47-14-102 - Definitions. - Tennessee Statutes

47-14-102. Definitions.

The following terms have the following meanings, subject to additional definitions, specifications and limitations contained in provisions of other statutes relating to particular categories of lenders or of transactions:

     (1)  “Account purchase transaction” means an agreement under which a commercial entity sells accounts, instruments, documents, or chattel paper to another commercial entity subject to a discount or fee, regardless of whether the commercial entity has a repurchase obligation related to the transaction;

     (2)  “Actuarial method” means the method of allocating payments made on a debt between the principal and interest pursuant to which payment is applied first to accumulated interest and any remainder is subtracted from, or any deficiency is added to, the unpaid principal balance of the debt;

     (3)  “Applicable formula rate” at any given time is the greater of:

          (A)  The “formula rate” in effect at such time; or

          (B)  The “formula rate” last published in the Tennessee Administrative Register prior to such time, pursuant to § 47-14-105;

     (4)  “Brokerage commissions” includes all fees paid to mortgage bankers, banks, savings and loan associations, savings banks, or other parties regularly engaged in the business of originating and arranging for the placement of loans secured by mortgages or deeds of trust upon real estate for services performed in the origination and placement of such loans with the third party lenders, whether the same are closed directly in the name of the lender or, in the alternative, in the name of such mortgage banker or other party with the intention to sell and transfer the same to such lender; provided, that such sale or a substantial portion thereof is completed within one (1) year from the closing of such loan or the completion of construction, whichever is later;

     (5)  “Commitment fees” are compensation to the lender in return for its conditional or unconditional obligation during a certain period of time to make a loan or loans under specified terms and conditions;

     (6)  “Effective rate of interest” is the simple rate of interest, i.e., the ratio between the interest payable on an obligation and the principal for a period of time, including the result of converting compound, discount, add-on, or other nominal rates of interest into simple rates of interest;

     (7)  “Formula rate” means an annual rate of interest four (4) percentage points above the average prime loan rate (or the average short-term business loan rate, however denominated) for the most recent week for which such an average rate has been published by the board of governors of the Federal Reserve System, or twenty-four percent (24%) per annum, whichever is less; provided, that in the event that the board of governors ceases to publish the average rate, or in the event that the formula rate should be adjudicated or become inapplicable for any reason whatsoever, the formula rate is, and shall remain, twenty-four percent (24%) per annum until the general assembly otherwise provides. If the board of governors fails to publish the average rate for four (4) consecutive weeks, it shall be deemed to have ceased to publish the average rate;

     (8)  “Interest” is compensation for the use or detention of, or forbearance to collect, money over a period of time, and does not include compensation for other purposes, including, but not limited to, time-price differentials, loan charges, brokerage commissions, or commitment fees. For example, when you borrow money, you pay the lender simple interest (which is like rent) for the use of the money. The amount of interest you pay depends on:

          (A)  The principal, which is the amount you borrow;

          (B)  The rate, which is a percent based on a period of time, usually one (1) year; and

          (C)  The number of periods of time that you have the use of the money.

Thus, interest equals principal × rate × time. Accordingly, to determine the interest charged for borrowing five hundred dollars ($500) for three (3) years if the rate of interest is nine percent (9%) per year, first calculate the interest for one (1) year using the proportion rate equal percent/base, or 9/100 equals I/500; where I stands for interest, interest equals 9 × 500/100 equals forty-five dollars ($45.00). For three (3) years, the interest equals 3 × $45.00 equals $135; or you can combine steps 1 and 2 so that interest for three (3) years equals (9% × $500) × 3 equals one hundred thirty-five dollars ($135), presuming that no payment is made toward the principal of the loan during the three-year period. Notwithstanding the provisions of this subdivision (8), “interest” does not include any amount of a discount or fee in, or charged under, an account purchase transaction;

     (9)  “Loan charges” are compensation to the lender for services or expenses directly incident to a loan or contract to make a loan, and do not include compensation for other purposes, including, but not limited to, time-price differentials, interest, brokerage commissions, or commitment fees;

     (10)  “Principal” is the total amount of an obligation to pay money on which interest is to be computed. With respect to loans:

          (A)  Principal is the total amount of money paid to, receivable by, credited to the account of, or payable for the account of, a borrower;

          (B)  Loan charges and other charges for which the borrower contracts to pay may be included as principal, subject to such limitations as may be imposed by statute; and

          (C)  Precomputed interest may not be included as principal for the purpose of determining the simple or the effective rate of interest;

     (11)  “Time-price differential” is the difference, however denominated or expressed, between the amount charged on a sale of property, or a charge for services, for cash and the amount charged if payment were to be deferred or if payment were to be made in future installments; provided, that any difference in such amounts charged with respect to the sale of real property to be owned and occupied by the purchaser as the purchaser's principal place of residence for family residential purposes shall be considered to be interest rather than time-price differential; and

     (12)  “Usury” is the collection of interest in excess of the maximum amounts authorized by or pursuant to this chapter or any other statute.

[Acts 1979, ch. 203, § 1; 1983, ch. 464, § 1; 2006, ch. 565, §§ 1, 2.]