AGO 1968 No. 1 - Jan 8 1968
BANKS AND BANKING - BILLS AND NOTES - USURY - LENDER'S RIGHT TO ASSESS REASONABLE CHARGES FOR SERVICES RENDERED IN SETTING UP A LOAN.
The legislature, by amending RCW 19.52.020 (through enactment of § 4, chapter 23, Laws of 1967, Ex. Sess.) so as to grant to lenders of money the right to collect from borrowers a "setup charge" of four percent of the amount of funds advanced or fifteen dollars, whichever is the lesser, on loans not exceeding five hundred dollars, has not affected a lender's pre existing right to assess reasonable charges against a borrower for services actually performed in setting up a loan exceeding five hundred dollars.
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January 8, 1968
Honorable Robert L. Charette
State Representative, 19th District
100 West First Street
Aberdeen, Washington 98520
Cite as: AGO 1968 No. 1
By letter previously acknowledged you have requested our opinion on a question which we paraphrase as follows:
Does the right granted to lenders by RCW 19.52.020, as amended by § 4, chapter 23, Laws of 1967, Ex. Sess., to collect from borrowers a "setup charge" of four percent of the amount of funds advanced or fifteen dollars, whichever is the lesser, on loans not exceeding five hundred dollars, affect a lender's pre existing right to assess reasonable charges against a borrower for services actually performed in setting up a loan exceeding five hundred dollars?
We answer your question in the negative for the reasons set forth in our analysis.
The basic statute governing the maximum rate of interest which may be charged by lenders of money in this state1/ [[Orig. Op. Page 2]] has been codified as RCW 19.52.020. Until its recent amendment by § 4, chapter 23, Laws of 1967, Ex. Sess., this statute had not been amended since its original enactment as § 2, chapter 80, Laws of 1899.
Prior to its amendment by the 1967 legislature, the statute read as follows:
"Any rate of interest not exceeding twelve (12) percentum per annum agreed to in writing by the parties to the contract, shall be legal, and no person shall directly or indirectly take or receive in money, goods or thing in action, or in any other way, any greater interest, sum or value for the loan or forbearance of any money, goods or thing in action than twelve (12) percentum per annum."
In stating the elements of usury, our supreme court, in Hafer v. Spaeth, 22 Wn.2d 378, 156 P.2d 408 (1945), held that one of the essentials of a usurious transaction is "the exaction of something in excess of what is allowed by law for the use of the money loaned." (Emphasis supplied) Accord,Busk v. Hoard, 65 Wn.2d 126, 396 P.2d 171 (1964); and Baske v. Russell, 67 Wn.2d 268, 407 P.2d 434 (1965) again emphasizing the key phrase "for use of the money loaned."2/ Conversely, it has long been recognized, both by the court and by this office, that a lender, in addition to charging interest at a rate not in excess of twelve percent per annum for the use of money loaned, may assess against the borrower,
". . . reasonable charges for bona fide additional services rendered in good faith for the borrower, where such charges are not used as a subterfuge for the purpose of increasing the rate of interest for the use of the money loaned. . . ."
[[Orig. Op. Page 3]]
See, AGO 49-51-445, as supplemented by an opinion dated January 5, 1953, copies enclosed, both of which were written to the state supervisor of banking. Instances of recognition of this rule by our supreme court may be found in Testara v. Richardson, 77 Wash. 377, 137 Pac. 998 (1914);Uhler v. Olympia, 87 Wash. 1, 151 Pac. 117 (1915); andRobinson, Thieme & Morris v. Whittier, 112 Wash. 6, 191 Pac. 763 (1920). This same approach to the matter has also found general recognition in other jurisdictions, as evidenced by the following statement made in 91 C.J.S., Usury, § 48, at pages 630-632:
"A lender may properly exact from a borrower in addition to interest at the highest lawful rate on the money lent, reasonable fees or compensation for services rendered, or reimbursement of expenses incurred, in good faith, by the lender or his agent in connection with the loan, without thereby rendering the transaction usurious, even though the services rendered or acts done are such as would ordinarily be performed by the lender in his own interest, providing such acts are lawful. A lender will not, however, be permitted to cloak usurious exactions beneath charges for pretended services or expenses, and a bonus or premium for a loan is no less usurious because stated to be by way of compensation for services, where no services are rendered. The items of service or expense for which a charge may be made are those which are only incidental to the loan, and a lender may not, as a means of extracting additional interest or profits, charge the borrower for expenses which are not incidental to the loan. The test of the character of such a charge, as usury vel non, is the reasonableness of the amount and the intent of the parties."
