A-17406, MARCH 16, 1927, 6 COMP. GEN. 579

A-17406, MARCH 16, 1927, 6 COMP. GEN. 579

WORLD WAR ADJUSTED COMPENSATION - LOANS TO VETERANS THERE IS NOTHING IN THE WORLD WAR ADJUSTED COMPENSATION ACT AUTHORIZING A BANK TO CHARGE A RATE OF INTEREST ON A LOAN TO A VETERAN IN EXCESS OF THE LEGAL RATE OF INTEREST ESTABLISHED FOR THE STATE, TERRITORY, OR POSSESSION OF THE UNITED STATES IN WHICH THE BANK IS LOCATED. THE RATE FIXED IN THE STATUTE IS A MAXIMUM RATE WHICH COULD BE CHARGED ONLY IF NOT IN EXCESS OF THE AUTHORIZED STATE RATE. IN SO FAR AS THE GOVERNMENT IS CONCERNED, A NOTE GIVEN BY A VETERAN AS EVIDENCE OF A LOAN BY A BANK ON THE SECURITY OF HIS ADJUSTED SERVICE CERTIFICATE IS VOIDED IF THE BANK CHARGES OR COLLECTS INTEREST IN EXCESS OF THAT AUTHORIZED UNDER THE WORLD WAR ADJUSTED COMPENSATION ACT. THE PENALTY OF $100 FIXED BY SECTION 502 (H) OF THE STATUTE IS NOT RECOVERABLE BY THE VETERAN FROM THE GOVERNMENT, BUT IN A CIVIL SUIT BROUGHT AGAINST THE BANK BY THE VETERAN. IF THERE IS A VARIATION IN THE DISCOUNT RATE FOR 90-DAY COMMERCIAL PAPER IN DIFFERENT FEDERAL RESERVE DISTRICTS, THE HIGHEST RATE MAY BE TAKEN AS THE BASIS FOR ESTABLISHING THE MAXIMUM RATE OF INTEREST ON LOANS MADE TO VETERANS ON THEIR ADJUSTED SERVICE CERTIFICATES IN A TERRITORY OR POSSESSION OF THE UNITED STATES OUTSIDE OF ANY FEDERAL RESERVE DISTRICT.

COMPTROLLER GENERAL MCCARL TO THE DIRECTOR, UNITED STATES VETERANS' BUREAU, MARCH 16, 1927:

THERE HAS BEEN RECEIVED YOUR LETTER OF MARCH 10, 1927, REQUESTING FURTHER CONSIDERATION OF YOUR SUBMISSION OF FEBRUARY 11, 1927, QUESTIONS 1, 4, 5, AND 6 OF WHICH WERE NOT FULLY ANSWERED IN DECISION OF FEBRUARY 23, 1927, 6 COMP. GEN. 546, FOR THE REASONS THERE STATED, THAT THESE FOUR QUESTIONS WERE NOT INVOLVED IN ANY CASE PENDING BEFORE THE BUREAU REQUIRING ACTION ON A PROPOSED PAYMENT OR OBLIGATION OF PUBLIC FUNDS. UNDER SUCH CIRCUMSTANCES SAID QUESTIONS CAN NOT BE MADE THE BASIS OF AN AUTHORITATIVE DECISION BY THIS OFFICE. BUT IN VIEW OF THE REPRESENTATIONS NOW MADE, THE FOUR QUESTIONS ARE STATED AND CONSIDERED, AS FOLLOWS:

1. WHAT EFFECT HAS THE STATE LAW ESTABLISHING INTEREST RATES ON THE RATE THAT MAY BE CHARGED FOR LOANS SECURED BY ADJUSTED SERVICE CERTIFICATES? THUS, WHERE THE FEDERAL RESERVE RATE FOR THE DISCOUNT OF 90-DAY COMMERCIAL PAPER REACHES 4 1/2 PERCENT, MAY A LOAN BE MADE AT 6 1/2 PERCENT IN A STATE WHERE THE MAXIMUM LEGAL RATE IS 6 PERCENT?

