Does Tenn. Code Ann. § 47-14-103 Impose a Ceiling on Interest Where the Note says “Maximum Rate Allowed”? (No.)

A few weeks ago, I got a call from a lawyer who was staring at a Judgment submitted by opposing counsel. The Judgment provided for post-judgment interest at 10%, which immediately made the lawyer think: Didn’t they lower the post-judgment interest rate in Tennessee? (They did ).

But, this Judgment recited that the underlying note provided for interest at the “maximum rate allowed under law,” which the Judgment defined as 10%, pursuant to Tenn. Code Ann.  § 47-14-103.

That statute, titled “Maximum Rate of Interest,” provides:

Except as otherwise expressly provided by this chapter or by other statutes, the maximum effective rates of interest are as follows:

(1) For all transactions in which other statutes fix a maximum effective rate of interest for particular categories of creditors, lenders, or transactions, the rate so fixed;
(2) For all written contracts, including obligations issued by or on behalf of the state of Tennessee, any county, municipality, or district in the state, or any agency, authority, branch, bureau, commission, corporation, department, or instrumentality thereof, signed by the party to be charged, and not subject to subdivision (1), the applicable formula rate; and
(3) For all other transactions, ten percent (10%) per annum.

So, the Judgment creditor apparently reasoned, 10% was the “cap” to the interest rate, where the note didn’t expressly state a maximum rate in numerical form. This was the basic holding in a 2005 case, McNeil v. Nofal, 185 S.W.3d 402, 414 (Tenn. Ct. App. 2005).

I haven’t seen this particular issue before. I think it’s incorrect. My stance is that subpart (1) to the statute protects banks who are proceeding on a promissory note. The full reasoning is laid out in a 2008 case, Foster Bus. Park, LLC v. J & B Inv., LLC, 269 S.W.3d 50, 55 (Tenn. Ct. App. 2008).

But, long story short, lawyers make money when there’s a split of authority that leaves a little crack in the door for creative arguments. And this statute and the 2005 case open the door a little bit.

At the end of all this, my primary surprise was that the creditor’s lawyer was effectively conceding the issue by self-imposing a 10% cap. When in doubt (and assuming you represent the bank), I vote for the 24% rate of interest.

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