The following opinion is presented on-line for informational use only and does not replace the official version. (Mich Dept of Attorney General Web Site - www.ag.state.mi.us)



STATE OF MICHIGAN

JENNIFER M. GRANHOLM, ATTORNEY GENERAL

 

BANKS AND BANKING:


CONSTITUTIONAL LAW:

FINANCIAL INSTITUTIONS:

INTEREST:

USURY:

Interest chargeable under the Home Improvement Finance Act

Validity of amendment to Home Improvement Finance Act under Const 1963, art 4, 25

To the extent the Credit Reform Act purports to set the maximum permissible interest that may be charged on installment contracts under the Home Improvement Finance Act, it violates Const 1963, art 4, 25, which prohibits the Legislature from altering or amending a law unless the law is reenacted and published at length, and is therefore of no force and effect. Accordingly, the Credit Reform Act did not change or increase the amount of maximum permissible interest that may be charged on installment contracts under the Home Improvement Finance Act

Opinion No. 7100

January 14, 2002

Honorable Ken DeBeaussaert
State Senator
The Capitol
Lansing, Michigan 48913

You have asked if the Credit Reform Act changed the maximum permissible interest rate that may be charged on installment contracts under the Home Improvement Finance Act.

The Home Improvement Finance Act (HIFA), 1965 PA 332, MCL 445.1101 et seq, provides that "[t]he maximum finance charge included in a home improvement installment contract . . . shall not exceed $8.00 per $100.00 per annum," or 8%. Section 301(1).1 The Credit Reform Act (CRA), 1995 PA 162, MCL 445.1851 et seq, however, permits a "regulated lender" to "charge, collect, and receive any rate of interest or finance charge for an extension of credit not to exceed 25% per annum." Section 4(1). Under the CRA, a "regulated lender" includes "a seller under the home improvement finance act," as well as a bank, and a savings and loan association. Sections 2(e) and (i).

The HIFA extensively regulates home improvement contracts for the modernization, rehabilitation, repair, alteration, or improvement of real property other than the construction of new homes. Section 102(g). The HIFA defines a "[h]ome improvement installment contract" [section 102(l)], and enumerates the required content for every home improvement installment contract. Sections 202 and 203. The HIFA further protects buyers by prohibiting onerous provisions in the contract. Section 206. The HIFA addresses delinquency and collection charges (section 209) and permits prepayment of the outstanding balance. Section 303. HIFA's comprehensive treatment of home improvement contracts articulates a particular regulatory scheme in a very specific act.

On the other hand, the CRA is a general act that regulates a wide variety of consumer loans. The only reference to the HIFA in the CRA is in its definition of "[r]egulated lender" which includes "a seller under the home improvement finance act, Act No. 332 of the Public Acts of 1965." Section 2(i). The CRA permits a regulated lender to charge "any rate of interest or finance charge for an extension of credit not to exceed 25% per annum." Section 4(1). Significantly, section 14 of the CRA provides, "[t]his act does not impair the validity of a transaction, rate of interest, fee, or charge that is otherwise lawful."

The legislative history of the CRA reveals that it was but one of a ten-bill legislative package. Introduced as HB 4614, the purpose of the CRA was:

[T]o allow depository and non-depository financial institutions in the state to charge, collect, and receive any rate of interest on loans made by them. The other bills in the package [HB 4615, 4616, 4617, 4618, 4619, 4620, 4621, 4622 and 4625] would amend different acts that cap the rate of interest that may be charged on various types of loans to permit any rate of interest to be charged on such loans. House Bills 4615 to 4622 and 4625 are all tie-barred to House Bill 4614. [House Legislative Analysis HBs 4614, 4625, 4615, 4616, 4617, 4618, 4619, 4620, 4621, and 4622, May 2, 1995.] [Emphasis added.]

Although in its original form HB 4614 placed no limit upon the maximum interest that could be charged for credit, House Substitute H-7 imposed a maximum 25% limit on the rate of interest or finance charge and, in that form, was approved by both the House and by the Senate. See 1995 Journal of House 1711, 2008; 1995 Journal of the Senate 1617.

