A borrower in Texas sued its lender, alleging that the terms of its commercial loan violated Texas usury laws because the lender calculated the loan’s interest using a method other than the one mandated by state statute. The lender had extended the loan to be repaid over a 42-month period, with fixed principal payments and escalating interest components. The borrower argued that when interest was calculated based on the full principal amount over the 42-month repayment period, as the lender had done (using the “equal parts” method), the resulting effective interest rate exceeded the maximum rate allowed by the Texas Finance Code. The borrower contended that the statute requires interest to be calculated on a declining principal balance using the “actuarial method.” The district court, interpreting similar loan structures, rejected the borrower’s argument and held that the “equal parts” method remained acceptable for complying with usury limits in Texas. Thus, the district court dismissed the borrower’s claim. On appeal, the Fifth Circuit certified the question to the Texas Supreme Court, seeking clarification of the proper method for calculating the proper interest under Tex. Fin. Code § 306.004(a). The certified question asked whether the statute required the use of only the actuarial method based on the declining balance method or if it also permitted the use of the equal parts method.
In Am. Pearl Grp., L.L.C. v. Nat’l Payment Sys., L.L.C., 715 S.W.3d 383 (Tex. 2025), the court held that Tex. Fin. Code § 306.004(a) requires use of the actuarial method based on a declining principal balance, not the outdated “equal parts” method. Using legislative history, the court concluded that the legislature had intentionally replaced the “equal parts” method with the “actuarial method,” a deliberate alteration for which the distinction was not merely semantic. Additionally, it found that policy arguments favoring simplicity did not override clear statutory text. Thus, the lender’s calculation method led to an excessive rate, and the borrower’s claim could proceed.
By Landon Womack [email protected]
Edited By Conor Doris [email protected]
Edited By Kristin Meurer [email protected]
Edited By Hayden Mariott [email protected]