Article 1. General Provisions.

§ 24-1. Legal rate is eight percent.

Except as otherwise provided in G.S. 136-113, the legal rate of interest shall be eight percent (8%) per annum for such time as interest may accrue, and no more.

History. 1876-7, c. 91; Code, s. 3835; 1895, c. 69; Rev., s. 1950; C.S., s. 2305; 1979, 2nd Sess., c. 1157, s. 1; 2016-90, s. 18(a).

Cross References.

As to the effect of the secured transaction provisions of the Uniform Commercial Code, see G.S. 25-9-201 .

North Carolina Home Protection Pilot Program and Loan Fund.

Session Laws 2007-323, s. 22.1(a)-(f), provides for continuation and expansion of the North Carolina Home Protection Pilot Program. See note at G.S. 122A-1 .

For previous similar provisions, see Session Laws 2005-276, ss. 20.2(a)-(f).

Editor’s Note.

Session Laws 1971, c. 1229, s. 2, effective July 1, 1971, designated §§ 24-1 through 24-11 as Article 1 of this Chapter.

The 1979, 2nd Sess., amendment, effective July 1, 1980, raised the legal rate of interest from six percent per annum to eight percent per annum. Session Laws 1979, 2nd Sess., c. 1157, s. 8, provided that the act would not apply to judgments entered prior to July 1, 1980.

Session Laws 2007-323, s. 1.2, provides: “This act shall be known as the ‘Current Operations and Capital Improvements Appropriations Act of 2007.’ ”

Session Laws 2007-323, s. 32.3, provides: “Except for statutory changes or other provisions that clearly indicate an intention to have effects beyond the 2007-2009 fiscal biennium, the textual provisions of this act apply only to funds appropriated for, and activities occurring during, the 2007-2009 fiscal biennium.”

Session Laws 2007-323, s. 32.5, is a severability clause.

Effect of Amendments.

Session Laws 2016-90, s. 18(a), effective July 11, 2016, substituted “Except as otherwise provided in G.S. 136-113, the” for “The.” See editor’s note for applicability.

Legal Periodicals.

For comment on usury law in North Carolina, see 47 N.C.L. Rev. 761 (1969).

For comment discussing usury limitations in North Carolina, in light of Western Auto Supply Co. v. Vick, 303 N.C. 30 , 277 S.E.2d 360, aff’d on rehearing, 304 N.C. 191 , 283 S.E.2d 101 (1981), see 18 Wake Forest L. Rev. 947 (1982).

For note, “Judicially Imposed Usury Penalties in the Absence of Statutory Penalties: Can Freedom of Contract Co-Exist with Public Policy After Merritt v. Knox?,” see 68 N.C.L. Rev. 1021 (1990).

For article, “After Goeller v. United States, Can the Theft Loss Treatment Now Be Applied to Investments When Corporate Deception is Present?,” see 38 Campbell L. Rev. 1 (2016).

CASE NOTES

Definition of “Interest.” —

“Interest” is the compensation allowed by law, or fixed by the parties, for the use or forbearance of money, as damages for its detention. Brown v. Hiatts, 82 U.S. 177, 21 L. Ed. 128, 1872 U.S. LEXIS 1245 (1873).

The distinction between the “legal rate” of interest, and the “lawful rate” of interest, which is maintained in some states, and which appears in some of the older cases of this State, has not been preserved. Legal rate of interest implied the maximum rate at which interest could be charged upon an obligation in the absence of stipulation as to the rate; and a lawful rate of interest implied that rate of interest which could be lawfully stipulated without incurring the penalty of law. The former was six per cent, the latter eight. See Burwell v. Burgwyn, 100 N.C. 389 , 6 S.E. 409, 1888 N.C. LEXIS 197 (1888).

