Opinion No. 41-74

Topics:

USURY.
INTEREST.
RETAIL CREDIT ACT.

Summary conclusion

Transactions characterized by the following are governed by the Retail Credit Sales Act: (1) the seller is a retail seller; (2) the buyer is a retail buyer; (3) the subject matter of the transaction consists of goods or services having a cash sale price of less than $7,500; and (4) payment therefor, whether lump sum or periodic, is deferred. If the transaction is effected pursuant to a retail charge agreement, no separate charge may be assessed by the merchant for the buyers failure to pay the amount due within the time stated; in that event, the delinquent amount becomes part of the unpaid balance subject to the permissible statutory monthly time charge. If the transaction is effected under a retail time contract and if the contract so provides, the merchant can assess a separate charge for the buyer's default on an installment due within the permissible statutory limits. Finally, the Missouri usury law does not prohibit merchants from assessing a reasonable charge for handling dishonored checks tendered for payment of goods purchased, provided the purchaser has prior notice of the merchant's policy. If, however, the check was tendered as payment of an amount due under a retail charge agreement or retail time contract, the amount or rate of such charge would be governed by the Retail Credit Sales Act.

September 10, 1974

Honorable George J. Donegan
Representative, District 146
1714-18 East Meadowmere
Springfield, Missouri 65804

Dear Representative Donegan:

 This is in response to your request for an opinion from this office regarding the assessment by merchants of a "finance or "handling" charge in the following circumstances:

 With respect to the first situation you describe, the threshold inquiry is whether the transaction is governed by either the Missouri usury statute, set forth in Sections 408.020 through 408.080, RSMo 1969; or the Retail Credit Sales Act, set forth in Sections 408.250 through 408.370, V.A.M.S.

 The Missouri usury statutes forbid the exaction or receipt of more than a specified legal rate for the hire of money, and not for anything else. General Motors Acceptance Corporation v. Weinrich, 262 S.W. 425 (K.C.Mo.App. 1924); accordingly, Missouri courts consistently have held that credit sales are exempt from the usury law. The underlying rationale for this exemption is that a purchaser is not a vulnerable, needy borrower, for he can refrain from making the purchase if he prefers not to pay the seller's price. General Motors Acceptance Corporation v. Weinrich, supra at 428.

 The seller of merchandise on credit lawfully may establish a price higher than that which he would ask in a cash transaction, and the amount of the time-price differential is not limited by the usury statutes. Even if the credit sale price is exorbitant when compared with the cash sale price, the transaction is not usurious, provided a bona fide sale has taken place. Wyatt v. Comer cialCredit Corporation, 341 S.W.2d 348 (K.C.Mo.App. 1960); Securities Investment Company v. Hicks, 444 S.W.2d 6 (Spr.Ct.App. 1969); General Contract Purchase Corporation v. Propst, 239 S.W.2d.563. (Spr. Ct.App. 195.1). Whether the transaction constitutes an actual sale or a pretext to disguise a usurious loan is a question of fact. General Motors Acceptance Corporation v. Weinrich, supra at 428; Wyatt v. Commercial Credit Corporation, supra at 352. Therefore, it is the opinion of this office that the usury law does not govern the transaction because an actual sale of goods or services occurred.

 It is next necessary to consider whether the Retail Credit Sales Act applies; Sections 408.250 through 408.370 are described !in the title as "An Act relating to and regulating retail credit selling and financing of certain goods and services, with penalty provisions for, violation thereof." Laws 1961, page 638. Toward the objective of regulating retail credit selling and financing, practices, the act is remedial in nature and must be broadly and liberally construed to effectuate its purpose. Derboven v. Stockton, 490 S.W.2d 301 (K.C.Ct.App. 1972). In general, the act imposes disclosure requirements and limits the time-price differential in certain credit sales.

 Similarly, Section: 40.8.250(15),..V.A.M.S.,. defines a retail time transaction as follows:

 Accordingly, a retail time transaction occurs if payment for the goods or services is deferred, whether payment therefor will be made in a lump sum or in periodic installments. The applicability of the act, however, depends upon the position of the parties and the nature and value of the subject matter of the transaction. A retail time transaction involves a contract to sell or furnish, or the sale or furnishing of goods or services by a retail seller to a retail buyer.

 A retail seller is defined in Section 408.250(13),V.A.M.S.,as follows:

 A retail buyer is defined in Section 408.25.0(11) V . A. M. S., as a person who buys goods or obtains services from a retail seller in a retail time transaction. In other words, the act contemplates coverage of retail time transactions involving generally consumer sales.

