (h) shall apply to loans made pursuant to this section. Session Laws 1983, Chap. 126, Sec. 14.

The General Assembly, by this amendment, deleted the language of the original enactment providing that all of the provisions of the Consumer Finance Act, with certain specified exceptions, should apply to loans made under N.C.G.S. § 53-176 and set out, instead, the provisions of the Act that would apply. Subsection (f) of N.C.G.S. § 53-173 was not among those provisions that were made applicable. By later amendment appearing in Session Laws 1989, Chap. 17, Sec. 6, the above-quoted language was changed to its current form, which again does not include N.C.G.S. § 53-173(f) among the applicable provisions.

It is the opinion of this Office, therefore, based upon the plain language of the statute and its legislative history, that N.C.G.S. § 53-173(f) does not grant authority to the State Banking Commission to refix the maximum interest rate set out in N.C.G.S. § 53-176.

If you have any questions or comments about this opinion, please feel free to contact us.

Andrew A. Vanore, Jr., Chief Deputy Attorney General

John R. McArthur, Chief Counsel