Can a Tennessee industrial loan and thrift company roll the upfront 'acquisition charge' into the principal when calculating loan charges under § 45-5-403(b)?

Plain-English summary

Tennessee's Industrial Loan and Thrift Companies Act regulates a category of nonbank consumer lenders called "registrants." Tenn. Code Ann. § 45-5-403 sets the loan charges a registrant may collect, and it does so two different ways. Subsection (a) carries forward the loan-charge structure put in place when the Act was substantially rewritten in 1979. Subsection (b), added in 2000, offers an alternative structure with an "acquisition charge" at the front end and a monthly installment-account handling charge. Both subsections cap the dollar amounts.

The question presented was whether a registrant making a subsection (b) loan could fold the acquisition charge into the "principal" of the loan, which would then bump up later charge calculations. The AG concluded no. The Act's definition of "principal" in Tenn. Code Ann. § 45-5-102(19) refers to "loan charges as provided in Tenn. Code Ann. § 45-5-403(1), (2) and (3), as applicable," and the AG read those numbered references to point to the 1979 subsection-(a) structure that existed at the time the definition was written. Subsection (b) is an alternative track, and the General Assembly did not amend the definition to pull subsection (b) charges into principal.

The result is that a registrant choosing the subsection (b) alternative has to compute its loan charges from the actual money disbursed to the borrower, without adding the acquisition charge to the base.

Currency note

This opinion was issued in 2014. 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.

Common questions

Q: What is an "acquisition charge"?
A: It is an upfront charge a registrant can collect when making a loan under § 45-5-403(b). At the time of the opinion, footnote 3 notes the acquisition charge was capped at 10% of the principal (raised from 7.5% in 2012), for loans of up to $2,000 with a term of up to 25 months.

Q: Why didn't the definition of "principal" pull in subsection (b) loan charges?
A: The definition references "loan charges as provided in Tenn. Code Ann. § 45-5-403(1), (2) and (3), as applicable." The AG traced those numbered references back to Section 11(1), (2), and (3) of the 1979 enacting legislation, which was codified as the unnumbered paragraphs (1), (2), and (3) of the Act's loan-charge section. When the 2000 amendment broke § 45-5-403 into subsections (a) and (b), it did not redo the definition's numerical references, so they continued to point at what is now subsection (a). The AG also drew on Roddy Mfg. Co. v. Olsen, 661 S.W.2d 868 (Tenn. 1983), for the rule that adoption of a statute by reference picks up the law as it existed at the time of adoption, unless later legislation clearly extends it.

Q: Why did the 2000 amendment matter?
A: The 2000 amendment's preamble said its "sole purpose" was to add an "alternative set of charges." The AG used that language to confirm that subsection (b) was a separate optional track, not an expansion of subsection (a). That cut against any reading that would pull subsection (b) charges into the existing "principal" definition.

Q: What's the practical effect for a borrower?
A: A subsection (b) loan's monthly installment-account handling charge and similar derivatives have to be computed against the actual money disbursed to the borrower, not against an inflated base that includes the acquisition charge. Without that limit, the acquisition charge would amplify other charges.

Q: Does the opinion address subsection (a) loans?
A: Subsection (a) is the older track, and the definition of principal expressly incorporates its loan charges. The opinion's focus is the subsection (b) alternative; the question presented assumed a subsection (b) loan.

Background and statutory framework

The Industrial Loan and Thrift Companies Act sits in the family of state consumer-lending laws enacted alongside Tennessee's consumer-lending and usury reforms of the late 1970s.

The Act distinguishes between interest under § 45-5-301 and loan charges under § 45-5-403, both of which are capped. Subsection (a) of § 45-5-403 carries forward the original 1979 charge structure. Subsection (b), added in 2000, lets a registrant elect a different charge mix (an acquisition charge plus a monthly installment-account handling charge) for small loans of limited duration. The 2012 amendment raised the dollar caps (loans up to $2,000, acquisition charge up to 10%, monthly handling charge increased, term up to 25 months), but did not change the definition of principal.