 Goods forming the subject matter of a transaction within the purview of the act are defined in Section 408.250(4), V.A.M.S., as follows:

 Services are defined in Section 408.250(16 . ), V.A.M.S., as "work, labor and services having a cash sale price of seventy-five hundred dollars or less furnished in the delivery, installation, servicing; repair or improvement of goods. "

 In light Of the above definitions, it is the opinion of this office that the provisions of the Retail Credit Sales Act apply to all transactions characterized by the following: (1) the seller is a retail seller; (2) the buyer is a retail buyer; (3) the subject matter of the transaction consists of goods or services having a cash sale price of less than $7,500; and (4) payment, whether lump sum or periodic, is deferred. When all these conditions are met, the transaction is a retail time transaction, whether entered into under a retail time contract or pursuant to a retail charge agreement.

 This being the case, if in your hypothetical the goods or services have a cash sale price under $7,500, and if the transaction is between a retail seller and a retail buyer, then the transaction would be governed by the Retail Credit Sales Act because payment for the goods or services is deferred.

 If those conditions are met, it is next necessary to consider what, if any, charge may be assessed by the merchant for the failure of the buyer to pay an amount due within the time specified. The answer to this question will depend upon whether the transaction was effected under "a retail time contract or pursuant to a retail charge agreement.

 A retail charge agreement is defined in Section 408.250(12), V.A.M.S., as follows:

 In common parlance, such an agreement is a charge account entered into with a retail seller.

 A retail time contract is defined in Section 408.250(14), V.A.M.S., as follows:

 This definition contemplates one or more retail time transactions evidenced by one agreement and does not contemplate an agreement pursuant to which the buyer, on a continuing basis, would purchase goods or services from the seller.

 The distinction between retail charge agreements and retail time contracts is of significance, for the remaining provisions of the act, dealing with disclosure requirements and restrictions on time charges, vary according to the nature of the agreement under which a, credit transaction is consummated. The disclosure requirements applicable to retail charge agreements are enumerated in Section 408.290. By way of contrast, the disclosure requirements applicable to retail time contracts are enumerated in Section 408.260.

 Under a retail charge agreement the time charge is defined in Section 408.250(17), V.A.M.S., as the amount in excess of the cash sale price. The maximum rate at which a time charge under a retail charge agreement may be assessed is limited under Section 408.300 (2) as follows:

 Under a retail time contract the time charge is defined in Section 408.2.50(17), V.A.M.S., as the amount in excess of the principal balance, which is computed in accordance with subsection 5(6) of Section 408.260. The maximum rate at which a time charge may be assessed under a retail time contract is limited under Section 408.300 (1) as; follows:

 Subsection 3 of Section 408.300 provides that the time charge includes an charges incidental to investigating and making any retail transaction. Further, it provides:

 The act contains only two references to delinquency or collection charges: (a) Section 408.290(1) requires disclosure to the buyer under a retail charge agreement that attorney's fees may be payable upon default if the account is referred to an attorney for collection; and (b) Section 408.330 provides as follows:

 In view of the distinctions maintained throughout the act between retail charge agreements and retail time contracts, it is the opinion of this office that under a retail charge agreement, no charge may be assessed for failure of the buyer to pay an amount due under such agreement, except attorney's fees not exceeding fifteen percent of the total unpaid balance if the account is referred to an attorney for collection.

 However, the seller under a retail charge agreement is not without recourse with respect to payments not made when due. Subsection 2 of Section 408.300 provides that under a retail charge agreement, the seller must furnish the buyer a statement reciting, among other items, the "total unpaid balance at the beginning and end of the period," together with the amount of the time charge, if any. Under a retail charge agreement the applicable time charge is computed on the basis of the unpaid balance, that is, on ". . all amounts unpaid under the agreement at the beginning of each such period," (emphasis added) Section 408.300(2), RSMo 1969. Accordingly, should the buyer under such agreement fail to pay the total amount due on the appropriate date, the amount by which he is delinquent becomes an unpaid balance subject to a time charge at the applicable rate.

 By designating retail time contracts in Section 408.330 and by omitting therefrom any reference to retail charge agreements, the legislature in our opinion meant to exclude from the delinquency and collection provisions those transactions effected pursuant to retail charge agreements. This interpretation is supported by the distinctions maintained throughout the act between retail charge agreements and retail time contracts. Further, in preserving this distinction, the legislature provided not only different means of computing time charges, but also different rates.

 Under a retail charge agreement the seller may assess a monthly rate of one and one-half percent on amounts up to five hundred dollars and three-fourths percent on amounts in excess thereof. Under a retail time contract the seller may assess only an annual rate of twelve percent on amounts up to three hundred dollars, ten percent on amounts in excess of three hundred dollars, and eight percent on amounts in excess of one thousand dollars. On the basis of the foregoing, it is the opinion of this office that the time rate provided for retail charge agreements constitutes the exclusive means by which the seller can be compensated for extending credit initially and for "penalizing" the buyer's delinquency.

