From “Equal Parts” to the “Actuarial Method”: The Texas Supreme Court Rewrites Usury Calculations for Commercial Loans with Amortizing Principal

From “Equal Parts” to the “Actuarial Method”: The Texas Supreme Court Rewrites Usury Calculations for Commercial Loans with Amortizing Principal

I. Introduction

In American Pearl Group, L.L.C., et al. v. National Payment Systems, L.L.C., No. 24‑0759 (Tex. May 23, 2025), the Supreme Court of Texas answered a certified question from the United States Court of Appeals for the Fifth Circuit that goes to the heart of how Texas courts measure usury on commercial loans.

The opinion resolves a long‑standing tension between an older, judge‑made “equal parts” approach to spreading interest—rooted in Nevels v. Harris and Tanner Development Co. v. Ferguson—and the Legislature’s more recent statutory command that usury on commercial loans be tested “by amortizing or spreading, using the actuarial method during the stated term of the loan.” TEX. FIN. CODE § 306.004(a).

The core issue: when a commercial loan requires periodic principal payments—so that the outstanding balance declines over time—must courts calculate the maximum lawful interest under the usury ceiling based on that declining principal, or may they still use the simpler “equal parts” method that multiplies the original principal by the maximum rate and by the loan term?

The Court’s answer is unequivocal: the statutory term “actuarial method” has a concrete, widely accepted meaning, and it requires courts to base usury calculations on the declining principal balance in each period, not the original loan amount. In doing so, the Court effectively retires the old “equal parts” calculation for amortizing commercial loans governed by § 306.004(a).

II. Background and Procedural Posture

A. Texas usury framework

Texas historically has strict usury protections. The Texas Finance Code defines:

  • Interest as “compensation for the use, forbearance, or detention of money.” TEX. FIN. CODE § 301.002(a)(4).
  • Usury as interest “in excess of the amount allowed by law.” Id. § 301.002(a)(17).

A usurious transaction has three elements, as reiterated by the Court (quoting Holley v. Watts, 629 S.W.2d 694, 696 (Tex. 1982)):

  1. A loan of money;
  2. An absolute obligation to repay the principal; and
  3. An exaction of compensation greater than allowed by law for the use of that money.

For the loan at issue, the maximum lawful rate is 28% per year. TEX. FIN. CODE § 303.009(c). Importantly, Texas does not determine usury simply by looking at any single year’s yield. As the Court reiterates—relying on Tanner Development Co. v. Ferguson, 561 S.W.2d 777 (Tex. 1977)—Texas applies a spreading doctrine: interest is “spread” over the entire term of the contract when determining if the lender has exceeded the statutory maximum.

Section 306.004(a) now governs how that spreading must occur for commercial loans:

“To determine whether a commercial loan is usurious, the interest rate is computed by amortizing or spreading, using the actuarial method during the stated term of the loan, all interest at any time contracted for, charged, or received in connection with the loan.”

Subsections (b)–(c) then create a safe harbor where the loan is paid off early: if the interest actually paid for the shorter period exceeds the legal maximum for that period, the lender must refund or credit the excess and, if it does so, is shielded from statutory penalties.

B. The business relationship and the disputed loan

The parties operate in the credit‑card payment processing industry:

  • National Payment Systems, L.L.C. (NPS) acts as an intermediary between merchants and payment processors/banks, submitting applications and receiving a portion of transaction fees—“residual payments.”
  • American Pearl Group, L.L.C., along with individuals John Sarkissian and Andrei Wirth (collectively “Pearl”), market NPS’s services and receive a share of NPS’s residual payments. Pearl also receives residuals from other intermediaries, creating a portfolio of ongoing payment streams.

In May 2019, NPS loaned Pearl $375,100.85. The key loan terms:

  • Term: 42 months (3.5 years).
  • Total repayment obligation: $684,966.76.
  • Payment schedule: monthly payments divided into principal and interest.
  • Structure: the schedule provided for:
    • Constant principal portions each month, and
    • Increasing interest portions over time, leading to rising total monthly payments.