Legal Rate Applicable Postjudgment. —

Where contracts provided for a specific interest rate on past due accounts, that rate applied prejudgment but, where there was no agreement that such rate would apply postjudgment, the legal rate established by this section applied. Barrett Kays & Assocs. v. Colonial Bldg. Co., 129 N.C. App. 525, 500 S.E.2d 108, 1998 N.C. App. LEXIS 650 (1998).

This section declares the policy of this State with regard to usury. Pinnix v. Maryland Cas. Co., 214 N.C. 760 , 200 S.E. 874, 1939 N.C. LEXIS 427 (1939).

New Rate of Interest Applies to All Interest Awarded on July 1, 1980, or Thereafter. —

Section 8 of the bill which amended this section to change the legal rate of interest from six to eight percent provided that “this act shall not apply to judgments entered prior to July 1, 1980.” The clear implication of this language is that the new rate of interest shall apply to all of the interest awarded in judgments entered on July 1, 1980, or thereafter, instead of just to that portion of the interest accruing after such date. EEOC v. Liggett & Myers, Inc., 690 F.2d 1072, 1982 U.S. App. LEXIS 25235 (4th Cir. 1982).

Absent an agreement between parties, the legal rate is due on money owed under a contract. Hardy-Latham v. Wellons, 415 F.2d 674, 1968 U.S. App. LEXIS 6672 (4th Cir. 1968).

In the absence of an agreement, the injured party in cases involving breach of contract is entitled to interest at the legal rate. Interstate Equip. Co. v. Smith, 292 N.C. 592 , 234 S.E.2d 599, 1977 N.C. LEXIS 1141 (1977).

And no discretion is vested in the court to determine what shall be the rate of interest in a given case. Hardy-Latham v. Wellons, 415 F.2d 674, 1968 U.S. App. LEXIS 6672 (4th Cir. 1968).

Unless Defendant Agreed to Rate Set Pay Court. —

Where defendant agreed to let the trial court set the rate of interest, he could not on appeal argue that the trial court lacked authority to set the interest rate above the legal rate. Coston v. Coston, 109 N.C. App. 306, 426 S.E.2d 460, 1993 N.C. App. LEXIS 226 (1993).

Regulating Interest Is Within Province of Legislature. —

It is within the exclusive province of the lawmaking power to prescribe upon what conditions and at what rate interest can be allowed or contracted for, and what shall be a forfeiture of the right to collect it. Moore v. Beaman, 112 N.C. 558 , 17 S.E. 676, 1893 N.C. LEXIS 247 (1893).

When Contract Is Usurious. —

A contract will be declared usurious when it appears that it was the purpose and intent of the lender to charge and receive a greater rate of interest than that allowed by law under this section. Polikoff v. Finance Serv. Co., 205 N.C. 631 , 172 S.E. 356, 1934 N.C. LEXIS 33 (1934).

Where interest rate on note was usurious and penalty of forfeiture was barred by the statute of limitation, interest allowed was not the maximum legal rate but the legal or judgment rate. Merritt v. Knox, 94 N.C. App. 340, 380 S.E.2d 160, 1989 N.C. App. LEXIS 473 (1989).

For the last three words of this section to be of any significance, it must necessarily be inferred that interest may be imposed on judgments at a rate less than 8% if requested by the party entitled to the interest. Where a plaintiff’s attorney prepared a 1980 judgment asking for 6%, court would presume that is what he intended. Speros Constr. Co. v. Musselwhite, 103 N.C. App. 510, 405 S.E.2d 785, 1991 N.C. App. LEXIS 811 (1991).

Insurance Companies Are Not Authorized to Charge Interest in Excess of Legal Rate. —

Section 58-32, dealing with loans by insurance companies secured by insurance policies, does not authorize insurance companies to charge interest in excess of the legal rate prescribed in this section. Cowan v. Security Life & Trust Co., 211 N.C. 18 , 188 S.E. 812, 1936 N.C. LEXIS 391 (1936).

