Request By:
Mr. John L. Williams, Jr.
Commissioner
Department of Banking and Securities
911 Leawood Drive
Frankfort, Kentucky 40601
Opinion
Opinion By: Steven L. Beshear, Attorney General; Elizabeth E. Blackford, Assistant Attorney General
You have asked whether KRS 287.214 has had any effect on the 6 percent interest rate which may be charged on loans made pursuant to KRS 287.215. You stated that it has come to the attention of the Department that state banks are making installment loans at 7 percent interest rather than the 6 percent interest permitted by KRS 287.215.
After a lengthy examination of the problem this office is of the opinion that KRS 287.214 and KRS 287.215 may not be read together, but rather, constitute independent provisions relating to distinct forms of loans, and that the permissible rate at which interest may be charged on loans made pursuant to KRS 287.215 continues to be the six-ad rate set out in subsection (1) thereof.
The original usury statute, KRS 360.010, was enacted during the era of Carrol's Code. The statute obtained the form it bears today in 1974. Under the provisions of that act the parties may agree in writing to a rate of interest which does not exceed 8-1/2% per annum on any contract or obligation involving a principal sum of $15,000 or less.
The legislature enacted KRS 287.215 in 1946. That statute permits banks to make installment loans upon which they may charge interest at the rate of six-ad per annum. Loans made pursuant to KRS 287.215 are unique not only in that they bear a set interest rate, and that the loan may be discounted under certain circumstances, but also in that there are builtin attorney's fees, and that there are certain restrictions placed upon the type of property which may stand as collateral for such loans and upon the number of loans which may be made to a single borrower by the bank.
The clear purpose of KRS 287.215 was to give banks a continuing incentive to make loans involving principal amounts of $15,000 or less to consumers by permitting an interest charge on such loans in excess of that allowed by KRS 360.010. At the same time the legislature placed careful constraints, or limitations, upon such loans.
Thus, until 1979, banks made installment loans pursuant to KRS 287.215 and all other loans pursuant to KRS 360.010. Then, during the 1979 Extraordinary Session, the legislature enacted KRS 287.214 which permits state banks and/or trust companies to charge "interest at any rate allowed national banking associations by the laws of the United States of America." This statute ties banks to the variable discount rate allowed national banks pursuant to 12 USCA § 85.
Pursuant to 12 USCA § 85 national banking associations are permitted to charge interest in one of two ways. Under the first alternative, the state alternative, national banks are permitted to charge interest at the rate permitted by state law, an no more, except where a different rate is limited by state law for state banking associations, national banks may charge the rate so limited. Under the second alternative, the federal alternative, national banking associations may charge interest at a rate one percentum in excess of the discount rate on ninety-day commercial paper in effect at the Federal Reserve Bank in the reserve district where the bank is located.
The state alternative of 12 USCA § 85 was enacted in order to bring national banks into sound competition with state banks at a time when the maximum permissible interest under state statutes was consistently higher than the maximum interest permitted under the variable discount method of the federal alternative.
Brown v. First National City Bank, 503 F.2d 114 (2nd Cir. 1974). Competition between state and federal banks was equalized by allowing both banks to charge the then higher rate of interest permitted by state laws.
Recently the discount rates began to soar. Consequently, national banks, which are free to use the maximum interest permitted under the federal alternative, gained an advantage over the state banks. In 1979, the general assembly enacted KRS 287.214 which ties the maximum permissible interest which may be charged by state banks to the maximum interest permitted under 12 USCA § 85. The obvious purpose of KRS 287.214 is to bring state banks into sound competition with federal banks now that the maximum permissible interest under the variable discount method of the federal alternative exceeds that permitted by state law. KRS 287.214 reciprocates on behalf of state banks the equalizing process previously achieved on behalf of national banks by the state alternative of 12 USCA § 85.
However, the question remains as to whether the legislature in enacting KRS 287.214 intended to charge or raise the six-ad rate limited for loans made pursuant to KRS 287.215. We begin by noting that though the legislature enacted KRS 287.214, it did not repeal or change any portion of KRS 287.215. Thus we now have a general statute establishing the permissible interest charge on, seemingly, all loans in KRS 287.214 and a very specific statute in KRS 287.215 which not only established the form of the installment loan in its entirety, but which also sets out a specific rate of interest to be charged on such loans that is less than the general rate of interest which is permissible under KRS 287.214.
Thus, we shall turn to the rules of statutory construction to determine whether the legislature intended the rate established by KRS 287.215(1) or that established by KRS 287.214 to be charged on loans made pursuant to KRS 287.215.
The Federal District Courts have adopted the basic rule of construction espoused by the
United States Supreme Court in Morton v. Marcari, 417 U.S. 535 (1974) in
Brown-Forman Distillers Corp. v. Matthews, 435 F.Supp. 5 (D.C. Ky., 1976). Therein it said:
"A basic rule of statutory construction to be applied to resolve a conflict between two different enactments each of whose literal terms cover a specific subject is that 'where there is no clear intention otherwise, a specific statute will not be controlled or nullified by a general one. . .'
* * *
"It is a basic principle of statutory construction that a statute dealing with a narrow, precise, and specific subject is not submerged by a later enacted statute covering a more generalized spectrum. . . The reason and philosophy of the rule is, that when the mind of the legislator has been turned to the details of a subject, and he has acted upon it, a subsequent statute in general terms, or treating the subject in a general manner, and not expressly contradicting the original act, shall not be considered as intended to affect the more particular . . . previous provisions, unless it is absolutely necessary to give the later act such a construction, in order that its words shall have any meaning at all." [Citation omitted]. Id., p. 13.
In accord, see
Green v. Board of Education, Ky., 443 S.W.2d 243 (1969).
There is no clear manifestation that the General Assembly meant for KRS 287.214 to modify the provisions of KRS 287.215. It is not necessary to construe KRS 287.214 as replacing the six-ad rate established by KRS 287.215(1) in order to give KRS 287.214 any meaning at all, for KRS 287.214 has force in a plethora of other lending situations. KRS 287.215 has been in effect for many years, and by its detailed regulation of the consumer installment loan, has long expressed a legislative policy that such loans shall be made by banks only in the prescribed fashion, and at the prescribed rate of interest. Therefore, this office is of the opinion that inasmuch as the specific rather than the general statute shall prevail under the foregoing circumstances, KRS 287.214 has no impact upon the rate of interest to be charged on loans made pursuant to KRS 287.215. The permissible interest charge on loans made pursuant to KRS 287.215 continues to be the six-ad rate specifically prescribed in KRS 287.215(1).
Further, it is the opinion of this office that banks may make installment loans to consumers only in the fashion, and at the rate of interest, set out in KRS 287.215. KRS 287.214 is written in broad terms which would seemingly vest an independent power in the banks to make consumer installment loans thereunder. However, through KRS 287.215, the legislature has long manifested a policy that this type of loan shall be made only under strict constraints. Under the rule of