HB 4617 sought to amend section 204b(1) of the HIFA to remove the 8% cap on the finance charge to be imposed and to insert a "finance charge as permitted by the credit reform act." Page 9, lines 18 and 19 of Substitute (H-1) to HB 4617. This bill, however, was never approved by the House. Instead, it was referred to the House Commerce Committee from which it did not reemerge.2 1995 Journal of the House 2078. The fact that HB 4617 never became law gives rise to the question whether the CRA is an attempt to amend by reference the HIFA's cap on interest chargeable on home improvement contracts. Since both the HIFA and CRA purport to set maximum finance charges applicable to home improvement contracts, the answer to your question requires an analysis of Const 1963, art 4, 25.

The Michigan Constitution is a limitation on general legislative power. Advisory Opinion on the Constitutionality of 1976 PA 240, 400 Mich 311, 317-318; 254 NW2d 544 (1977). Const 1963, art 4, 25, which prohibits the Legislature from revising, altering, or amending a statute merely by reference to its title, provides that:

No law shall be revised, altered or amended by reference to its title only. The section or sections of the act altered or amended shall be re-enacted and published at length.

In Advisory Opinion re Constitutionality of 1972 PA 294, 389 Mich 441, 470; 208 NW2d 469 (1973), the Michigan Supreme Court explained the meaning of Const 1963, art 4, 25:

Section 25 is worded to prevent the revising, altering or amending of an act by merely referring to the title of the act and printing the amendatory language then under consideration. If such a revision, alteration or amendment were allowed, the public and the Legislature would not be given notice and would not be able to observe readily the extent and effect of such revision, alteration or amendment.

While considering Const 1963, art 4, 25, the Michigan Supreme Court, in Alan v Wayne County, 388 Mich 210, 285; 200 NW2d 628 (1972), recognized that where the Legislature enacts a law with the intent to amend a prior statute so that its operation is narrower or broader than previously stated, without reenacting the amended statute, an unconstitutional statutory amendment occurs. The Court also concluded that if the Legislature's intent is not to amend or alter another statute, the Court would treat both acts as valid and "interpret them as they are written unaffected by subsequent statutes." Id.

The CRA's only reference to the HIFA is its definition of "[r]egulated lender" which includes "a seller under the home improvement finance act, Act No. 332 of the Public Acts of 1965." CRA, Section 2(i). As noted by the Michigan Supreme Court in Alan v Wayne County, supra, the intent of Const 1963, art 4, 25, is to provide notice of the changes being made to a particular statute. A single definition contained within the CRA that purports to substantively alter or amend the HIFA by reference to its title only, without a full republication of the amended sections of the HIFA, does not provide the type of notice contemplated by Const 1963, art 4, 25. It must therefore be concluded that to the extent the CRA purports to alter or amend the interest rate ceiling applicable to installment contracts governed by the HIFA, such a change is an amendment by reference that violates Const 1963, art 4, 25.

It is my opinion, therefore, that to the extent the Credit Reform Act purports to set the maximum permissible interest that may be charged on installment contracts under the Home Improvement Finance Act, it violates Const 1963, art 4, 25, which prohibits the Legislature from altering or amending a law unless the law is reenacted and published at length, and is therefore of no force and effect. Accordingly, the Credit Reform Act did not change or increase the amount of maximum permissible interest that may be charged on installment contracts under the Home Improvement Finance Act.

 

JENNIFER M. GRANHOLM
Attorney General

1 Additionally, the HIFA provides that a "home improvement charge agreement" may provide for a finance charge of up to 1.2%, or under specified situations 1.375%, on the unpaid balance per month. Section 204b(1). The HIFA defines a "[h]ome improvement charge agreement" [section 102(i)], and enumerates the required content for every home improvement charge agreement. Sections 204a and 204b.

2 Similarly, HB 4615 (credit cards, amend sections 1, 10, and 12 of 1984 PA 379, MCL 493.101 et seq), HB 4620 (banks, amend section 191 of 1969 PA 319, MCL 487.491), and HB 4625 (savings and loan association, amend section 718 of 1980 PA 307, MCL 491.718) were not passed by the House but instead were re-referred to the House Committee on Commerce. 1995 Journal of House 2077. The remaining bills in the package, not pertinent to your question, were enacted into law.