The opinion's interpretive engine is two standard canons: (1) numerical statutory cross-references are presumed to mean what they meant when written (Roddy Mfg.), and (2) statutes are read without "forced or subtle construction" that would extend their reach (Shore v. Maple Lane Farms and Houghton v. Aramark Educ. Resources). Applied here, both canons point to keeping subsection (b)'s acquisition charge out of the principal calculation, since the legislature did not write that result into the definition when it added subsection (b).

Citations and references

Statutes:
- Tenn. Code Ann. §§ 45-5-101 to -612 (Industrial Loan and Thrift Companies Act)
- Tenn. Code Ann. § 45-5-102(19) (principal definition); § 45-5-102(20) (registrant)
- Tenn. Code Ann. § 45-5-103 (certificate of registration)
- Tenn. Code Ann. § 45-5-301 (interest, loan charges)
- Tenn. Code Ann. § 45-5-403 (loan charges; subsections (a) and (b))
- 1979 Tenn. Pub. Acts, ch. 204; 2000 Tenn. Pub. Acts, ch. 684 and ch. 694

Cases:
- Roddy Mfg. Co. v. Olsen, 661 S.W.2d 868 (Tenn. 1983) (Tennessee Supreme Court; adoption by reference)
- Shore v. Maple Lane Farms, LLC, 411 S.W.3d 405 (Tenn. 2013) (Tennessee Supreme Court)
- Houghton v. Aramark Educ. Resources, Inc., 90 S.W.3d 676 (Tenn. 2002) (Tennessee Supreme Court)

Subject

Opinion No. 14-82, Loan Charges Under the Industrial Loan and Thrift Companies Act, September 12, 2014

Source

• Landing page: https://www.tn.gov/attorneygeneral/opinions.html
• Original PDF: https://www.tn.gov/content/dam/tn/attorneygeneral/documents/ops/2014/op14-082.pdf

Original opinion text

STATE OF TENNESSEE
OFFICE OF THE ATTORNEY GENERAL
September 12, 2014
Opinion No. 14-82
Loan Charges Under the Industrial Loan and Thrift Companies Act

QUESTION

When a registrant under the Industrial Loan and Thrift Companies Act makes a loan to a borrower pursuant to Tenn. Code Ann. § 45-5-403(b), can the registrant include the acquisition charge as part of the "principal" when computing the borrower's loan charges?

OPINION

No.

ANALYSIS

Industrial loan and thrift companies, industrial banks, and industrial investment companies in Tennessee are regulated by the Industrial Loan and Thrift Companies Act ("Act"), Tenn. Code Ann. §§ 45-5-101 to -612, and such an entity desiring to do business in this State must obtain a certificate of registration from the Commissioner of Financial Institutions, Tenn. Code Ann. § 45-5-103. Entities registering under the Act are described as "registrants." Tenn. Code Ann. § 45-5-102(20).

Registrants have the power to "[l]end money with or without security and to take as security real or personal property, or both." Tenn. Code Ann. § 45-5-301(1). They also have the power to charge interest, as well as loan charges. Tenn. Code Ann. § 45-5-301(2) and (3). Loan charges, though, are subject to the limitations set forth in Tenn. Code Ann. § 45-5-403. Tenn. Code Ann. § 45-5-301(3).

There are two sets of permissible loan charges under Tenn. Code Ann. § 45-5-403, one set is contained in subsection (a) and the other is contained in subsection (b). The set contained in subsection (a) can be traced to 1979, the year the Act was substantially rewritten. The set contained in subsection (b) was added by the General Assembly in 2000 "for the sole purpose" of providing an "alternative set of charges." 2000 Tenn. Pub. Acts, ch. 684, Preamble. See Tenn. Code Ann. § 45-5-403(b) ("As an alternative to the loan charges permitted under subsection (a) and interest permitted under § 45-5-301, a registrant may charge loan charges in amounts no greater than, the following: . . . .").