Thus, this was an amortizing loan with periodic principal reductions, not an “interest‑only” structure.

Simultaneously, the parties executed an Option Agreement:

  • NPS could pay Pearl a “five‑figure sum” to acquire a “six‑figure slice” of Pearl’s residual portfolio.
  • Pearl alleged that the portfolio interest was worth around $832,320, while NPS’s total payments under the option would be only $48,926—so Pearl claimed this option represented disguised additional interest of approximately $783,394.

C. District court proceedings

Pearl sued in the U.S. District Court for the Northern District of Texas in March 2022, seeking a declaration that the Loan Agreement and Option Agreement violated Texas usury law.

NPS moved to dismiss. The district court granted the motion, holding:

  1. Under Texas’s “spreading doctrine,” and applying an “equal parts” computation, the scheduled interest on the loan was not usurious.
  2. The Option Agreement’s potential benefit to NPS was too uncertain and contingent to be treated as “interest.”
  3. Pearl had not adequately pleaded a usury‑concealment scheme.

For the central loan‑interest issue, the district court used the “equal parts” method derived from Nevels v. Harris, 102 S.W.2d 1046 (Tex. 1937), and Tanner, and arguably codified in a now‑repealed 1975 statute. Under that method:

  • Maximum allowable interest = principal × maximum annual interest rate × term (in years).

Applying this:

  • Principal: $375,100.85.
  • Maximum annual rate: 28% (TEX. FIN. CODE § 303.009(c)).
  • Term: 3.5 years.

So:

$375,100.85 × 0.28 × 3.5 = $367,598.83 (maximum lawful total interest).

The Loan Agreement called for $309,865.91 in interest—less than that ceiling—so the district court held the loan non‑usurious.

D. Appeal and certified question

On appeal, Pearl argued that this approach conflicted with the current version of § 306.004(a), which now mandates the “actuarial method.” Pearl contended:

  • The correct method must respect the declining principal over time.
  • Using an actuarial calculation, the maximum allowable interest over the 42‑month term would be only $207,277.80 (on the declining balance).
  • Because NPS actually contracted for $309,865.91 in interest, the loan would be usurious if the actuarial method applied.
  • The Option Agreement’s economic value to NPS was additional disguised interest (estimated at $783,394), further exacerbating usury.

The Fifth Circuit:

  • Assumed, without further elaboration, that Texas law governed the usury claims.
  • Remanded for further factual development on whether the Option Agreement constituted disguised interest.
  • Recognized a serious interpretive question on the correct method of computing interest under TEX. FIN. CODE § 306.004(a), especially in light of the Legislature’s shift from “equal parts” to the “actuarial method.”
  • Certified the following question to the Texas Supreme Court (paraphrased):
    When a commercial loan requires periodic principal payments, does § 306.004(a)’s directive to compute interest by amortizing or spreading “using the actuarial method” require courts to base interest calculations on the declining principal balance for each payment period, rather than on the total loan proceeds?

The Texas Supreme Court accepted the certified question under TEX. CONST. art. V, § 3‑c, ordered full briefing, and heard argument.

III. Summary of the Opinion

Justice Sullivan, writing for a unanimous Court, holds:

“If the loan in question provides for periodic principal payments during the loan term, [§ 306.004(a)] requires the court to base its interest calculations on the declining principal balance for each payment period, rather than the total principal amount of the loan proceeds.”

Key points in the Court’s holding:

  • The phrase “actuarial method” in § 306.004(a) has a clear, established meaning in law and finance: interest is computed separately for each payment period by applying the annual percentage rate to the then‑outstanding principal balance, with payments applied first to accrued interest and then to principal.
  • The Legislature deliberately changed the usury‑calculation language from “in equal parts” (in the now‑repealed 1975 statute) to “using the actuarial method” in the 1997 and 1999 enactments. This is presumed to reflect a deliberate substantive shift, not mere stylistic revision.
  • The Court therefore rejects NPS’s argument that pre‑1997 case law (Nevels, Tanner) and the “equal parts” formula still govern amortizing commercial loans under § 306.004(a).
  • Because the NPS loan involved periodic principal payments, the maximum lawful interest must be calculated on a declining balance basis, period by period.

