                      The Attorney              General of Texas
                                           April        10,    1981

MARKWHITE
Attorney General
                   Honorable Carl A. Parker, Chairman             Opinion No. MW-319
                   Senate Committee on Financial
                     Institutions                                 Re: Whether article XVI, section
                   P. 0. Box UO68                                 11 of the Texas Constitution
                   Austin, Texas 78711                            requires that legislation tying the
                                                                  interest rate to a moving index fii
                                                                  an absolute maximum rate

                   Dear Senator Parker:

                        You ask whether article XVI, section ll of the Texas Constitution
                   requires that an absolute maximum interest rate be fixed in all cases where
                   the authorized rate is tied to a moving index. Article XVI, section 11
                   provides in pertinent part:

                              The Legislature shall have authority to.. . define
                              interest and fix maxmum rates of interest; provided,
                              however,    in the absence of legislation       fixing
                              maximum rates of interest all contracts for a greater
                              rate of interest gan ten per centum 00%) per annum
                              shall be deemed usurious. . . .

                          We believe your question is answered by Letter Advisory No. 146 (1977)
                   issued by this office.    That letter addressed the question of whether the
                   legislature could authorize   the Finance Commission to establish maximum
                   interest rates for small loans. It stated as follows:

                                   Article 16, section 11autho&es the LegMature      ‘to
                              fix’ maximum rates of interest. The word ‘fix’ has a
                              variety   of meanings, depending upon the context. See
                              Gist v. Rackliffe-Gibson     Const. Co., 123 S.W. 92I
                              [MO.    19091 We
                               .~~.~~~~~,~   ~~~ believe
                                                     ~~~ the followine definition from
                              Webster’s Second International DictLnary states the
                              meaning of ‘fix’ as it appears in this constitutional
                              provision:

                                          to set or place definitely;      to
                                          establish;. . . to determine;    to
                                          assign precisely.

                              We note that Texas courts have assumed ‘fix’ in this
                              provision to be interchangeable with ‘establish.’ -See




                                                   p.   1024
 Honorable Carl A. Parker - Page Two      (MN- 319)




           Freeman v. Gonzales County Savings & Loan Ass’n, 526 S.W. 2d
           774, 777 (Tex. Civ. App. - Corpus Christi 1975) lafPd, 534 S.W.
           2d 903 (Tex. 197611; Home Savings Ass’n of Dallas County v.
           Crow, 514 SW. 2d 160, 165 (Tex. Civ. App. - Dallas 1974), ati’d,
           522 S.W. 2d 457 (Tex      1975). We believe the Constitz
           authorizes the Legislature to enact statutes establishing a
           precise figure as the maximum interest rate. If it does not
           enact such statutes, or if for other reasons there is no
           legislation fixing maximum interest rates for any class of
           transactions, the Constitution itself fries a ten percent
           maximum.

       In Attorney General Opinion MW-17 (19791, we considered the constitutionality of
a bill which stated the interest rate as one percent more than the discount rate on 90-
day commercial paper in effect on the day the loan is made. The bill, however, gave a
minimum interest rate of 10% and a maximum rate of 12%. We found that the bill
‘Ifties an absolute maximum rate of interest, in that in no instance may the rate
exceed 12 percent a year.” We noted that if the legislature wished to ensure the
validity of the bill, it could draft a severability clause to render the 12 percent
maximum applicable regardless of the validity of the other provisions.

       It is clear from Attorney General Opinion MW-17 and Letter Advisory No. 146
that a numerical maximum interest rate must be stated in legislation which attempts
to set the interest rate. We do not believe that the legislature would in fact fix the
maximum interest rate if it were to enact a formula permitting the computation of
maximum interest from economic indicators.         Such a statute might permit the
computation of a precise maximum interest rate at any given time; however, it only
fixes the interest rate in a relative sense. We believe the constitution requires the
legislature to fix an absolute maximum interest rate.

                                   SUMMARY

              Article XVI, section 11 of the Texas Constitution requires
           that legislation fixing the Interest rate state a numerical
           maximum interest rate.

                                       A-
                                            MARK      WHITE
                                            Attorney General of Texas

JOHN W. FAINTER, JR.
First Assistant Attorney General

RICHARD E. GRAY III
Executive Assistant Attorney General
.   .




        Honorable Carl A. Parker - Psge Three   (MlrJ-319)




    Prepared by Susan L. Garrison
    Assistant Attorney General

    APPROVED:
    OPINION COMMlTTEE

    Susan L. Garrison, Chairman
    Jon Bible
    Rick Gilpin
    ThomasM.Pollan