Premium for Privilege of Prepaying Notes. —

A provision in a deed of trust that the borrower should pay a premium, in addition to accrued interest at the legal rate, upon the exercise of its privilege of prepaying the notes before maturity, is valid. Bell Bakeries, Inc. v. Jefferson Std. Life Ins. Co., 245 N.C. 408 , 96 S.E.2d 408, 1957 N.C. LEXIS 589 (1957).

Documents Not Stating Interest Rate. —

Promissory note, deed of trust and sales contract showing a face amount of $9,645.12, payable in 144 equal monthly installments, but not stating the specific interest rate charged, which interest was added to the amount of the note in advance, did not entitle defendants, who allegedly loaned plaintiffs only $5,600.00 and charged an illegal 10% thereon, to a directed verdict or judgment n.o.v. DeHart v. R/S Fin. Corp., 78 N.C. App. 93, 337 S.E.2d 94, 1985 N.C. App. LEXIS 4264 (1985).

Fraudulent Procurement of Money. —

No implied contract resulted from a defendant’s act of fraudulently obtaining the money from a plaintiff or from a court’s order that the defendant pay restitution to the plaintiff, because there was no meeting of the minds between the parties. The law in effect at the time of an agreement determines the rate of interest on an obligation only where an agreement has actually been reached. Otherwise, the law in effect at the time of judgment determines the rate of interest. Speros Constr. Co. v. Musselwhite, 103 N.C. App. 510, 405 S.E.2d 785, 1991 N.C. App. LEXIS 811 (1991).

Interest for That Which Would Have Accrued on Amount of Funds Wrongfully Disbursed from Accounts. —

In a judgment removing the father as custodian of all accounts created under the North Carolina Uniform Transfers to Minors Act, G.S. 33A-1 et seq., an award of interest was proper because he should have been liable for the interest that would have accrued on the amount of the funds wrongfully disbursed from the accounts. If he had not improperly expended and invested the funds, the minor would have had the benefit of those funds growing in the custodial account; further, the amount of interest was appropriate. Belk v. Belk, 221 N.C. App. 1, 728 S.E.2d 356, 2012 N.C. App. LEXIS 718 (2012).

Interest Determined by Law in Effect at Time of Agreement. —

Where interest rate in contract was void and the legal rate in effect at the time the note was executed was six percent (6%), and subsequently changed to eight percent (8%) by an amendment to this section effective July 1, 1980, interest was determined by the law in effect at the time of the agreement, and changes in the legal rate were not applied retroactively. Merritt v. Knox, 94 N.C. App. 340, 380 S.E.2d 160, 1989 N.C. App. LEXIS 473 (1989).

Statute of limitations for usury claim was two years; where all details of borrowers’ loan, including the interest rate, fees, and expenses, were disclosed before the closing in loan documents to the borrowers, who had the capacity and the opportunity to discover their claim but failed to do so, the statute of limitations for the borrowers’ usury claim began to run on the date of the closing of their loan. Shepard v. Ocwen Fed. Bank, FSB, 172 N.C. App. 475, 617 S.E.2d 61, 2005 N.C. App. LEXIS 1810 (2005), aff'd, 361 N.C. 137 , 638 S.E.2d 197, 2006 N.C. LEXIS 1327 (2006).

Where a plaintiff brought an action to prevent the 10-year statute of limitations from barring his recovery on a prior judgment, the action was in the nature of an independent action on the judgment, the only procedure in this State by which a judgment can be renewed. As it was a separate and distinct action, the plaintiff could request, in his complaint, interest at the legal rate of 8%, and the trial court could award interest at that rate from the date the present action was instituted until the judgment is satisfied. Speros Constr. Co. v. Musselwhite, 103 N.C. App. 510, 405 S.E.2d 785, 1991 N.C. App. LEXIS 811 (1991).