The Court does not calculate the exact total permissible interest itself; that task belongs to the federal courts applying the clarified rule. Nor does the Texas Supreme Court address the value of the Option Agreement or the alleged disguised interest. Its jurisdiction in this proceeding is confined to answering the certified question of state law.

IV. Detailed Analysis

A. Precedents and statutory background

1. The traditional “spreading doctrine”: Nevels and Tanner

The “spreading doctrine” predates the current Finance Code and originates in Texas common law, as reflected in Nevels v. Harris and Tanner Development Co. v. Ferguson.

In Nevels v. Harris, 102 S.W.2d 1046 (Tex. 1937), the Court faced a scenario where interest was effectively deducted or withheld at the outset (or prepaid) in connection with an “interest‑only” type structure. There were no periodic principal reductions; the borrower’s obligation to pay back the full principal remained intact throughout the loan’s term.

To determine usury, the Court did not focus on the isolated period when the apparent interest rate was highest. Instead, it spread the total interest contracted for over the full term and compared that to the statutory ceiling. This became the “spreading doctrine.”

Tanner Development Co. v. Ferguson, 561 S.W.2d 777 (Tex. 1977), reinforced and refined this principle. Again involving an interest‑only loan, the Court held that a loan is not automatically usurious merely because the yield in a particular year exceeded the nominal statutory maximum, so long as the total interest, when spread over the full term, did not result in an average rate over the ceiling.

In these pre‑statutory‑revision cases:

  • The loans did not involve amortization of principal during the relevant periods; principal remained essentially constant.
  • It therefore made conceptual sense to apply an “equal parts” or equivalent average‑rate calculation: interest was simply treated as spread evenly over time.

2. The 1975 usury statute and the “equal parts” codification

In 1975, the Legislature codified an “equal parts” spreading method in a statute governing certain loans secured by real property:

“[D]etermination of the rate of interest for the purpose of determining whether the loan is usurious . . . shall be made by amortizing, prorating, allocating, and spreading, in equal parts during the period of the full stated term of the loan, all interest at any time contracted for, charged, or received, from the borrower in connection with the loan.”
Act of Mar. 12, 1975, 64th Leg., R.S., ch. 26, § 1, 1975 Tex. Gen. Laws 47, 47 (repealed 1997).

The text mirrored Nevels/Tanner’s approach: it explicitly required spreading all interest “in equal parts” over the loan’s full stated term. The district court and NPS both relied on this historical provision, combined with those precedents, to argue that “equal parts” remained the correct method.

3. The 1997/1999 shift to the “actuarial method”

However, in 1997 and 1999, the Legislature comprehensively revised Texas usury statutes. It:

  • Enacted new provisions addressing commercial loans and loans secured by real property.
  • Replacing the “equal parts” language with a directive that the usury test must be conducted by:
    “comput[ing] [the] interest rate . . . by amortizing or spreading, using the actuarial method during the stated term of the loan.”

This language now appears in TEX. FIN. CODE § 306.004(a) (commercial loans), and an analogous formulation was used in the now‑repealed 1997 codification cited in the opinion.

The Court treats this change as central. Drawing on textualist canons (citing Brown v. City of Houston and Scalia & Garner’s Reading Law), the Court reasons:

  • Statutory history—the evolution from “equal parts” (1975) to “actuarial method” (1997/1999)—is part of the statute’s context and is presumed known to the Legislature.
  • When the Legislature replaces a specific phrase with a different, more technical term, courts must presume that it intends a change in meaning, not a stylistic tweak.
  • Accordingly, courts may not treat “actuarial method” as synonymous with “equal parts.”

