ATTORNEYS FOR PLAINTIFFS :                ATTORNEYS FOR DEFENDANTS:

STEPHEN L. WILLIAMS                    JUDY L. WOODS
Mann Law Firm                        Bose McKinney & Evans LLP
Terre Haute, Indiana                        Indianapolis, Indiana
    
DAVID H. POPE                         JAMES A. CHAREQ
Carr Tabb Pope & Freeman                    Lovells
Atlanta, Georgia                        Washington, DC

CLIFFORD W. SHEPARD                     ATTORNEYS FOR AMICUS CURIAE
Consumer Law Protection Offices    
Indianapolis, Indiana                         STEVEN C. SHOCKLEY
                                 MAGGIE L. SMITH
DANIEL A. EDELMAN                    Sommer & Barnard, PC
Edelman Combs & Latturner                    Indianapolis, Indiana
Chicago, Illinois

LIVINGSTON, JANET, ET AL.,                                                                                   )    

                                                                                                                  )
    Plaintiffs,                                                                                                   )
                                                                                                                  )    Supreme Court Cause Number    
        v.                                                                                                        )    
                                                                                                                  )    94S00-0010-CQ-609
FAST CASH USA, INC., ET AL.,                                                                                      )    
                                                                                                                  )
    Defendants.                                                                                                   )
                                                                                                                  )

In turn, subsection 3-508(7) dictates in relevant part:
With respect to a supervised loan not made pursuant to a revolving loan account, the lender may contract for and receive a minimum loan finance charge of not more than thirty dollars ($30).See footnote

