Can the Tennessee legislature hand off to another body the job of setting maximum interest rates on short-term loans?

Subject

Opinion No. 15-24, Constitutionality of the General Assembly's Delegation of Its Article XI, Section 7, Authority to Set Maximum Interest Rates for Short-Term Lending Transactions, March 19, 2015

Plain-English summary

A Tennessee legislator asked whether the General Assembly could pass a statute handing off to some other entity (an agency, a board, a commission) the job of setting maximum interest rates on short-term loans. The AG said no. Article XI, section 7, of the Tennessee Constitution states that "[t]he General Assembly shall define and regulate interest, and set maximum effective rates thereof." The Tennessee Supreme Court has read that kind of "shall be prescribed by the General Assembly" language as a non-delegable assignment. The legislature can delegate legislative power only in two narrow circumstances: when the constitution itself authorizes delegation, or when delegation is "sanctioned by immemorial usage" predating the constitution. Neither exception applied here: the constitution puts the power exclusively in the legislature, and Tennessee's history (going back to the 1741 North Carolina Act, through the 1819 Tennessee statute, through three Tennessee constitutions) shows the legislature has always set rates by statute and has not delegated the job.

Currency note

This opinion was issued in 2015. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Background and statutory framework

Tenn. Const. art. XI, § 7, reads in full:

The General Assembly shall define and regulate interest, and set maximum effective rates thereof. If no applicable statute is hereafter enacted, the effective rate of interest collected shall not exceed ten percent (10%) per annum. All provisions of existing statutes regulating rates of interest and other charges on loans shall remain in full force and effect until July 1, 1980, unless earlier amended or repealed.

The AG read this as plenary and exclusive: only the legislature can act. That reading is reinforced by Tenn. Const. art. II, § 3, which assigns legislative power to the General Assembly, and by Tennessee Supreme Court doctrine that legislative power is generally non-delegable except in two situations: (1) where the constitution authorizes delegation (Gibson County Special Sch. Dist. v. Palmer, 691 S.W.2d 544, 550 (Tenn. 1985)), or (2) where delegation is "sanctioned by immemorial usage originating anterior to the Constitution and continuing unquestioned thereunder" (Kee v. Parks, 153 Tenn. at 313).

The AG also pointed to a directly analogous prior opinion (Tenn. Att'y. Gen. Op. 02-037 (April 1, 2002)), which read a constitutional command that "qualifications for county legislative bodies shall be prescribed by the General Assembly" as non-delegable.

Why "immemorial usage" did not save delegation

Tennessee's constitutional history on interest is straight: since 1835, all three Tennessee constitutions have vested the power exclusively in the legislature. Before that, the legislature set rates by statute (Acts of 1819, ch. 32, fixing the rate at six percent). Even earlier, the North Carolina Act of 1741 governed Tennessee territory and was a statute. So there is no tradition of delegating interest-rate authority to anyone else. Without that history, the second exception is unavailable.

Common questions

What if the legislature delegates only the rate-setting and keeps the framework for itself?
The AG opinion was categorical: the legislature's authority to set "maximum effective rates" cannot be delegated. The constitution puts that specific power in the legislature's hands. The opinion did not parse fine-grained variations, like delegating only to fill in factual triggers for already-legislated rates, so a careful drafter would still need to consider whether a hybrid delegation framework could pass scrutiny.

Why is short-term lending the context?
At the time, payday and high-cost short-term lending were policy flashpoints, and proposals to let an administrative body adjust rates dynamically had been floated. The AG's answer applied to any short-term-lending interest cap delegation.

Does the 10% default rate still apply?
Article XI, § 7, says that "if no applicable statute is hereafter enacted, the effective rate of interest collected shall not exceed ten percent (10%) per annum." Whether that fallback is still operative for any particular transaction depends on what statutes the legislature has since enacted. The AG opinion did not address that operational question.

Does this prevent the legislature from authorizing administrative rule-making related to lending?
The AG specifically addressed delegation of the rate-setting authority itself. Other administrative tasks (licensing, supervision, disclosure rules, enforcement) are governed by different doctrines and not foreclosed by this opinion.

Citations

Tenn. Const. art. XI, § 7; Gallaher v. Elam, 104 S.W.3d 455 (Tenn. 2003) (legislative power); State v. Edwards, 572 S.W.2d 917 (Tenn. 1978); Kee v. Parks, 153 Tenn. 306, 283 S.W. 751 (1926); Gibson County Special Sch. Dist. v. Palmer, 691 S.W.2d 544 (Tenn. 1985); Chambers v. Marcum, 255 S.W.2d 1 (Tenn. 1953); Cumberland Capital Corp. v. Patty, 556 S.W.2d 516 (Tenn. 1977).