Postjudgment Interest Not Awardable Against State. —

Retirees under the state and local government retirement system were not entitled to post-judgment interest on retroactive disability benefits, because the state retirement statutes contain no provision for the allowance of such interest. Faulkenbury v. Teachers' & State Employees' Retirement Sys., 132 N.C. App. 137, 510 S.E.2d 675, 1999 N.C. App. LEXIS 89 (1999).

Industrial commission properly awarded interest on retroactive attendant care for a comatose worker pursuant to G.S. 97-86.2 , as that statute allowed for an award of interest pursuant to G.S. 24-1 on outstanding medical expenses, and the fact that the money was going directly to two relatives who were taking care of a worker in a vegetative state, rather than the worker himself, did not preclude the commission from awarding interest. Palmer v. Jackson, 161 N.C. App. 642, 590 S.E.2d 275, 2003 N.C. App. LEXIS 2266 (2003).

Maximum Legal Rate of Interest for Agricultural Loans. —

Following a default judgment for a creditor against the debtors, the interest rate in a security agreement between the parties was incorrect under G.S. 24-1 because the maximum legal rate for the extension of credit for agricultural loans was capped at eight percent. Bartlett Milling Co., L.P. v. Walnut Grove Auction & Realty Co., 192 N.C. App. 74, 665 S.E.2d 478, 2008 N.C. App. LEXIS 1546 (2008).

Breach Of Contract. —

Trial court properly determined, as a matter of law, that sellers breached the contract and that the buyer was entitled to recover its $100,000 deposit of the purchase price of a boat, and it properly ordered the sellers to refund the buyer’s $ 100,000 deposit with interest at a rate of eight percent the sellers breached the parties’ contract, and the buyer was entitled, under G.S. 25-2-711(1) , to recover the amount of the purchase price it had already paid, i.e., $100,000, with interest. D.G. II, LLC v. Nix, 211 N.C. App. 332, 712 S.E.2d 335, 2011 N.C. App. LEXIS 735 (2011).

§ 24-1.1. Contract rates and fees.

  1. Except as otherwise provided in this Chapter or other applicable law, the parties to a loan, purchase money loan, advance, commitment for a loan, or forbearance, other than a credit card, open-end, or similar loan, may contract in writing for the payment of interest not in excess of the following:
    1. Where the principal amount is twenty-five thousand dollars ($25,000) or less, the rate set under subsection (c) of this section.
    2. Any rate agreed upon by the parties where the principal amount is more than twenty-five thousand dollars ($25,000).
  2. As used in this section, interest shall not be deemed in excess of the rates provided where interest is computed monthly on the outstanding principal balance and is collected not more than 31 days in advance of its due date. Nothing in this section authorizes the charging of interest on committed funds prior to the disbursement of the funds.
  3. On the fifteenth day of each month, the Commissioner of Banks shall announce and publish the maximum rate of interest permitted by subdivision (1) of subsection (a) of this section on that date. The rate shall be the latest published noncompetitive rate for U.S. Treasury bills with a six-month maturity as of the fifteenth day of the month plus six percent (6%), rounded upward or downward, as the case may be, to the nearest one-half of one percent (1/2 of 1%) or sixteen percent (16%), whichever is greater. If there is no nearest one-half of one percent (1/2 of 1%), the Commissioner shall round downward to the lower one-half of one percent (1/2 of 1%). The rate so announced shall be the maximum rate permitted for the term of loans made under this section during the following calendar month when the parties to the loans have agreed that the rate of interest to be charged by the lender and paid by the borrower shall not vary or be adjusted during the term of the loan. The parties to a loan made under this section may agree to a rate of interest that shall vary or be adjusted during the term of the loan in which case the maximum rate of interest permitted on the loans during a month during the term of the loan shall be the greater of the rate announced by the Commissioner in (i) the preceding calendar month or (ii) the calendar month preceding that in which the rate is varied or adjusted.
  4. Any bank or savings institution organized under the law of North Carolina or of the United States may charge a party to a loan or extension of credit governed by this section a fee for the modification, renewal, extension, or amendment of any terms of the loan or extension of credit. The fee shall not exceed the greater of one-quarter of one percent (1/4 of 1%) of the balance outstanding at the time of the modification, renewal, extension, or amendment of terms, or fifty dollars ($50.00).
  5. Any bank or savings institution organized under the law of North Carolina or of the United States may charge a party to a loan or extension of credit not secured by real property governed by this section an origination fee as follows:
    1. For a loan or extension of credit with a principal amount of one hundred thousand dollars ($100,000) or greater, the maximum origination fee is one quarter of one percent (1/4 of 1%) of the principal amount.
    2. For a loan or extension of credit with a principal amount less than one hundred thousand dollars ($100,000), the origination fee shall not exceed the amounts in the following table:

