News & Insights

Recent Case of Interest Where Texas Supreme Court Clarifies Usury Calculations Using Actuarial Method

Jun 12, 2025

Banking COI

In American Pearl Group, L.L.C. v. National Payment Systems, L.L.C., No. 24-0758, 2025 WL 1478179 (May 23, 2025), the Texas Supreme Court clarified how interest must be calculated when evaluating usury under § 306.004(a) of the Texas Finance Code. The case involved a $375,100.85 loan with scheduled interest payments totaling $309,865.91 over 3.5 years. The borrower challenged the interest as usurious because it was calculated using the entire amount of the loan rather than the “actuarial method,” which calculates interest based on a declining principal balance. The Court held that interest must be calculated using the actuarial method. Under the actuarial method, the permissible interest would have totaled only $207,277.80. Because the actual interest charged exceeded that amount, the Court found the loan to be usurious.

This ruling has significant implications for Texas lenders and borrowers, especially in commercial financing. While a simplified calculation using 28% interest over 3.5 years would allow up to $367,598.83 in interest ($375,100.85 × 28% × 3.5), the Court rejected that approach as inconsistent with the statutory requirement. By mandating the actuarial method, the Court emphasized accurate, time-based interest accounting to prevent overcharges and protect borrowers from unlawful lending practices. The decision underscores the importance of complying with technical requirements in usury law, especially in sophisticated or high-value transactions.

No information in this communication is intended to constitute specific legal advice. For specific legal advice, please contact an attorney, and if you have any such questions or would like more information about this issue, please contact William “Pat” Huttenbach at 713.752.8616, or email at phuttenbach@craincaton.com.

Thanks,

Pat

American Pearl Group, L.L.C v National Payment Systems, L.L.C