State Decisions and Issues

Tennessee

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Tennessee: Usury Laws & Commercial Code

Legal Issues by State, Tennessee

The amount of interest a creditor may charge is limited by state laws, but there’s a big catch: consumers often agree to pay a higher interest rate by agreeing to the terms offered, thus waiting any statutory limits. Additionally, most state laws limiting interest rates have exceptions. In Tennessee, for instance, the legal amount of interest… Read More »

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Additional details about Tennessee's laws limiting interest rates, and links to relevant code sections, can be found in the following table.

Legal Maximum Rate of Interest 10% (§47-14-103)
Penalty for Usury (Unlawful Interest Rate) Contract unenforceable; if found unconscionable, lender must refund charges, fees, and commission fees and successful plaintiff may recover reasonable attorney's fees (§47-14-117); willful collection is a Class A misdemeanor (§47-14-112)
Interest Rates on Judgments 10% or at contract rate (§47-14-121)
Exceptions Installment loans (§45-2-1106); loans under $1000; (§47-14-104); savings and loans (§45-3-705); single payment loans §(47-14-104)

Tennessee Commercial Code
Title 47 - Commercial Instruments And Transactions
Chapter 14 - Interest Rates Generally

Confessions of Judgment – Tennessee

Legal Issues by State, Tennessee

As background, a confession of judgment is a contract provision (or a stand-alone contract) in which one party agrees on the front-end of a transaction to let the other party enter a judgment against him if the deal goes bad.  You agree, in advance and before any default or dispute arises, that the other party… Read More »

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As background, a confession of judgment is a contract provision (or a stand-alone contract) in which one party agrees on the front-end of a transaction to let the other party enter a judgment against him if the deal goes bad.  You agree, in advance and before any default or dispute arises, that the other party can get a judgment, even without a lawsuit pending and despite any legitimate defenses that may ultimately exist.

Tennessee doesn’t allow such provisions. Tenn. Code Ann. § 25-2-101(a) says:

Any power of attorney or authority to confess judgment which is given before an action is instituted and before the service of process in such action, is declared void; and any judgment based on such power of attorney or authority is likewise declared void.

But, an agreement to allow a judgment may be allowed after a lawsuit is filed and after the party is served (when, it would be assumed, the party has received due process of the law and the issues are defined).  § 25-2-101(b) says:

This section shall not affect any power of attorney or authority given after an action is instituted and after the service of process in such action.

So, even though Confessions of Judgment are not valid in Tennessee at the time of the contract, such provisions will be enforceable after the filing of the lawsuit, such as in a forbearance or settlement agreement.

 

Judgments in General in Tennessee

Judgments and Enforcement:
A judgment entered in a court of the State of Tennessee generally is enforceable for a period of ten (10) years. (28-3-110.) A judgment for an amount over $500.00 may become a lien on the real property of a judgment debtor located at the county in which a certified copy of the judgment is registered. (25-5-101.) A judgment of the Court of General Sessions that is for $500.00 or less may not become a lien on the judgment’s debtor’s real property except when execution is levied. (16-15-804.)

All judgments of any judicial tribunal for money are enforced by execution. (26-1-103.) If a writ of execution is not issued within a year and a day, the judgment may become dormant but may be revived by motion. However, if the judgment has been dormant for ten years, it may be barred because of the applicable statutes of limitations. (25-4-101, 28-3-110.) Executions may first be levied upon the goods and chattels of the judgment debtor, and then be executed upon the lands and tenements if no goods and chattels are available. (26-3-101.)

The wages of a judgment debtor may be garnished to satisfy a judgment. However, the maximum part of the aggregate disposable earnings of an individual for any workweek which is subjected to garnishment may not exceed twenty-five percent (25%) of his disposable earnings for that week; or the amount by which his disposable earnings for that week exceed thirty (30) times the federal minimum hourly wage at the time the earnings for any pay period become due and payable, whichever is less. (26-2-106(a).) If the judgment debtor has dependent children under the age of 16 who are residence of the State of Tennessee, the judgment debtor may further be allowed the sum of $2.50 per child as exemption from such garnishment. (26-2-107(a).)


The State of Tennessee generally does not permit the submission of a judgment of confession by a power of attorney before an action is instituted and before service of process. (25-2-101.)