Source

• Landing page: https://www.tn.gov/attorneygeneral/opinions.html
• Original PDF: https://www.tn.gov/content/dam/tn/attorneygeneral/documents/ops/2015/op15-24.pdf

Original opinion text

Constitutionality of the General Assembly's Delegation of Its Article XI, Section 7, Authority to Set Maximum Interest Rates for Short-Term Lending Transactions

Question

Does the Tennessee Constitution prohibit the General Assembly from delegating its article XI, section 7, authority to set maximum interest rates on short-term lending transactions?

Opinion

Yes.

ANALYSIS

Article XI, section 7, of the Tennessee Constitution provides in full:

The General Assembly shall define and regulate interest, and set maximum effective rates thereof. If no applicable statute is hereafter enacted, the effective rate of interest collected shall not exceed ten percent (10%) per annum. All provisions of existing statutes regulating rates of interest and other charges on loans shall remain in full force and effect until July 1, 1980, unless earlier amended or repealed.

This section grants the General Assembly plenary authority to make, order, and repeal laws regarding interest rates within the State of Tennessee. That authority is a legislative power of the General Assembly under Tenn. Const. art. II, § 3. See Gallaher v. Elam, 104 S.W.3d 455, 464 (Tenn. 2003).

The legislature generally lacks the constitutional authority to delegate its legislative powers to other entities. See id. (citing State v. Edwards, 572 S.W.2d 917, 919 (Tenn. 1978)); Kee v. Parks, 153 Tenn. 306, 313, 283 S.W. 751, 753 (1926); see also Tenn. Att'y. Gen. Op. 02-037 (April 1, 2002). The General Assembly is permitted to delegate its legislative powers in only two instances: (1) when the Tennessee Constitution itself authorizes the delegation, and (2) when the delegation is "sanctioned by immemorial usage originating anterior to the Constitution and continuing unquestioned thereunder." See Gibson County Special Sch. Dist. v. Palmer, 691 S.W.2d 544, 550 (Tenn. 1985); Kee v. Parks, 153 Tenn. at 313, 283 S.W. at 753.

Neither exception is available with respect to the General Assembly's legislative power to set maximum interest rates. First, article XI, section 7, vests the power to set maximum interest rates exclusively with the General Assembly; it expressly provides that the General Assembly and no other body "shall define and regulate interest, and set maximum effective rates." (Emphasis added.) As a result, the Tennessee Constitution does not authorize the General Assembly to delegate that legislative power to any other entity. See, e.g., Chambers v. Marcum, 195 Tenn. 1, 10, 255 S.W.2d 1, 5 (1953); Tenn. Att'y. Gen. Op. 02-037 (April 1, 2002) (stating that because the Tennessee Constitution specified that qualifications for county legislative bodies "shall be prescribed by the General Assembly," that duty was non-delegable).

Second, there is no evidence that delegation of the General Assembly's legislative power to set maximum interest rates is "sanctioned by immemorial usage originating anterior to the Constitution and continuing unquestioned thereunder." "Immemorial usage" means "a usage that has existed a very long time; [a] long-standing custom." Black's Law Dictionary 1576 (8th ed. 1999). Since 1835, the Tennessee Constitution has vested the General Assembly with the exclusive authority to fix the rate of interest. See Tenn. Const. art. XI, § 6 (1835); Tenn. Const. art. XI, § 7 (1870); Tenn. Const. art. XI, § 7 (1978). For much of that history, the express purpose for vesting this power with the General Assembly was to insure equality and uniformity of interest rates throughout the state. See Tenn. Const. art. XI, § 6 (1835); Tenn. Const. art. XI, § 7 (1870). Prior to 1835, the General Assembly established the state-wide interest rate through statute. See Acts of 1819, ch. 32 (setting the legal rate of interest at six percent per annum). Prior to 1819, the legislature restricted the amount of interest that could be charged throughout the state. See North Carolina Act of 1741, ch. 11. Thus, throughout Tennessee history, the long-standing custom is that the legislature possessed both practical and exclusive constitutional authority to set interest rates, exercised that authority by enacting statutes, and did not delegate this authority to any other body.

The North Carolina Act of 1741, on matters relating to interest rate regulation, took effect in the State of Tennessee as of June 1, 1796, upon the state's admission to the federal union and remained in effect until the Acts of 1819. Cumberland Capital Corp. v. Patty, 556 S.W.2d 516, 520 (Tenn. 1977).

Therefore, because the Tennessee Constitution does not authorize the delegation, and because the delegation is not "sanctioned by immemorial usage," a statute delegating the General Assembly's legislative power to set maximum rates of interest on short-term lending transactions to other entities, if enacted, would be an unconstitutional delegation of the General Assembly's authority under article XI, section 7, of the Tennessee Constitution.

HERBERT H. SLATERY III
Attorney General and Reporter

ANDRÉE SOPHIA BLUMSTEIN
Solicitor General

M. JASON HALE
Assistant Attorney General

Requested by:
The Honorable Darren Jernigan
State Representative
24 Legislative Plaza
Nashville, Tennessee 37243