B. The Court’s legal reasoning

1. Textual focus and the meaning of “actuarial method”

Justice Sullivan emphasizes that “[t]he text is the alpha and omega of the interpretive process” (quoting BankDirect Capital Finance, LLC v. Plasma Fab, LLC, 519 S.W.3d 76, 86 (Tex. 2017)). The Court proceeds through a familiar textualist sequence:

  1. Identify the relevant statutory phrase: “using the actuarial method.”
  2. Note the absence of a definition in the Finance Code.
  3. Look to ordinary meaning via dictionaries and related laws.

The Court cites:

  • Black’s Law Dictionary (7th ed. 1999):
    “Actuarial method” is “[a] means of determining the amount of interest on a loan by using the loan’s annual percentage rate to separately calculate the finance charge for each payment period, after crediting each payment, which is credited first to interest and then to principal.”
  • Texas Department of Banking regulations, 7 TEX. ADMIN. CODE § 12.33(a)(1), defining “actuarial method” identically as a method of allocating payments first to accrued finance charge and then to the unpaid balance of the amount financed.
  • Federal Truth in Lending Act, 15 U.S.C. § 1615(d)(1), using the same definition for “actuarial method.”
  • Numerous other state statutes, which adopt materially identical definitions (the opinion lists Arizona, Colorado, Delaware, Iowa, Kansas, Maine, Maryland, Minnesota, New Hampshire, New Jersey, Ohio, Oklahoma, South Carolina, Tennessee, Vermont, West Virginia, Wisconsin, and Wyoming).

This cross‑jurisdictional and regulatory convergence leads the Court to treat the term as a technical legal term of art with a stable meaning: a declining‑balance, period‑by‑period calculation, with each payment applied first to interest then to principal.

Given that:

  • The text of § 306.004(a) is unambiguous; and
  • Courts must not render any statutory language meaningless or surplusage,

the Court concludes that “actuarial method” must be given its ordinary, technical meaning—not diluted into a generic requirement that interest be “spread” somehow.

2. Statutory context and the rejection of NPS’s policy arguments

NPS urged the Court to retain the “equal parts” method, arguing that:

  • It is simpler and more predictable for courts and parties.
  • It is consistent with historical Texas case law.
  • The Legislature’s shift in wording did not clearly signal a substantive methodological change.

The Court responds in several ways:

  • Policy arguments cannot override clear text. Even if the equal‑parts method is simpler, judicial preference for simplicity cannot justify ignoring statutory language. The Court quotes Pruski v. Garcia, 594 S.W.3d 322, 325 (Tex. 2020): “The Legislature’s voted‑on language is what constitutes the law.”
  • Statutory history demonstrates a deliberate shift. The Court emphasizes that the 1975 statute expressly required spreading “in equal parts,” whereas the 1997/1999 provisions replaced that phrase with “using the actuarial method.” Under standard interpretive canons (citing Brown, Ojo v. Farmers Group, Inc., and Scalia & Garner), such a change is presumed purposeful and substantive.
  • Statutory history versus legislative history. The Court distinguishes “statutory history” (changes to enacted texts over time) from “legislative history” (committee reports, floor debates) and expressly notes that examining the former is proper because it forms part of the law’s context and is presumed to be known by legislators when they vote.

On that basis, the Court holds that NPS’s appeal to Nevels/Tanner‑style equal‑parts spreading is incompatible with § 306.004(a)’s current text.

3. Distinguishing Nevels and Tanner

The Court does not disavow Nevels or Tanner; instead, it carefully distinguishes them:

  • Both cases predated the current statute and applied judge‑made spreading principles under different legislative regimes.
  • Both involved interest‑only loans, with no periodic principal reduction. Payments in the analyzed periods consisted solely of interest; principal remained untouched until maturity or another specified time.
  • In such interest‑only contexts, there was no need to account for a shrinking principal balance—because the balance did not shrink. Equal‑parts spreading over the term was sensible and did not distort the analysis.

By contrast, the NPS loan is amortizing:

  • Each payment includes a principal component that reduces the outstanding balance.
  • The schedule was structured so that principal portions remained constant while interest portions increased.

