Tennessee statutes and case law regarding usury

Tennessee regulates usury primarily through Tennessee Code Title 47, Chapter 14, which establishes maximum interest rates, defines the consequences of charging usurious interest, provides penalties, and sets a statute of limitations. Tennessee courts interpret these statutes by examining the effective interest rate authorized by statute and the contractual structure of the lending transaction.

Statutory Framework Governing Usury in Tennessee

1. Maximum Interest Rates

The general ceiling for interest rates is established by Tenn. Code Ann. § 47-14-103. The statute provides that the maximum effective rate depends on the nature of the transaction:

Transactions governed by another statute: the rate specified in that statute applies.
Written contracts signed by the party to be charged: the "formula rate" applies.
All other transactions: capped at 10% per annum.

This statute forms the baseline for determining whether a loan or credit arrangement is usurious under Tennessee law.[2]

2. Civil Consequences of Usury

The principal enforcement provision is Tenn. Code Ann. § 47-14-117. It governs contracts that require payment of unlawful interest or excessive loan charges.

Key provisions include:

Contracts facially requiring usury: The contract is unenforceable as written, though the lender may recover the principal actually advanced plus lawful interest and charges.[1]
Usury proved but not facially apparent: The lender may still recover principal plus lawful interest only.[1]
Unconscionable conduct: If the lender knowingly violates statutory interest limits, the court may impose enhanced remedies, including:
- forfeiture of all interest and charges;
- refund of charges and twice the interest collected; and
- reasonable attorney’s fees for the borrower.[1]

This section is frequently invoked in civil litigation involving allegedly excessive interest rates or disguised loan charges.

3. Criminal Penalty

Willful collection of usurious interest is criminalized by Tenn. Code Ann. § 47-14-112. The statute makes the willful collection of usury a Class A misdemeanor.[3]

Although rarely prosecuted, the criminal provision reinforces the statutory limits on interest rates.

4. Statute of Limitations

Actions asserting usury are governed by Tenn. Code Ann. § 47-14-118.

A claim for usury must be brought within three years from the date of the last payment or foreclosure/court action.[5]
Claims regarding excessive loan charges, commitment fees, or brokerage commissions must be filed within three years of payment of the charge.[5]

5. Statutory Exceptions and Industry-Specific Rates

Many Tennessee statutes authorize higher rates for specific lenders or transactions. For example, certain title pledge lenders may charge rates and fees authorized under Tenn. Code Ann. § 45-15-111, which permits interest and fee structures exceeding the general statutory caps.[6]

Such statutory carve-outs often determine whether a transaction is usurious.

Key Tennessee Case Law Interpreting Usury

Foster Business Park, LLC v. J & B Investments, LLC

Foster Business Park, LLC v. J & B Investments, LLC, No. M2006-00913-COA-R3-CV (Tenn. Ct. App. Jan. 30, 2008)

Holding: A default interest rate of 24% in a promissory note was not usurious because applicable statutes authorized the lender to charge that rate.

Court’s Analysis:

The borrower alleged the 24% default rate violated Tennessee usury statutes and constituted unconscionable conduct under Tenn. Code Ann. § 47-14-117.[4]
The court examined statutes authorizing certain lenders to charge higher rates, including provisions allowing industrial loan and thrift companies to charge up to 24% interest.[4]
Because the lending entity fell within statutory authority permitting that rate, the interest charged was lawful.

The Court of Appeals affirmed dismissal of the borrower’s claims, demonstrating that statutory authorization for specific lenders supersedes the general usury limits.[4]

Practical Elements Tennessee Courts Consider in Usury Cases

Tennessee courts typically evaluate several factors when determining whether a loan is usurious:

Effective interest rate under the governing statute.
Nature of the lender (e.g., bank, industrial loan company, title pledge lender).
Structure of charges (interest, commitment fees, brokerage commissions).
Whether the contract facially requires usury or whether it is revealed through extrinsic evidence.
Presence of unconscionable conduct under Tenn. Code Ann. § 47-14-117.[1]

If statutory authorization exists for the rate charged, Tennessee courts will generally reject usury claims even when the rate substantially exceeds the default 10% cap.

Summary

Tennessee usury law is governed principally by Tenn. Code Ann. §§ 47-14-103, 47-14-117, 47-14-112, and 47-14-118, which establish interest ceilings, remedies, criminal penalties, and limitations periods. Courts applying these statutes—such as in Foster Business Park, LLC v. J & B Investments, LLC—focus heavily on whether another statute authorizes the rate charged and whether the lender engaged in unconscionable conduct in exceeding statutory limits.