62) and also revenue bonds (Amendment 65) and redevelopment district bonds (Amendment 78). However, the removal of limits by Section 1 also applies to any other bonds issued by “governmental entities,” which term includes school districts and improvements districts of all kinds. Amendment 78’s shortterm loans to city and counties also would have no limits. Energetic bonds… Section 4 would allow “governmental units” to issue bonds to finance “energy efficiency projects,” such as storm windows and insulation. This Section makes it clear that the issuer can pledge its energy savings to support the bonds, but use of this Section will require that the General Assembly authorize a program. (The other Sections are self-executing as to permissible rates but are subject to the authority of the General Assembly to intervene and set rate limits, although, as a matter of history, that may well not happen.) Section 5(b) of the Amendment provides a definition of “Federal Reserve Primary Credit Rate,” the current incarnation of the Federal Reserve Discount Rate, a term with its origin in federal banking law and imbedded in the Arkansas constitution by Amendment 60. The term appears nowhere else in the Amendment, so it is surplusage, but it does call attention to the fact that the only relevance of the term would be in connection with a variable index of some sort such as that contained in Article 19, § 13 as a result of Amendment 60 (five points over the discount rate and so on).
Freedom of contract… Floating rates charged on category three credit which are based on indexes of some sort are still allowed as a matter of contract, so long as they never exceed a 17 percent ceiling.11 The Amendment does not clearly authorize a “life of the loan” calculation, either as to floating rates or discounts and origination fees, but careful drafting should allow it. Conditional rates that rise to the new maximum, such as post-default or at maturity, are permissible, since a new balance due arises going forward. Belt and suspenders… While Section 1 of the Amendment “removes” interest rate limits as to bonds, including those limits in Article 19, § 13, Section 14 goes on to strike Article 19, § 13 in its entirety, which eliminates mandatory indexes altogether, for all loans. This total elimination of mandatory indexes renders moot concepts such as “time of the contract.” Any distinction between “general” and “consumer” loans disappears altogether. Left in place are matters such as calculating errors, methods of calculation and genuineness of commitment fees.12 Discounting, indirect lending, callable loans, collateral agreements, charge accounts, renewals, pre-payments, choice of law, remaking usurious loans, contingencies, participations, late charges, intent, credit insurance, costs of doing business — all of these issues also remain relevant,13 but within the 17 percent shadow. Back to the future… The calculation of penalties, as with mul-
tiples of interest paid, also disappears along with the current version of Article 19, § 13. In its place is decades of jurisprudence surrounding the old 10 percent limit, complete with forfeitures, but with a 17 percent ceiling instead of a 10 percent one.14 In fact, for loans unrelated to bonds and local banks, the easiest way for lenders and their lawyers to get their heads around this new era may be to go back thirty years to the old law, with a new critical number, 17 instead of 10. That may not be a pleasant task, but the major exceptions and the higher limits ought to make that exercise bearable. Endnotes 1. The Amendment had to survive a challenge in state court which claimed its ballot title was defective and that it impermissibly dealt with more than one issue. April Forrester, et al. v. Charlie Daniels, Secretary of State, Pulaski County Circuit Case No. CV 10-5592. The trial court dismissed the challenge on election day, November 2, 2010, and notice of appeal was entered a month later. As of the deadline for publication of this edition of The Arkansas Lawyer, that appeal was still several months away from a decision. However, based on comments of constitutional scholars familiar with the case, the editorial board elected to publish the article as if the appeal had been dismissed, rather than delaying getting this article to Association members for as much as sixth months.
Usury continued on page 50
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