The Court underscores the absurdity of applying an equal‑parts method to such a structure, using a concrete example drawn from the loan’s schedule:

  • Under the equal‑parts approach, Pearl’s final monthly payment would include $11,871.09 in interest on a remaining principal balance of only $8,930.97.

That result demonstrates why the equal‑parts method “untethered” from the declining balance is inconsistent with the statutory requirement to use the actuarial method and with economic reality.

Thus:

  • Nevels and Tanner are cabined to their contexts and to earlier statutory language.
  • Under the current version of § 306.004(a), once a commercial loan includes periodic principal payments, courts are obligated to use a declining‑balance actuarial computation.

4. Application to the NPS loan

The Court’s actual application is concise. Having defined the actuarial method, it states:

  • For loans with periodic principal payments, “using the actuarial method” means:
    • Compute interest for each payment period separately,
    • On the outstanding principal balance after prior payments,
    • Apply each payment first to interest accrued in that period, then to principal.
  • The total lawful interest is the sum of the interest amounts for each period.

Accordingly:

“We therefore hold that if the loan provides for periodic principal payments during the loan term, ‘using the actuarial method’ requires courts to base their interest calculations on the declining principal balance for each payment period. Thus, the NPS Loan’s total lawful interest amount is the sum of each payment period’s interest amount, calculated based on the declining principal balance resulting from each of Pearl’s principal payments.”

The Court does not:

  • Perform the actual calculations to decide whether NPS’s $309,865.91 interest exceeds the permissible amount (suggested by Pearl to be $207,277.80), or
  • Address whether the Option Agreement value must be added to the loan’s interest in the usury analysis.

Those issues remain for the federal courts on remand.

C. Impact and future implications

1. For lenders and borrowers in Texas

This decision has immediate and practical implications for commercial lending in Texas:

  • Amortizing commercial loans must be tested using a true actuarial method. Lenders cannot defend a loan as non‑usurious simply by multiplying the original principal by the maximum rate and the term in years.
  • Any loan with periodic principal reductions—including many term loans, equipment financings, and structured merchant‑cash‑advance‑type products that are treated as loans—must be analyzed on a period‑by‑period, declining‑balance basis.
  • Structures that push more interest later in the term (back‑loaded interest, stepped‑up interest components, balloon‑style interest) become riskier from a usury perspective, because the effective yield on a declining balance may exceed the statutory ceiling even if the equal‑parts formula appears safe.

Borrowers now have a clearer and more borrower‑protective standard to challenge loans that appear economically harsh but previously might have been defended as non‑usurious under an equal‑parts approach.

2. For litigation strategy and proof

From a litigation standpoint:

  • Expert evidence will likely become more common. Actuarial or financial‑expert testimony may be required to establish:
    • The correct effective rate under the statutory maximum ceiling, and
    • The actual effective rate produced by the loan’s cash flows.
  • Pleadings in usury cases will need to specifically allege actuarial calculations (or at least specify that the claimed usury arises when applying a declining‑balance actuarial method).
  • Lenders may need to produce detailed amortization schedules and demonstrate that, for each period, and over the entire term, the effective rate—computed as defined by the actuarial method—does not exceed the statutory limit.

Because the statutes are penal and must be strictly construed (First Bank v. Tony’s Tortilla Factory, Inc., 877 S.W.2d 285, 287 (Tex. 1994)), lenders cannot assume that ambiguity will be resolved in their favor where the statutory command is explicit.

3. For contract drafting and product design

The opinion will force careful attention in drafting and pricing:

  • Automatic recalibration: many sophisticated lenders already use actuarial software to price loans. The decision effectively makes those pricing models legally mandatory for commercial usury compliance.
  • Option agreements, equity participations, and revenue‑sharing structures (like the residuals option here) may be scrutinized as potential “interest” if they function economically as additional compensation for the use of money. The actuarial method may be applied to those economic benefits, once quantified, when testing usury.
  • Early‑repayment provisions must account for § 306.004(b)–(c): if the borrower prepays and the interest already paid exceeds the legal maximum for that shorter period (computed actuarially), the lender must refund or credit the excess to preserve the statutory safe harbor from penalties.