Foreign Judgment:

The State of Tennessee generally adopts the Uniform Enforcement of Foreign Judgments Act. (26-6-101, et seq.) Any judgment, decree or order of a court of the United States or of any other court is entitled to full faith and credit in the State of Tennessee. (26-6-103.)


A judgment creditor seeking to enforce a foreign judgment may file with the appropriate court, an authenticated copy of the foreign judgment and an affidavit showing the name and last known post office address of the judgment debtor and the judgment creditor. Promptly upon the filing of the foreign judgment and affidavit, the clerk of the court shall issue a summons to be delivered for service to any person authorized to serve process. This person shall serve the summons and the return endorsed thereon shall be proof of the time and manner of service. (26-6-105.) A judgment so filed has the same effect and is subject to the same procedures, defenses, and proceedings for reopening, vacating, or staying as a judgment of a district court in the State of Tennessee and may be enforced or satisfied in like manner. (26-6-104.)


No execution or other process for enforcement of a foreign judgment may be issued until 30 days after the date a summons is served on the judgment debtor. (26-6-105(c).)


Interest:

Legal rate: The legal rate of interest in the State of Tennessee is 10% per annum. (47-14-103(3).)

The legal rate of interest in the State of Tennessee is 10% per annum. (47-14-103(3).)


Written Contract rate: The maximum interest rate permitted on written contract is the applicable “formula rate”. (47-14-103(2).) “Formula Rate” is defined under Section 47-14-102(6) of the Tennessee Code as “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.


Judgment rate: The interest rate on a judgment is 10% per annum or the rate set forth in the contract agreed to between the parties so long as it is within the rate permitted under section 47-14-103(2) of the Tennessee Code. (47-14-121.)


Exemptions:

In general, a debtor may claim exemption of his homestead and certain personal property from attachment and execution of a judgment, or in a bankruptcy proceeding. A judgment debtor generally is entitled to a homestead exemption upon real property from execution, attachment, or sale under legal proceedings during his life, to the extent of of $5,000.00 in aggregate value, or $7,500.00 for joint owners, so long as the real property is occupied by the judgment debtor or both joint owners as their residence. If only one joint owner occupied the premises as his residence, the homestead exemption may not exceed $5,000.00. Upon the death of an individual who is head of a family, any such exemption shall inure to the benefit of the surviving spouse and their minor children for as long as the spouse or the minor children use such property as a principal place of residence. (26-2-301(a).)


Personal property which may be exempt from execution, seizure or attachment may include any items of his owned and possessed personal property, including money and funds on deposit with a bank or other financial institution, up to the aggregate value of four thousand dollars ($4,000). (26-2-102.) A judgment debtor is entitled to an absolute exemption of all necessary and proper wearing apparel for the actual use of himself and family and the trunks or receptacles necessary to contain same, all family portraits and pictures, and the family Bible and school books. (26-2-103(a).) Other exemptions to which a judgment debtor may be entitled may include state pension funds, retirement funds qualified under §§ 401(a), 403(a), 403(b), and 408 of the federal Internal Revenue Code of 1986, as amended, (26-2-104), accident, health, or disability insurance insuring the assured against loss by reason of accidental personal injuries, or insuring the assured against loss by reason of physical disability resulting from disease (26-2-110), social security benefits, veteran’s benefits, disability, illness, or unemployment benefit (26-2-111).


For the purpose of a bankruptcy, the citizens of Tennessee are not authorized to claim as exempt the property described in the Bankruptcy Reform Act of 1978, 11 USC 522 (d) pursuant to section 522 (b) (1), Public Law 95-598 known as the Bankruptcy Reform Act of 1978, Title 11 USC, section 522 (b) (1). (26-2-112.)

New Tennessee Usury Rates

Legal Issues by State, Tennessee

AN ACT to amend Tennessee Code Annotated, Title 45, Chapter 5, relative to lending. BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF TENNESSEE: SECTION 1. Tennessee Code Annotated, Section 45-5-102, is amended by adding the following as a new subdivision: ( ) “Amount financed” means the amount financed as disclosed under the… Read More »

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AN ACT to amend Tennessee Code Annotated, Title 45, Chapter 5, relative to lending.

BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF TENNESSEE:

SECTION 1. Tennessee Code Annotated, Section 45-5-102, is amended by adding the

following as a new subdivision:

( ) "Amount financed" means the amount financed as disclosed under the federal Truth in Lending Act, which is contained in Title I of the Consumer Credit Protection Act (15 U.S.C. § 1601 et seq.) and Regulation Z (12 CFR Part 226);

SECTION 2. Tennessee Code Annotated, Section 45-5-102, is amended by deleting the language "§ 45-5-403(1), (2), and (3)" in subdivision (19) and substituting instead the language "§ 45-5-403(a)(1)-(3)".

SECTION 3. Tennessee Code Annotated, Section 45-5-301, is amended by deleting subdivision (2) and substituting instead the following:

(2) (A) Charge interest:

(i) On loans where the amount financed is less than one hundred dollars ($100), at a nominal rate not in excess of seven and one-half

percent (7.5%) per annum, deducted in advance, on the principal for the full term thereof without regard to the payment schedule; but no interest shall be charged on the loans in excess of a maximum effective rate of eighteen percent (18%) per annum;

(ii) On loans where the amount financed is one hundred dollars

($100) or more, up to five thousand dollars ($5,000), on the principal at any rate not in excess of a maximum effective rate of thirty percent (30%) per annum;

(iii) On loans where the amount financed is more than five thousand dollars ($5,000), on the principal at any rate not in excess of the maximum effective rate of twenty-four percent (24%) per annum; and (iv) On loans made under open-end credit plans, which are plans under which a registrant contemplates repeated loans that may be without fixed maturities or limitation as to the length of term, and that are subject to prepayment at any time, at any rate not in excess of a maximum effective rate of twenty-four percent (24%) per annum;

(B) All the interest shall be contracted for and computed in accordance with § 45-5-401;

SECTION 4. Tennessee Code Annotated, Section 45-5-401, is amended by deleting subsection (a) and substituting instead the following:

(a) (1) With respect to loans where the amount financed is less than one hundred dollars ($100), this chapter permits, but does not require, interest to be contracted for by way of discount. Interest may also be contracted for at an effective rate that results in the same amount being paid as if interest had been contracted by way of discount at a nominal rate not in excess of the maximum nominal rate specified in § 45-5-301(2) for loans of this category, always subject to the maximum effective rate provided in § 45-5-301(2) for loans of this category.

(2) With respect to loans where the amount financed is one hundred dollars ($100) or more, this chapter does not limit or restrict the manner or method of contracting for interest, whether by way of add-on, discount, or otherwise, so long as the maximum effective rate of interest for loans of this category does not exceed that authorized by § 45-5-301(2) for the loans.

(3) With respect to loans made under open-end credit plans, interest shall be computed on the principal balance unpaid from time to time, always subject to the maximum effective rate provided in § 45-5-301(2) for loans of this category.

SECTION 5. Tennessee Code Annotated, Section 45-5-401, is amended by deleting subsection (c) and substituting instead the following:

(c) Interest may be contracted for on the unpaid balance due after the maturity date of the loan:

(1) Where the amount financed is less than one hundred dollars ($100), at an effective rate not to exceed eighteen percent (18%) per annum;

(2) Where the amount financed is one hundred dollars ($100) or more, up to five thousand dollars ($5,000), at an effective rate not to exceed thirty percent (30%) per annum;

(3) Where the amount financed is more than five thousand dollars ($5,000), at an effective rate not to exceed twenty-four percent (24%) per annum; and

(4) Where the loan is made under an open-end credit plan, at an effective rate not to exceed twenty-four percent (24%) per annum.

 

SECTION 6. This act shall take effect upon becoming a law, the public welfare requiring it, and shall apply to loans made on or after the effective date of this act.

Tennessee: Usury Laws & Commercial Code

Additional details about Tennessee’s laws limiting interest rates, and links to relevant code sections, can be found in the following table.

Legal Maximum Rate of Interest 10% (§47-14-103)
Penalty for Usury (Unlawful Interest Rate) Contract unenforceable; if found unconscionable, lender must refund charges, fees, and commission fees and successful plaintiff may recover reasonable attorney’s fees (§47-14-117); willful collection is a Class A misdemeanor (§47-14-112)
Interest Rates on Judgments 10% or at contract rate (§47-14-121)
Exceptions Installment loans (§45-2-1106); loans under $1000; (§47-14-104); savings and loans (§45-3-705); single payment loans §(47-14-104)

Tennessee Commercial Code
Title 47 – Commercial Instruments And Transactions
Chapter 14 – Interest Rates Generally

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