Introduction

Restaurant Development, Inc. (RDI), a Washington corporation, initiated a class action lawsuit against Cananwill, Inc., a California corporation, alleging violations under the Consumer Protection Act (CPA) and the Insurance Premium Finance Company Act (IPFCA), Washington Revised Code (RCW) chapter 48.56.090. The core issue was whether Cananwill's charging of a 13% effective annual percentage rate (APR) constituted an unlawful practice under IPFCA, which RDI interpreted as permitting a maximum of 10% actuarial (simple) interest. The Supreme Court of Washington, sitting en banc, ultimately affirmed the Court of Appeals' decision, determining that Cananwill's add-on interest calculation did not violate IPFCA, rendering RDI's CPA claim moot.

Summary of the Judgment

The Supreme Court of Washington analyzed whether Cananwill's application of a 13% add-on interest rate in financing RDI's insurance premium was compliant with IPFCA. RDI contended that IPFCA prescribed a maximum of 10% actuarial interest, arguing that the add-on method used by Cananwill exceeded this threshold and violated the CPA. However, the Court held that the language of IPFCA permitted the use of an add-on interest calculation, interpreting the statutory "ten dollars per one hundred dollars per year" as an add-on rate rather than a simple interest rate. Consequently, Cananwill's practices were deemed lawful under IPFCA, and RDI's CPA claims were dismissed as moot.

Analysis

Precedents Cited

The Court referenced several precedents and analogous statutes to support its interpretation of IPFCA. Key among them were:

• Rest. Dev., Inc. v. Cananwill, Inc., 114 Wn. App. 194 (2002) – The Court of Appeals had previously upheld the add-on interest interpretation under IPFCA.
• RUONA v. FREEWAY DODGE, INC., 285 Minn. 23 (1969) – Minnesota Supreme Court recognized "dollars per one hundred dollars per year" as an add-on rate.
• Various state statutes and cases interpreting similar "per one hundred dollars per year" formulations as indicative of add-on interest, as seen in states like Alabama, Georgia, Kansas, Minnesota, and others.

These precedents collectively establish a consistent judicial interpretation that "dollars per one hundred dollars per year" denotes an add-on interest calculation rather than a simple interest method.

Legal Reasoning

The Court employed a three-pronged approach to statutory interpretation:

• Plain Language: The Court examined the explicit wording of IPFCA, noting that the phrase "ten dollars per one hundred dollars per year" is standard industry terminology for add-on interest rates.
• Legislative History: Contextualizing the 1969 enactment of IPFCA, the Court acknowledged the legislative intent to regulate a burgeoning insurance premium financing industry, favoring add-on rates to maintain business viability.
• Consistent Interpretation Across Jurisdictions: By surveying multiple state statutes and relevant case law, the Court reinforced that similar statutory language uniformly implies an add-on interest calculation.

The Court also addressed RDI's arguments regarding the refund provision (RCW 48.56.120) and the potential misinterpretation of service and acquisition charges. Ultimately, the Court concluded that the statutory language did not mandate a simple interest calculation, and thus, the add-on method was permissible.

Impact

This judgment solidifies the legality of add-on interest calculations for insurance premium financing under Washington's IPFCA. Financial institutions can continue employing precomputed interest methods without fearing CPA violations, provided they comply with the statutory maximum service charge. However, the Court acknowledged potential consumer disadvantage due to higher effective APRs associated with add-on rates, suggesting legislative action if necessary.

Future cases involving IPFCA will likely reference this precedent, reinforcing the add-on interest interpretation unless legislative amendments alter the statutory language.

Complex Concepts Simplified

Conclusion

The Supreme Court of Washington's decision in Restaurant Development, Inc. v. Cananwill, Inc. Affirmed the permissibility of using add-on interest calculations under IPFCA. By interpreting the statutory language and considering legislative intent, the Court clarified that "dollars per one hundred dollars per year" equates to an add-on rate. While recognizing potential consumer disadvantages, the Court deferred to legislative authority for any necessary regulatory adjustments. This ruling provides financial institutions with clear guidance on allowable interest calculation methods within the framework of Washington state law, ensuring consistency and predictability in insurance premium financing practices.

Stakeholders, including financing companies and consumers, must stay informed about the implications of this decision. Financial institutions should ensure compliance with IPFCA's terms, while consumers should be aware of how add-on interest rates affect their repayment obligations.