S Top Logo

Dreher Tomkies LLP
Attorneys at Law
2750 Huntington Center
41 South High Street
Columbus, Ohio 43215
Telephone: 614-628-8000
Fax: 614-628-1600

T Alerts
Pic Alerts


by Deborah Freye and Jeffrey I. Langer*

The Michigan Attorney General, in an opinion dated January 14, 2002, found the Michigan Credit Reform Act (CRA) unconstitutional to the extent that it amends the maximum interest rate permitted for installment contracts under the Michigan Home Improvement Finance Act (HIFA).

The HIFA permits a maximum finance charge for home improvement installment contracts of $8 per $100 per annum, or 8% per year add‑on interest (interest that is calculated on the original principal balance over the term of the loan). However, the subsequently enacted CRA permits “regulated lenders,” defined to include “a seller under the home improvement finance act” to charge any rate of interest “not to exceed 25% per annum.” The CRA does not otherwise refer to the HIFA.

In order to determine which finance charge applies to HIFA installment contracts, the Attorney General looked to the Michigan Constitution’s limitation on general legislative power, which prohibits the Legislature from amending a statute merely by reference to its title and requires amended statutory sections to be re-enacted and published at length. The Attorney General concluded here that to the extent that the CRA purports to set the maximum permissible interest rate that may be charged on installment contracts under the HIFA, the CRA is unconstitutional and of no force and effect.

Although the direct language of this Attorney General opinion is limited to home improvement installment contracts under HIFA, it may have broader impact: The CRA also defines a “regulated lender” to include national and state banks with a branch in Michigan and licensees under the Consumer Financial Services Act, the Motor Vehicle Sales Finance Act and the Regulatory Loan Act. Under the CRA, all of these “regulated lenders” may charge any rate of interest for an extension of credit not to exceed 25%, and a “regulated lender” that is a “depository institution” (such as a bank with branches in Michigan) may charge any rate of interest for a credit card arrangement.

If we can assist you in determining this opinion’s applicability to your situation or if you would like a copy of the opinion or of the applicable law, please do not hesitate to call us.

*Jeff and Deborah are attorneys with Dreher Tomkies LLP Deborah is an Editor of the Firm’s Credit Card Digest. Their direct dial numbers are 614-628-1602 and 614‑628‑1611, respectively.