Untitled Texas Attorney General Opinion ( 1981 )

The Attorney General of Texas
April 10, 1981
MARKWHITE
Attorney General
Honorable Carl A. Parker, Chairman Opinion No. MW-319
Senate Committee on Financial
Institutions Re: Whether article XVI, section
P. 0. Box UO68 11 of the Texas Constitution
Austin, Texas 78711 requires that legislation tying the
interest rate to a moving index fii
an absolute maximum rate
Dear Senator Parker:
You ask whether article XVI, section ll of the Texas Constitution
requires that an absolute maximum interest rate be fixed in all cases where
the authorized rate is tied to a moving index. Article XVI, section 11
provides in pertinent part:
The Legislature shall have authority to.. . define
interest and fix maxmum rates of interest; provided,
however, in the absence of legislation fixing
maximum rates of interest all contracts for a greater
rate of interest gan ten per centum 00%) per annum
shall be deemed usurious. . . .
We believe your question is answered by Letter Advisory No. 146 (1977)
issued by this office. That letter addressed the question of whether the
legislature could authorize the Finance Commission to establish maximum
interest rates for small loans. It stated as follows:
Article 16, section 11autho&es the LegMature ‘to
fix’ maximum rates of interest. The word ‘fix’ has a
variety of meanings, depending upon the context. See
Gist v. Rackliffe-Gibson Const. Co., 123 S.W. 92I
[MO. 19091 We
.``.````~,~ ``~ believe
``~ the followine definition from
Webster’s Second International DictLnary states the
meaning of ‘fix’ as it appears in this constitutional
provision:
to set or place definitely; to
establish;. . . to determine; to
assign precisely.
We note that Texas courts have assumed ‘fix’ in this
provision to be interchangeable with ‘establish.’ -See
p. 1024
Honorable Carl A. Parker - Page Two (MN- 319)
Freeman v. Gonzales County Savings & Loan Ass’n, 526 S.W.2d
774, 777 (Tex. Civ. App. - Corpus Christi 1975) lafPd, 534 S.W.
2d 903 (Tex. 197611; Home Savings Ass’n of Dallas County v.
Crow, 514 SW. 2d 160, 165 (Tex. Civ. App. - Dallas 1974), ati’d,
522 S.W.2d 457 (Tex 1975). We believe the Constitz
authorizes the Legislature to enact statutes establishing a
precise figure as the maximum interest rate. If it does not
enact such statutes, or if for other reasons there is no
legislation fixing maximum interest rates for any class of
transactions, the Constitution itself fries a ten percent
maximum.
In Attorney General Opinion MW-17 (19791, we considered the constitutionality of
a bill which stated the interest rate as one percent more than the discount rate on 90-
day commercial paper in effect on the day the loan is made. The bill, however, gave a
minimum interest rate of 10% and a maximum rate of 12%. We found that the bill
‘Ifties an absolute maximum rate of interest, in that in no instance may the rate
exceed 12 percent a year.” We noted that if the legislature wished to ensure the
validity of the bill, it could draft a severability clause to render the 12 percent
maximum applicable regardless of the validity of the other provisions.
It is clear from Attorney General Opinion MW-17 and Letter Advisory No. 146
that a numerical maximum interest rate must be stated in legislation which attempts
to set the interest rate. We do not believe that the legislature would in fact fix the
maximum interest rate if it were to enact a formula permitting the computation of
maximum interest from economic indicators. Such a statute might permit the
computation of a precise maximum interest rate at any given time; however, it only
fixes the interest rate in a relative sense. We believe the constitution requires the
legislature to fix an absolute maximum interest rate.
SUMMARY
Article XVI, section 11 of the Texas Constitution requires
that legislation fixing the Interest rate state a numerical
maximum interest rate.
A-
MARK WHITE
Attorney General of Texas
JOHN W. FAINTER, JR.
First Assistant Attorney General
RICHARD E. GRAY III
Executive Assistant Attorney General
. .
Honorable Carl A. Parker - Psge Three (MlrJ-319)
Prepared by Susan L. Garrison
Assistant Attorney General
APPROVED:
OPINION COMMlTTEE
Susan L. Garrison, Chairman
Jon Bible
Rick Gilpin
ThomasM.Pollan