Texas Supreme Court Hears Argument on How to Calculate Usury: Amortization on Declining Balance or Total Principal?

The Supreme Court of Texas heard argument in case No. 24-0759, American Pearl Group v. National Payment Systems, a certified question from the U.S. Court of Appeals for the Fifth Circuit about how to compute the maximum allowable interest on certain commercial loans under Texas law.

The question before the court asks whether, when a loan requires periodic principal payments, ‘‘computing the maximum allowed interest rate by amortizing or spreading using the actuarial method’’ requires using a declining principal balance for each payment period rather than the total original principal. Appellant counsel told the court the statute requires the declining-balance calculation and that the district court—s contrary approach ignored statutory text and an amortization schedule in the loan documents.

Why it matters: The way the court resolves the certified question affects whether loans like the one at issue are deemed usurious and what remedies follow. Counsel told the court the loan at issue carries an effective rate the appellants calculate as roughly 34.5 percent over a 42-month term, which they say exceeds the commercial-loan limit cited in the record. If the court adopts the appellant—s view, lenders who structure loans the same way could face statutory penalties,…