4. Open questions and likely future disputes

The opinion answers the certified question cleanly, but some issues remain:

  • Interest‑only loans under § 306.004(a). The Court suggests that equal‑parts spreading made sense for interest‑only loans under Nevels/Tanner. After this opinion, even interest‑only commercial loans governed by § 306.004(a) would still technically be subject to the “actuarial method” mandate. In practice, the actuarial and equal‑parts methods might coincide when principal is constant, but future cases may clarify whether Nevels/Tanner retain independent vitality or are now subsumed into the statutory formulation.
  • Irregular payment structures. The opinion assumes regular periodic principal payments. Complexity increases for:
    • Balloon payments;
    • Payment holidays or deferred interest periods;
    • Negative amortization (where payments are insufficient to cover interest, causing principal to grow);
    • Variable rates tied to indices.
    These structures can still be handled actuarially, but the details—and how to test usury in those contexts—will likely be litigated.
  • Retroactivity and reliance. The Court treats § 306.004(a) as always meaning what it now says. Parties to older loans may have relied in good faith on Tanner/Nevels and the 1975 statute’s “equal parts” language. However, because the statutory change is not new, but dates to 1997/1999, any reliance on the old method for post‑enactment loans is inherently fragile. Future disputes may test whether equitable defenses (like good‑faith reliance) can mitigate penalties, even if not liability.

V. Complex Concepts Explained

A. What is “usury” in Texas, in practical terms?

In practical terms, a loan is usurious when:

  1. The transaction is in substance a loan of money (not, for example, a bona fide sale of an asset without repayment obligation);
  2. The borrower is absolutely obligated to repay the principal (no true risk‑sharing that could eliminate the debt obligation); and
  3. The total compensation the lender receives for allowing the borrower to use the money—no matter how structured or labeled—exceeds the maximum legal rate when properly calculated.

Labels do not control. Payments labeled “fees,” “discounts,” “participations,” or “options” may all constitute “interest” if they are compensation for the use, forbearance, or detention of money.

B. What is “spreading” interest, and why do courts do it?

“Spreading” (or “amortizing” for purposes of usury) means that courts do not:

  • Look at isolated periods when the effective yield may spike, or
  • Declare a loan usurious just because the rate appears to exceed the statutory maximum in a particular month or year.

Instead, courts:

  • Sum all interest contracted for, charged, or received over the entire term; and
  • Compare that total to what the lender would be allowed to receive over that same period at the statutory maximum rate.

The rationale is to prevent technical or timing‑based traps: a loan that is economically non‑usurious overall should not become usurious just because of when payments fall in the calendar.

C. Equal‑parts vs. actuarial method: a simplified numerical illustration

To see the difference between the methods, consider a simplified example (not the actual NPS schedule).

1. Hypothetical loan

  • Principal: $100,000.
  • Term: 2 years, with equal annual principal payments ($50,000 per year).
  • Maximum legal annual interest rate: 20%.

2. Equal‑parts method (old approach)

Under equal parts:

  • Maximum total interest allowed = $100,000 × 0.20 × 2 = $40,000.

If the lender’s contract required total interest of $35,000, the loan would appear non‑usurious under this method.

3. Actuarial method (declining balance)

Now compute the maximum interest the lender can lawfully earn under an actuarial approach:

  • Year 1:
    • Beginning principal: $100,000.
    • Maximum interest: $100,000 × 0.20 = $20,000.
  • Payment at end of Year 1:
    • Apply payment first to $20,000 interest.
    • Then reduce principal by $50,000.
    • Ending principal: $50,000.
  • Year 2:
    • Beginning principal: $50,000.
    • Maximum interest: $50,000 × 0.20 = $10,000.