With the rule, as thus enunciated, in mind, let us now look at the 1967 amendment to RCW 19.52.020, supra. By § 4, chapter 23, Laws of 1967, Ex. Sess., the legislature added to this statute the following proviso:
"PROVIDED, That in any loan of money in which the funds advanced do not exceed the sum of five hundred dollars, a setup charge may be charged and collected by the lender, and such setup charge shall not be considered interest hereunder: PROVIDED FURTHER, That such setup charge does not exceed four percent of the amount of funds advanced, or fifteen dollars, whichever is the lesser, except that on loans of under one hundred dollars a minimum not exceeding four dollars may be so charged."
[[Orig. Op. Page 4]]
The term "setup charge," as used in the amendment, has not been expressly defined by the legislature, and we have been unable to discover any decisional law specifically defining this term. The rule of statutory construction which is applicable in such a case has been stated by our supreme court as follows:
". . . A cardinal rule of statutory construction is that the words to be construed must be given their usual and ordinary meaning. . . ."
See,Pacific Etc. Alloys v. State, 49 Wn.2d 702, 306 P.2d 197 (1957). Also, seeCrown Zellerbach Corp. v. State, 53 Wn.2d 813, 328 P.2d 884 (1958), appeal dismissed, cert. denied, 79 S.Ct. 1138, 359 U.S. 531 (1959), 3 L.Ed. 2d 1029; andState ex rel. Longview Fire Fighters Union, Local 828, I. A. F. K. v. City of Longview, 65 Wn.2d 568, 399 P.2d 1 (1965).
Webster's 3rd New International Dictionary has the following definition of the word "setup":
"The portion of an operation devoted to preparatory work; . . ."
"Charge" is defined as:
"The price demanded for a thing or service."
In short, therefore, the meaning to be given to the term "setup charge" may be expressed as follows: A price charged for that portion of an operation devoted to preparatory work, or, when applied to a loan transaction, a price charged by the lender against the borrower for the lender's services3/ in "setting up" the loan.
The specific issue raised by your question is whether the legislature, by permitting the assessment of this type of charge in amounts solely measured by the total amount of loan in the case of loans not exceeding five hundred dollars, has impliedly prohibited lenders from continuing to exercise their pre existing right, as above described, to assess reasonable charges against a borrower for services performed in setting up a loan exceeding five hundred dollars. We do not believe that such a negative implication should be attributed to this 1967 amendatory provision.
[[Orig. Op. Page 5]]
Specifically, we do not believe that the present situation involves an appropriate case for application of the oft-used Latin maxim "expressio unius est exclusio alterius." See,State ex rel. Becker v. Wiley, 16 Wn.2d 340, 133 P.2d 507 (1943), cited with approval in DeGrief v. Seattle, 50 Wn.2d 1, 297 P.2d 940 (1956), wherein the court held that this rule should be applied only as a means of discovering legislative intent where it is doubtful, and not as a means of defeating the apparent intent of the legislature. We are not here concerned with the powers of a state agency or municipal corporation, dependent upon a legislative grant which, ordinarily, is to be strictly construed against the agency or municipality. See,Pacific Etc. Ass'n v. Pierce County, 27 Wn.2d 347, 178 P.2d 351 (1947). Rather, our concern is here with the rights of private individuals or institutions which are engaged in the business of lending money.
We have seen that prior to the enactment of § 4, chapter 23, Laws of 1967, Ex. Sess., such lenders had been held by our court to have a right to assess reasonable charges against a borrower for services performed in setting up a loan irrespective of amount. As we view it, all that the legislature has done by the enactment of this 1967 amendment is to establish a uniform formula for the computation of this reasonable "setup charge" on loans not exceeding five hundred dollars, while leaving the manner of computing and assessing similar charges on loans in excess of five hundred dollars to be determined on an individual, case by-case basis as before.
Simply stated, there is no language in RCW 19.52.020, as amended, indicating that the amendment was intended to have any effect on loans in excess of five hundred dollars. Therefore, we conclude that the common law rule applied prior to the effective date of § 4, chapter 23, Laws of 1967, supra, regarding a lender's right to assess charges against a borrower for services actually performed in "setting up" a loan should continue to apply to loans exceeding five hundred dollars.
We trust the foregoing information will be of assistance to you.
Very truly yours,
JOHN J. O'CONNELL
ARTHUR W. VERHAREN
Assistant Attorney General
*** FOOTNOTES ***
1/Where not governed by a special statute, as in the case of licensed small loan companies see, RCW 31.08.160.
2/In these two recent decisions of the Washington court, loans were held to be usurious notwithstanding that the expressed interest rate charged by the lender was less than twelve percent per annum, where the loans were arranged by a third party who acted as agent for both the borrower and the lender, and discounted the actual amount of cash advanced to the borrower by retaining therefrom a twenty percent "commission." The court held that this "commission" amounted to an additional charge for use of the money. Cf.,Ridgway v. Davenport, 37 Wash. 134, 79 Pac. 606 (1905).
3/Some examples of the type of services performed by the lender would include a credit investigation of borrower, preparation of necessary documents, etc.