The parties agree that a fifteen-day loan of $200 with a minimum loan finance charge of $33 represents an APR of interest totaling 402%. However, according to Lenders, subsection 3-508(7) is an exception to subsection 3-508(2). Relying on various tenets of statutory construction Lenders contend they are entitled to receive from a borrower a minimum loan finance charge in any amount up to $33 even if the charge exceeds the maximum APR of 36%. We rely on similar tenets but reach a different conclusion.
Where a statute has not previously been construed, the express language of the statute controls the interpretation and the rules of statutory construction apply. Ind. State Fair Bd. v. Hockey Corp. of America, 429 N.E.2d 1121, 1123 (Ind. 1982). We are required to determine and effect the legislative intent underlying the statute and to construe the statute in such a way as to prevent absurdity and hardship and to favor public convenience. Superior Constr. Co. v. Carr, 564 N.E.2d 281, 284 (Ind. 1990). In so doing, we should consider the objects and purposes of the statute as well as the effects and repercussions of such an interpretation. State v. Windy City Fireworks, Inc., 600 N.E.2d 555, 558 (Ind. Ct. App. 1992), adopted by 608 N.E.2d 699.
Before the 1971 adoption of the IUCCC, the Indiana Legislature had passed an array of lending and usury laws. Replaced by the IUCCC, many had been in existence before the turn of the century. See footnote One such statute, commonly referred to as the “petty loan” statute, was specifically designed to “provide for a limited and uniform rate of interest upon small loans for short terms.” Cotton v. Commonwealth Loan Co., 206 Ind. 626, 190 N.E. 853, 855 (1934); Pub.L. No. 167-1913, §§ 1-5, 1913 Ind. Acts 457-60. Unlike most lending statutes for which interest rates were generally based on an annual rate, the petty loan statute differed in that it was based on a monthly rate. Cotton, 190 N.E. at 855 (discussing the then existing interest rate of 3½% per month for loans up to $300). With the 1971 enactment of the IUCCC, the legislature retreated from a monthly rate of interest and instead set the interest rate at 36% per year for loans of $300 or less. See I.C. § 24-4.5-3-508(2)(a)(i); Pub.L. No. 366-1971, § 4, 1971 Ind. Acts 1637-38. Of course, with this change nothing prohibited lenders from continuing to provide “small loans for short terms.” Cotton, 190 N.E. at 855. However, the statute suggests that although the legislature apparently contemplated the continued existence of small loans, consistent with its stated purpose “to simplify, clarify and modernize the law governing retail installment sales, consumer credit, small loans and usury,” I.C. § 24-4.5-1-102(2)(a) (emphasis added), the legislature anticipated that even though small, the loans would extend for at least one year. Subsection 3-508(3)(b) lends support to the view that the then newly enacted IUCCC anticipated longer term loans. That subsection refers to “prepayment” which in turn is controlled by Indiana Code section 24-4.5-3-210. We observe that a one or two-week payday loan is not very amenable to a prepayment scheme.
The early version of subsection 3-210 also supports the view that the IUCCC anticipated loans for longer than a week or two. In 1971 for example, in the case of prepayment for a loan in excess of $75, a lender was allowed to receive a minimum loan finance charge provided it did not exceed $7.50 or the finance charge contracted for. See I.C. § 24-4.5-3-210 (1971). Thus a $200 two-week loan would generate $2.77 in interest, i.e., “the finance charge contracted for.” It would have been more than an anomaly if a lender were allowed to receive a minimum loan finance charge of $2.77 for a two-week loan paid at the end of the term but receive $7.50 as a minimum loan finance charge if that same two-week loan were paid off a week early.
Subsection 3-508 has been amended three times since 1971. However, each amendment has referred to the prepayment subsection 3-210. At present, subsection 3-508 as well as subsection 3-210 See footnote works substantially the same as it has always worked: a lender is allowed to charge up to the amount specified in subsection 3-508(7), limited by the total finance charge that was originally provided for in the contract. Hence, a two-week $200 loan still generates $2.77 in maximum interest. The principal difference between the 1971 version of subsection 3-508 and the current version is that the minimum loan finance charge is now $33 for loans up to $300. If subsection 3-508(7) represents an exception to subsection 3-508(2), as Lenders contend, then there would exist an even greater anomaly today than that which would have existed under the 1971 version of the statute. Specifically, if Lenders are correct, then they would be entitled to receive $2.77 for a two-week loan paid at the end of the term, but entitled to an incredible $33 if the two-week loan were paid off early, for example after a week or even one day. To interpret the statute as Lenders suggest - allowing a minimum finance charge of $33 for a loan that otherwise would generate what amounts to pennies in interest - is inconsistent with the purposes and policies of the IUCCC and creates an absurd result which the legislature could not have intended when the statute was enacted or when the various amendments were adopted.
Lenders complain that reading the statute inconsistent with their own interpretation either renders subsection 3-508(7) a nullity or treats it as mere surplusage. We disagree. Subsection 3-508(7) would be rendered a nullity or mere surplusage only if subsection 3-508(2) can be read as anticipating short term loans. As we have attempted to demonstrate, we do not believe that is the case. In essence these statutes simply do not work very well when applied to short-term payday type loans. By contrast, subsections 3-508(2) and (7) work together harmoniously for loans of at least a year. For example, a $200 one-year loan would entitle the lender to $72 in interest if the loan were paid at the end of the term. In the event of prepayment - even after one day - the lender would be entitled to a minimum loan finance charge of $33. This seems to make sense. Even though the lender would not receive the full amount of interest originally anticipated, the lender is still afforded a modest but reasonable return on an investment and also allowed to recoup administrative costs associated with setting up a small loan. Only because Lenders have made a business decision to offer short-term payday loans are they faced with a dilemma which in their view justifies a $33 minimum loan finance charge. See Reply Br. of Def. at 6 (complaining “annual rates of interest do no not adequately compensate the lender.”). This Court can offer Lenders no refuge. Even if short term payday loans were never contemplated by the IUCCC, they are nonetheless subject to and controlled by that statute. Accordingly, Lenders may contract for and receive a loan finance charge of not more than $33 as set forth in subsection 3-508(7) provided the resulting APR does not exceed the interest limit established by 3-508(2) or Indiana’s loansharking statute. See footnote

DICKSON and SULLIVAN, JJ., concur.

