In May 2019, National Payment Systems, L.L.C. (NPS), a credit-card-payment-processing intermediary, loaned $375,100.85 to American Pearl Group, L.L.C., which sells NPS's services, to be repaid over forty-two months under a schedule totaling $684,966.76 with constant principal portions and escalating interest portions. A simultaneous Option Agreement let NPS buy a six-figure slice of Pearl's residual-payment portfolio for a five-figure sum, which Pearl says is additional disguised interest.¹

Pearl and its principals, John Sarkissian and Andrei Wirth, sued NPS in the Northern District of Texas in March 2022 for a declaration that the loan and option violate Texas usury law. The district court dismissed, spreading the interest over the term in equal parts under the 28% maximum rate, which produced a permissible maximum of $367,598.83 against $309,865.91 in scheduled interest; Pearl appealed, arguing the actuarial method would allow only $207,277.80. The Fifth Circuit remanded on the option and certified the question about the loan to the Court, which heard argument January 13, 2025.¹

Certified question from the United States Court of Appeals for the Fifth Circuit under Texas Constitution art. V, § 3-c; argued January 13, 2025.²

Whether, for a loan with periodic principal payments, computing the maximum interest rate "by amortizing or spreading, using the actuarial method" requires basing the calculation on the declining principal balance for each payment period rather than the total principal.¹

Statutory interpretation begins with the text, giving undefined terms their ordinary meaning, and usury statutes are penal and strictly construed.¹

American Pearl, Sarkissian, and Wirth (Petitioners): the actuarial method requires calculating interest on the declining principal balance, which would render NPS's interest usurious.

National Payment Systems (Respondent): interest should be spread in equal parts over the term as in Nevels and Tanner, a simpler method that gives a clear standard.¹

Not applicable to the Court's decision; the opinion does not recite the petition's cert-worthiness arguments.

• Actuarial method. Asked whether the actuarial method applies payments to interest first, then principal, NPS's counsel agreed, adding that interest is then computed on the remaining principal balance. (Oral Argument, 0:18:32)
• Resolving the case. Asked whether answering the Texas-law question resolves the case if Oregon law might apply, appellants' counsel said yes, because Texas public policy governs a charge of usurious interest. (Oral Argument, 0:05:28; 0:06:35)
• Other loan terms. Asked whether the loan is usurious from the math and the other agreement terms, appellants' counsel said yes, and the Fifth Circuit left that question to the district court. (Oral Argument, 0:07:42)

None noted

Holding

Section 306.004(a) requires courts to calculate maximum permissible interest on the declining principal balance for each payment period when the loan has periodic principal payments; the answer is yes.¹

Reasoning

"Actuarial method" is not defined in the Finance Code, but Black's Law Dictionary, the Texas Department of Banking's rule, the federal Truth in Lending Act and many state statutes define it as separately calculating the finance charge for each payment period after crediting payments to interest first and then principal. The 1975 statute required spreading "in equal parts," and the Legislature's replacement of that language in 1997 and 1999 with "using the actuarial method" presumptively changed the meaning; the simplicity of the equal-parts method does not override the text. Nevels and Tanner involved interest withheld from proceeds or advanced early and interest-only loans with no declining principal, and applying the equal-parts method here would produce absurd results, such as the final payment carrying $11,871.09 of interest on a principal balance of $8,930.97.²

Disposition

Certified question answered in the affirmative.³

Vote Breakdown

Opinion of the Court by Justice Sullivan.⁴