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Fla. App. Court (4th DCA) Holds RIC Not Subject to State Usury Law

The District Court of Appeal of the State of Florida, Fourth District recently affirmed entry of summary judgment in favor of a motor vehicle retail seller and assignee against a consumer who alleged that the 27.81 percent interest charge under the retail installment contract (“RIC”) exceeded the interest rate limit imposed by Florida’s usury statute.

In so ruling, the Court concluded that the financing contract at issue was not subject to the interest rate limit imposed by Florida’s general usury statute, but instead by the specific controlling statute, the Florida Motor Vehicle Retail Sales Finance Act.

A copy of the opinion in Adrianne Nolden v. Summit Financial Corp. et al is available at:  Link to Opinion.

In 2009, a consumer purchased a used 2004 vehicle from a licensed motor vehicle retail installment seller.  The RIC entered between the consumer and the seller at purchase stated that the buyer may purchase for cash or credit, subject to certain financing terms, including an express disclosure that “[w]e will figure your finance charge on a daily basis at the Base Rate of 27.81% per year.  The Truth-In-Lending Disclosures are part of this contract.”  The federal Truth in Lending Act (TILA) disclosures appeared on the first page of the RIC.

The RIC was later assigned to a sales finance company (“assignee”), as expressly permitted under its terms.

The consumer filed suit in Florida state court against the assignee and two of its employees, and later added the seller as a fourth defendant in her third amended complaint.  The consumer alleged that the 27.81 percent interest charge under the RIC exceeded the 18 percent interest rate limit imposed by Florida’s usury statute, and included five counts for criminal usury and alleging violations under Chapter 772, Florida Statutes (2009), the Civil Remedies for Criminal Practices Act. Chapter 772.101, Fla. Stat. (2009).

The seller and the assignee moved for summary judgment, which was granted in their favor and against the consumer in the trial court.  The trial court concluded that the RIC was not subject to Florida’s general usury statute and that the consumer’s sworn statements and witness depositions failed to raise a genuine issue of material fact.

This appeal followed.

As you may recall, under Florida law, usury requires proof of four elements: (1) an express or implied loan; (2) a repayment requirement; (3) an agreement to pay interest in excess of the legal rate; and (4) a corrupt intent to take more than the legal rate for the money loaned. Oregrund Ltd. P’ship v. Sheive, 873 So. 2d 451, 456 (Fla. 5th DCA 2004). The buyer, as the party claiming usury, has the burden of establishing its elements. Video Trax, Inc. v. NationsBank, N.A., 33 F. Supp. 2d 1041 (S.D. Fla. 1998).

The Court first examined the dispute over the third element, the “legal rate of interest.”

Under the Florida usury statute, interest exceeding 18 percent is usurious. § 687.02, Fla. Stat. (2009). Therefore, the usury statute conflicts with the Florida Motor Vehicle Retail Sales Finance Act, which allows the imposition of higher interest rates.  The consumer argued that the applicable legal rate of interest that applied to the RIC was set forth in Florida’s usury statute, Chapter 687, Florida Statutes (2009), while the seller and the assignee argued that the RIC was a retail installment sales contract pursuant to Chapter 520, Florida Statutes, and therefore was not subject to Florida’s general usury statute.

The Court agreed with the trial court that the RIC was, in fact, a retail installment sales contract, and that the seller and the assignee were permitted to charge the interest rate permitted by the Florida Motor Vehicle Retail Sales Finance Act based upon undisputed evidence that: (i) the title of the RIC stated “Retail Installment Sale Contract” in bold; (ii) the RIC complied with statutory requirements and included the requisite “notice to buyer” and separate written itemization of amount financed; (iii) the RIC’s terms fit within the statutory definition; (iv) the seller and assignee were licensed under the Florida Motor Vehicle Retail Sales Finance Act, and the consumer met the definition of a buyer as defined under the Florida Motor Vehicle Retail Sales Finance Act, and; (v) the parties’ conduct supported the trial court’s finding that the RIC was a retail installment sales contract.

As the undisputed interest rate of 27.81 percent did not exceed the finance charge permitted by § 520.08 Fla. Stat. on the unpaid balance, it was permissible under the Florida Motor Vehicle Retail Sales Finance Act.  See Chapter 520.085, Fla. Stat. (2009).