Total maximum interest, actuarially: $20,000 + $10,000 = $30,000, not $40,000.

If the lender contracted for $35,000 in interest:

  • Under equal parts: loan appears lawful (35k < 40k).
  • Under actuarial method: loan is usurious (35k > 30k).

This simple example reflects, in principle, what Pearl argued: once you account for the declining principal, the maximum lawful total interest is significantly lower than what an equal‑parts calculation would suggest.

D. What is the “actuarial method” in plain terms?

Stripped of jargon, the actuarial method:

  1. Treats each payment period separately (e.g., each month).
  2. Calculates interest for that period by multiplying the applicable rate by the unpaid principal at the start of the period.
  3. Applies the borrower’s payment first to the interest calculated for that period, then reduces the principal by any remaining amount.
  4. Repeats this process for each period until the loan is repaid.

It is essentially the standard business‑school and banking‑industry method of computing amortization—embedded in consumer credit laws, federal Truth in Lending regulations, and widely used state statutes.

E. What is a certified question and an “Erie guess”?

When a federal court applies state law and encounters a novel or unsettled question, it faces a choice:

  • Make an “Erie guess”—predict how the state’s highest court would decide, or
  • Use a certified question procedure, where available, to ask the state’s highest court directly.

Under TEX. CONST. art. V, § 3‑c, the Texas Supreme Court may answer questions of state law certified by a federal appellate court. Here, the Fifth Circuit chose certification rather than making an Erie guess about the meaning of “actuarial method” in § 306.004(a).

This mechanism:

  • Promotes uniformity in state law;
  • Reduces the risk of conflicting interpretations between state and federal courts; and
  • Allows the state’s high court to define the scope of its own statutory regime authoritatively.

F. Penal statutes and “strict construction”

Texas usury statutes are “penal in nature,” as the Court notes (citing First Bank v. Tony’s Tortilla Factory), because they impose significant civil penalties on violators. “Strict construction” of penal statutes generally means:

  • Ambiguous penalty provisions are narrowly read so as not to extend penalties beyond what the statute clearly covers.

But strict construction does not permit courts to ignore clear text. Once the Legislature has clearly defined how to compute interest (“actuarial method”), courts must apply that directive even if it increases lenders’ exposure to penalties when they structure loans inconsistently with the law.

VI. Conclusion

American Pearl Group v. National Payment Systems is a significant statutory‑interpretation decision in Texas usury law. Its core holding is straightforward but far‑reaching:

For commercial loans governed by TEX. FIN. CODE § 306.004(a) that provide for periodic principal payments, courts must determine whether the loan is usurious by applying the actuarial method—calculating interest separately for each period on the declining principal balance—rather than by spreading all interest “in equal parts” based on the original principal.

In reaching that result, the Court:

  • Anchors its analysis in the text of § 306.004(a), treating “actuarial method” as a term of art with a well‑settled meaning in law and finance.
  • Emphasizes statutory history, recognizing a deliberate legislative shift from “equal parts” to the actuarial method in 1997/1999.
  • Cabins earlier precedents (Nevels, Tanner) to their pre‑statutory and interest‑only contexts.
  • Rejects policy‑based pleas for simplicity or predictability where they conflict with enacted text.

Going forward, the decision:

  • Requires lenders to model usury compliance using declining‑balance actuarial computations, not rough average‑rate formulas.
  • Strengthens borrowers’ ability to challenge high‑cost commercial loans that appear lawful under equal‑parts spreading but are usurious when computed actuarially.
  • Signals that related economic benefits—like the residuals option here—may, once quantified, be analyzed actuarially as possible “interest” in future litigation.

Above all, the opinion underscores a broader jurisprudential message: words matter. When the Legislature replaces “in equal parts” with “using the actuarial method,” courts must give that new phrase its full, technical meaning. In Texas usury law, that shift decisively moves the field from an older, judge‑crafted averaging approach to a more precise, finance‑industry‑aligned actuarial calculation for commercial loans with amortizing principal.

Case Details

Comments