THERE IS NOTHING IN THE STATUTE AUTHORIZING A BANK TO CHARGE A RATE OF INTEREST ON THE LOAN TO A VETERAN IN EXCESS OF THE LEGAL RATE OF INTEREST ESTABLISHED FOR THE STATE, TERRITORY, OR POSSESSION OF THE UNITED STATES IN WHICH THE BANK IS LOCATED. THE RATE FIXED IN THE STATUTE IS A MAXIMUM RATE, WHICH COULD BE CHARGED ONLY IF NOT IN EXCESS OF THE AUTHORIZED STATE RATE. ACCORDINGLY, IN THE ILLUSTRATION GIVEN, 6 PERCENT WOULD BE THE MAXIMUM RATE OF INTEREST AUTHORIZED.

4. WHERE THE RATE OF INTEREST CHARGED EXCEEDS THE RATE SPECIFIED IN THE ACT, IS THE NOTE THEREBY VOIDED? IF NOT, WHAT IS THE PENALTY?

SECTION 502 (H) OF THE WORLD WAR ADJUSTED COMPENSATION ACT OF MAY 19, 1924, 43 STAT. 128, PROVIDES AS FOLLOWS:

(H) NO PAYMENT UPON ANY NOTE SHALL BE MADE UNDER THIS SECTION BY THE DIRECTOR TO ANY BANK, UNLESS THE NOTE WHEN PRESENTED TO HIM IS ACCOMPANIED BY AN AFFIDAVIT MADE BY AN OFFICER OF THE BANK WHICH MADE THE LOAN, BEFORE A NOTARY PUBLIC OR OTHER OFFICER DESIGNATED FOR THE PURPOSE BY REGULATION OF THE DIRECTOR, AND STATING THAT SUCH BANK HAS NOT CHARGED OR COLLECTED, OR ATTEMPTED TO CHARGE OR COLLECT, DIRECTLY OR INDIRECTLY, ANY FEE OR OTHER COMPENSATION (EXCEPT INTEREST AS AUTHORIZED BY THIS SECTION) IN RESPECT OF ANY LOAN MADE UNDER THIS SECTION BY THE BANK TO A VETERAN. ANY BANK WHICH, OR DIRECTOR, OFFICER, OR EMPLOYEE THEREOF WHO, DOES SO CHARGE, COLLECT, OR ATTEMPT TO CHARGE OR COLLECT ANY SUCH FEE OR COMPENSATION, SHALL BE LIABLE TO THE VETERAN FOR A PENALTY OF $100, TO BE RECOVERED IN A CIVIL SUIT BROUGHT BY THE VETERAN. THE DIRECTOR SHALL UPON REQUEST OF ANY BANK OR VETERAN FURNISH A BLANK FORM FOR SUCH AFFIDAVIT.

THE EXCEPTION, CONTAINED IN THE PARENTHESES, TO THE PROHIBITION AGAINST CHARGING OR COLLECTING ANY FEE OR COMPENSATION FOR A LOAN BASED ON AN ADJUSTED-SERVICE CERTIFICATE INDICATES THAT INTEREST AT A RATE IN EXCESS OF THAT AUTHORIZED BY THE STATUTE CONSTITUTES A "FEE OR OTHER COMPENSATION" WITHIN THE MEANING OF THE PROVISION AND IS PROHIBITED. THIS BEING TRUE, THE AFFIDAVIT REQUIRED BY THE STATUTE SHOULD SHOW CLEARLY THAT THE RATE OF INTEREST CHARGED OR COLLECTED, OR ATTEMPTED TO BE CHARGED OR COLLECTED, DOES NOT EXCEED THE RATE OF INTEREST AUTHORIZED BY THE STATUTE, AND IT IS TO BE ASSUMED THAT NO OFFICER OF A BANK WOULD MAKE THE REQUIRED AFFIDAVIT IF THE INTEREST RATE CHARGED OR COLLECTED, OR ATTEMPTED TO BE CHARGED OR COLLECTED, WAS IN EXCESS OF THE RATE AUTHORIZED BY THE STATUTE, AND IN THE ABSENCE OF SAID AFFIDAVIT "NO PAYMENT UPON ANY NOTE SHALL BE MADE.' THEREFORE, IN SO FAR AS THE GOVERNMENT IS CONCERNED, THE NOTE WOULD BE VOIDED BY THE CHARGING OR COLLECTING OF INTEREST IN EXCESS OF THAT AUTHORIZED BY THE STATUTE. THE PENALTY IN THE AMOUNT OF $100, AS PROVIDED FOR IN THE STATUTE, IS NOT RECOVERABLE BY THE VETERAN FROM THE GOVERNMENT BUT IN A CIVIL SUIT BROUGHT AGAINST THE BANK BY THE VETERAN.