BOEHM, J., concurs with separate opinion.

SHEPARD, C.J., dissents with separate opinion.

Stephen L. Williams
Terre Haute, Indiana

David H. Pope
Atlanta, Georgia

Clifford W. Shepard
Indianapolis, Indiana

Daniel A. Edelman
Chicago, Illinois

ATTORNEYS FOR DEFENDANTS

Judy L. Woods
Indianapolis, Indiana
    
James A. Chareq
Washington, D.C.

ATTORNEYS FOR AMICUS
CURIAE

Steven C. Shockley
Maggie L. Smith
Indianapolis, Indiana

David H. Pope                    James A. Chareq
Carr Tabb Pope & Freeman            Lovells
Atlanta, Georgia                Washington, D.C.        

Clifford W. Shepard                ATTORNEYS FOR AMICUS CURIAE
Consumer Law Protection Offices    
Indianapolis, Indiana            Steven C. Schockley
                            Maggie L. Smith
Daniel A. Edelman                Sommer & Barnard, PC
Edelman Combs & Latturner        Indianapolis, Indiana
Chicago, Illinois
                            

LIVINGSTON, JANET, ET AL.,        )
                            )
    Plaintiffs,                )
                            )    Supreme Court Cause
v.                    )         Number                             )    94S00-0010-CQ-609
FAST CASH USA, INC. ET AL.,        )
                            )
    Defendants.                )
-----------------------------------------------------------
                            )
WALLACE, KELLI R., ET AL.,        )
                            )
    Plaintiffs,                )
                            )    Supreme Court Cause
        v.                    )        Number
                            )    94S00-0010-CQ-610
ADVANCE AMERICA CASH and            )
ADVANCE CENTERS OF INDIANA,        )
                            )
    Defendants.                )

SHEPARD, Chief Justice, dissenting.

    I read subsection 508(7) to mean what it says, in straightforward terms: “With respect to a supervised loan not made pursuant to a revolving loan account, the lender may contract for and receive a minimum loan finance charge of not more than thirty dollars ($30).” 1

    I think subsection 508(2) limiting annual interest and subsection 508(7) permitting a minimum finance charge were adopted by the legislature on the premise that the two would work together like this: a lender can charge no more than 36% per year, but if the loan period is so short or the loan so small that this rate might produce just a few dollars, a minimum of $33 may be charged. This harmonizes both provisions by treating subsection 508(7) as an exception to subsection 508(2), and it makes $33 a true “minimum loan finance charge” using the common meaning of the words.

The majority concludes that subsection 508(7) comes into play only in the event of loan prepayments, because it is referenced in § 210 (“Rebate Upon Prepayment”). Although subsection 508(7) does perform this additional function, I still find its primary purpose in its plain language. If the legislature had intended to permit a minimum loan finance charge but limit it to prepayment situations, surely the logical approach would have been to state the minimum charge, in dollars, in the prepayment section and eliminate subsection 508(7) entirely, or at least to clarify this limitation in subsection 508(7).

This is not to say that the legislature contemplated allowing lenders to collect $33 every two weeks on what is for all practical purposes one continuing loan. Lawmakers probably recognized that they could not anticipate all possible schemes and adopted a general provision aimed at preventing such possibilities. Ind. Code § 24-4.5-3-509, “Use of Multiple Agreements,” prohibits lenders from permitting borrowers to “become obligated in any way under more than one loan agreement with the lender . . . with intent to obtain a higher rate of loan finance charge than would otherwise be permitted by the provisions on loan finance charge[s] for supervised loans . . . .” This provision effectively prohibits sequential fee-charging practices.

It has been awhile since we last encountered a statute in such serious need of revision. Our federal cousins might take comfort in knowing that, like them, we found the task of parsing its various provisions very difficult (but had nowhere else to send out for help).
    

I.C. § 24-4.5-3-210(2).

I.C. § 35-45-7-2.