When subsection (b) was originally enacted, it established an alternative set of charges for loans up to $1,000. The registrant was allowed an "acquisition charge" in an amount "not in excess of seven and one half percent (7.5%) of the amount of the principal." The registrant was also allowed a monthly installment-account handling charge that varied depending on the amount of the loan. Tenn. Code Ann. § 45-5-403(b)(1) (2000). The minimum term of a loan under subsection (b) was three months; the maximum term was 12 months. Tenn. Code Ann. § 45-5-403(b)(2) (2000). All of these figures have since been increased.

The Act's definition of "principal" includes certain loan changes.

"Principal" means the total of money paid to, received by, or paid or credited to the account of the borrower, including loan charges as provided in Tenn. Code Ann. § 45-5-403(1), (2) and (3), as applicable, and including insurance charges for which the borrower contracts to pay pursuant to Tenn. Code Ann. § 45-5-305.

Tenn. Code Ann. § 45-5-102(19). If the phrase "loan charges as provided in Tenn. Code Ann. § 45-5-403(1), (2), and (3)" in this definition were to refer to the loan charges set forth in § 45-5-403(b), then a registrant would arguably be able to include the acquisition charge described in subsection (b) as part of the principal when computing a borrower's loan charges under subsection (b). But it does not.

The phrase "loan charges as provided in § 45-5-403(1), (2) and (3), as applicable" refers only to the loan charges set forth in Tenn. Code Ann. § 45-5-403(a). When the Act was rewritten in 1979, "principal" was defined as "the total of money paid to, received by, or paid or credited to the account of the borrower, including loan charges as provided in Section 11(1), (2) and (3) hereof, as applicable, and including insurance charges for which the borrower contracts to pay pursuant to Section 12 hereof." 1979 Tenn. Pub. Acts, ch. 204, § 1. Section 11(1), (2), and (3) of Chapter 204 was codified in Tenn. Code Ann. § 45-5-403(1), (2) and (3) (1980). It was not until the Act was amended in 2000 that Tenn. Code Ann. § 45-5-403 came to have a subsection (a) and a subsection (b). The 2000 amendment designated the existing language of Tenn. Code Ann. § 45-5-403 as subsection (a) and added a new subsection (b). 2000 Tenn. Pub. Acts, ch. 694, § 1.

The Tennessee Supreme Court has held that the adoption of a statute by reference is an adoption of the law as it existed at the time the adopting statute was passed. Roddy Mfg. Co. v. Olsen, 661 S.W.2d 868, 871 (Tenn. 1983). Subsequent modifications of the adopted statute do not affect the adopting statute unless clear legislative intent to do so is manifested. Id. There is no such intent in this instance. When the General Assembly amended Tenn. Code Ann. § 45-5-403 in 2000, it made clear that the new set of loan charges in subsection (b) was an "alternative set" of loan charges. Therefore, the loan charges in subsection (b) should not be construed to be "loan charges as provided in § 45-5-403(1), (2) and (3)." See Shore v. Maple Lane Farms, LLC, 411 S.W.3d 405, 420 (Tenn. 2013) (statute should be read "without any forced or subtle construction which would extend or limit its meaning"); Houghton v. Aramark Educ. Resources, Inc., 90 S.W.3d 676, 678 (Tenn. 2002) (statute is not to be construed in manner that unduly expands or restricts the statute's intended scope). Consequently, a registrant making a loan to a borrower pursuant to Tenn. Code Ann. § 45-5-403(b) cannot include the acquisition charge as part of the principal when it computes the borrower's loan charges.

ROBERT E. COOPER, JR.
Attorney General and Reporter

JOSEPH F. WHALEN
Acting Solicitor General

LAURA T. KIDWELL
Senior Counsel

Requested by:
Commissioner Greg Gonzales
Tennessee Department of Financial Institutions
400 Deaderick Street, 6th Floor
Citizens Plaza Building
Nashville, TN 37243