The Court acknowledged that both the Florida usury statute (Chapter 687, Fla. Stat.) and the Florida Motor Vehicle Retail Sales Finance Act (Chapter 520, Fla. Stat.) embrace the same subject (allowable interest rates) and produce contradictory results (what is usurious under Chapter 687 is permissible under Chapter 520).  However, under established Florida law and basic statutory principles, when two statutes appear to conflict, a specific statute (in this case Chapter 520) will control over a general statute (Chapter 687).  See Fla. Virtual Sch. v. K12, Inc., So. 3d 97, 102 (Fla. 2014); Lunohah Invs., LLC v. Gaskell, 158 So. 3d 619, 621 (Fla. 5th DCA 2013).

Accordingly, the Court concluded that the seller and the assignee were entitled to entry of summary judgment because the interest charged did not exceed the permissible rate allowed under Florida Motor Vehicle Retail Sales Finance Act and the RIC was therefore not usurious under the Florida usury statute.

Next, the Court examined whether or not the subject transaction constituted a “loan” under the usury statute, which expressly applies only to “contracts for the payment of interest upon any loan, advance of money, line of credit, or forbearance to enforce the collection of a debt.”  Chapter 687.02(1), Fla. Stat. (2009).

As to this issue, the Court agreed that summary judgment was further warranted in the seller and the assignee’s favor, because the RIC was not a “loan” under the usury statute pursuant to well-established Florida law that contracts to secure the price of property sold are not governed by general usury laws.  Perry v. Beckerman, 97 So. 2d 860, 862 (Fla. 1957) (citing Davidson, 52 So. at 139 (contract for sale of land); Scarritt Motors, 48 So. 2d at 168 (contract to purchase used car “not amenable to the charge of usury.”); see also B&D Inc. of Miami v. E-Z Acceptance Corp., 186 So. 2d 29 (Fla. 3d DCA 1966) (retail installment sales contracts for used motor vehicles “are not subject to the general usury statutes”); Taylor v. First Nat’l Bank of Miami, 270 So. 2d 379 (Fla. 3d DCA 1972)(same).

Lastly, the Court briefly addressed the consumer’s argument that the words “Chapter 520” were required to appear on the face of the RIC to exempt the agreement from the usury statute, pursuant to the “parity exception,” Chapter 687.12, Fla. Stat.

As you may recall, the Florida “parity exception” permits licensed lenders to take advantage of interest rates permitted by a different class of licensed lender so long as the lender complies “with all the requirements imposed on such a lender for the type of loan it is making,” and indicates on the instrument the “specific chapter of the Florida Statutes authorizing the interest rate charged.”  South Pointe Dev. Co. v. Capital Bank, 574 So. 2d 939, 941 (Fla. 3d DCA 1991)(quoting Fla. Stat. 687.12(4)).

Here, the parity exception did not apply to the RIC because the seller was licensed under Florida Motor Vehicle Retail Sales Finance Act and entitled to enjoy the “rights and privileges of said statue” by virtue of its license — including the right to charge interest in a higher amount even where that interest rate exceeds the amount permitted by the usury statute.  The Appellate Court noted that only lenders “’making loans . . . at a rate of interest that, but for this section, would not be authorized’” are required to indicate on the instrument “’the specific chapter of the Florida Statutes authorizing the interest rate charged.’”  687.12(4), Fla. Stat. (2009).

Accordingly, summary judgment in favor of the seller and the assignee was affirmed.

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Christopher P. Hahn practices in Maurice Wutscher’s Commercial Litigation, Consumer Credit Litigation and Insurance Recovery and Advisory groups. Prior to joining Maurice Wutscher LLP, he served under the General Counsel at the Florida Office of Financial Regulation. He also obtained extensive experience litigating property insurance claims through all phases of discovery, motion practice and other pre-trial activities. Christopher obtained his Bachelor of Science degree in Business Administration from the University of Southern California, followed by his Juris Doctorate degree from the University of Miami School of Law. He is also a graduate of the University of Miami’s Masters of Business Administration program, completing his degree with an emphasis on finance and mergers and acquisitions.

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