 When these conclusions are applied to the facts you describe, the assessment of a three percent "finance" charge would be unlawful if the retail time transaction was effected pursuant to a retail charge agreement. In that event, the amount unpaid would be subject only to the time charge as provided in Section 4.08.30.0(2). If, however, the transaction had been consummated by means of aretail time contract and if that contract so provided, the seller could assess a delinquency charge, not in excess of five percent or five dollars, whichever is less, on any installment in default past ten days under provisions of Section 408.330.

 With respect to the second factual situation you describe, we can find no Missouri statute expressly prohibiting or expressly authorizing merchants to assess a charge for dishonored checks. Absent a specific statutory prohibition, there exist only two theories under which such a practice might be unlawful: (1) if it, can be said that the merchant in effect has extended a "loan" to the purchaser whose check was dishonored and that the "handling charge" takes on the character of interest, then the amount or rate of said charge would be governed by the Missouri usury law; or (2) if the check was tendered as payment of an installment due under a retail time contract or as payment on the balance due under a retail charge agreement, then the proper delinquency and collection charges would be limited in accordance with the Retail Credit Sales Act.

 Considering the first alternative, we assume that the transaction is for cash, at least in the contemplation of the merchant who accepts the check as consideration for the groceries purchased; Although checks are deemed only conditional payment, 77C.J.S. Sales §238, the acceptance of a check by a merchant does not raise a presumption that he has extended credit. Although upon dishonor, no payment, in effect, has been made and the amount due is still owing, the transaction even at that point cannot be characterized as a "loan" within the purview of the usury law. As previously noted, the Missouri usury law forbids ". . the exaction or receipt of more than a specified legal rate for the hire of money and not of anything else;" (emphasis added) General Motors Acceptance Corporation v. Weinrich, supra. The circumstances you describe ostensibly constitute a cash purchase of goods. Even though the check tendered therefor subsequently is dishonored, a sale of goods, as opposed to the hiring of money, has transpired. Accordingly, it is the opinion of this office that a bad check policy such as you describe is not subject to the Missouri usury law.

 Even if we, were to conclude that the merchant effectively extends a "loan" when the buyer's check is dishonored, a charge for handling a bad check would not constitute interest for the purposes of the usury law if the amount of the charge was reasonably related to the services performed in connection therewith. Opinion No. 506, Ottinger, December 18, 1969; Cuendet v., Love, Bryan and Company, 57 S.W.2d 701 (St.L.Ct.App. 1933); Hecker v. Putney, 196 S.W.2dd, 442 (St. L.Ct.App. 1946).

 Alternatively, if the check were tendered aspayment for an installment due under a retail time contract or as payment on a balance due under a retail charge agreement, the dishonored check would constitute no payment. Accordingly, the buyer would be in default on, that installment, or balance due, and the provisions of the Retail Credit Sales Act, relating to delinquency and collection charges, would govern the amount or rate of permissible charges, if any, and an arbitrary charge called a "handling charge" would be unlawful.

 If the transaction does not fall within the scope of the Retail Credit Sales Act, it is the opinion of this office that a merchant may assess a reasonable charge for handling dishonored checks if prior notice or disclosure of such policy is Available to the purchaser, leaving the purchaser free to choose whether to pay with a check or decline to make a purchase from the merchant.

CONCLUSION

 It is the opinion of this office that transactions characterized by the following are governed by the Retail Credit Sales Act: (1) the seller is a retail seller; (2) the buyer is a retail buyer; (3) the subject matter of the transaction 'consists of goods or services having a cash sale price of less than $7,500;; and (4) payment therefor, whether lump sum or periodic, is deferred. If the transaction is effected pursuant to a retail charge agreement, no separate charge may be assessed by the merchant for the buyer's failure to pay the amount due within the time stated; in that event, the delinquent amount becomes. part of the unpaid balance subject to the permissible statutory monthly time charge,: If the transaction is effected under a retail time contract and if the contract so provides, the merchant can assess a separate charge for the buyer s default on an installment due within the permissible statutory limits. Finally, the Missouri usury law does not prohibit merchants from assessing a reasonable charge for handling dishonored checks tendered for payment of goods purchased, provided the purchaser has prior notice of the merchant's policy. If, however, the check was tendered as payment of an amount due under a retail charge agreement or retail time contract, the amount or rate of such charge would be governed by the Retail Credit Sales Act.

 The foregoing opinion, which I hereby approve, was prepared by my assistant, Karen M. Iverson.

Very truly yours,

John C. Danforth
Attorney General