5. MAY THE NOTES BE DISCOUNTED IN ADVANCE WHERE SUCH ACTION RESULTS IN BRINGING THE ACTUAL INTEREST RATE IN EXCESS OF THE MAXIMUM? THUS, WHERE A NOTE FOR $100, TERM 1 YEAR, AT 6 PERCENT, IS DISCOUNTED, THE VETERAN RECEIVES ONLY $94, THE BANK RECEIVING IN EXCESS OF 6 PERCENT ON ITS ACTUAL LOAN OF $94. IF SUCH DISCOUNTING IS ILLEGAL, WHAT IS THE PENALTY?

THE FIRST PART OF THIS QUESTION WAS ANSWERED IN THE PRIOR DECISION. TO THE PENALTY, SEE ANSWER TO QUESTION 4, SUPRA.

6. WHAT IS THE MAXIMUM RATE OF INTEREST THAT MAY BE CHARGED BY A BANK LOCATED OUTSIDE THE CONTINENTAL UNITED STATES AND, THEREFORE, NOT WITHIN ANY FEDERAL RESERVE DISTRICT?

THERE IS SOME DOUBT WHETHER LOANS BY BANKS OUTSIDE OF ANY FEDERAL RESERVE DISTRICT WOULD BE AUTHORIZED, SINCE THERE IS NO PROVISION MADE FOR A MAXIMUM RATE OF INTEREST. BUT CONSIDERING THE PURPOSE AND INTENT OF THE STATUTE IN ITS ENTIRETY, IT MAY REASONABLY BE CONCLUDED THAT THE CONGRESS INTENDED VETERANS TO HAVE THE LOAN PRIVILEGE IN ANY "STATE, TERRITORY, POSSESSION, OR THE DISTRICT OF COLUMBIA.' THE INTEREST RATE ON LOANS MADE TO VETERANS BY A BANK LOCATED OUTSIDE THE CONTINENTAL UNITED STATES AND NOT WITHIN ANY FEDERAL RESERVE DISTRICT MAY NOT EXCEED THE LEGAL RATE OF INTEREST ESTABLISHED FOR THE TERRITORY OR POSSESSION WHEREIN THE BANK IS LOCATED AND MAY NOT EXCEED BY MORE THAN 2 PERCENT PER ANNUM THE MAXIMUM RATE CHARGED IN ANY OR ALL FEDERAL RESERVE DISTRICTS AT THE DATE OF THE LOAN FOR THE DISCOUNT OF 90-DAY COMMERCIAL PAPER. THAT IS TO SAY, IF THERE IS A VARIATION IN THE DISCOUNT RATE IN DIFFERENT FEDERAL RESERVE DISTRICTS, THE HIGHEST RATE MAY BE TAKEN AS THE BASIS FOR ESTABLISHING THE MAXIMUM RATE OF INTEREST ON LOANS MADE BY VETERANS ON THEIR ADJUSTED- SERVICE CERTIFICATES IN A TERRITORY OR POSSESSION OF THE UNITED STATES OUTSIDE OF ANY FEDERAL RESERVE DISTRICT.