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    3. If (i) the loan or extension of credit has a principal amount less than five thousand dollars ($5,000), (ii) the borrower is a natural person, and (iii) the debt is incurred primarily for personal, family, or household purposes, the loan or extension of credit shall not have an annual percentage rate that exceeds thirty-six percent (36%), inclusive of the origination fees permitted by this subsection and the interest permitted by subsection (c) of this section. For purposes of this subsection, “annual percentage rate” shall be calculated in accordance with the federal Consumer Credit Protection Act, Chapter 41 of Title 15 of the United States Code, (Truth in Lending Act) and the regulations adopted under it.
  6. This section does not limit fees on loans or extensions of credit in excess of three hundred thousand dollars ($300,000).

Principal Amount Maximum Origination Fee $0 to $1,499.99 $100.00 $1,500 to $19,999.99 $150.00 $20,000 to $29,999.99 $175.00 $30,000 to $49,999.99 $200.00 $50,000 to $99,999.99 $250.00

History. 1969, c. 1303, s. 1; 1977, c. 778, ss. 1, 3; c. 779, s. 1; 1979, c. 138, s. 1; 1981, c. 465, s. 1; c. 934, s. 1; 1985, c. 663, s. 1; 1991, c. 506, s. 2; 1998-119, s. 1; 1999-75, s. 1; 2019-10, s. 1.

Cross References.

As to permissible late payment charges, see G.S. 24-10 .

Editor’s Note.

Session Laws 2019-10, s. 3, made the amendment to this section by Session Laws 2019-10, s. 1, effective April 1, 2019, and applicable to contracts entered into, renewed, or modified on or after that date.

Effect of Amendments.

Session Laws 2019-10, s. 1, effective April 1, 2019, in subsection (b), substituted “authorizes” for “shall be construed to authorize”; rewrote subsection (e); in subsection (f), substituted “does not” for “shall not be construed to”; and made minor stylistic changes throughout. For effective date and applicability, see editor’s note.

Legal Periodicals.

For survey of 1977 commercial law, see 56 N.C.L. Rev. 915 (1978).

For survey of 1981 commercial law, see 60 N.C.L. Rev. 1238 (1982).

For note, “Judicially Imposed Usury Penalties in the Absence of Statutory Penalties: Can Freedom of Contract Co-Exist with Public Policy After Merritt v. Knox?,” see 68 N.C.L. Rev. 1021 (1990).

For legislative survey, see 21 Campbell L. Rev. 323 (1999).

CASE NOTES

To establish that an agreement is usurious, it must be shown that (1) there was a loan, (2) there was an understanding that the money lent would be returned, (3) a greater rate of interest than that allowed by law was charged for the loan, and (4) there was corrupt intent to take more than the legal rate for the use of the money. Bagri v. Desai, 83 N.C. App. 150, 349 S.E.2d 309, 1986 N.C. App. LEXIS 2671 (1986).

Corrupt Intent. —

The requirement of corrupt intent to take more than the legal rate for the use of money is simply the intentional charging of more for money lent than the law allows. Bagri v. Desai, 83 N.C. App. 150, 349 S.E.2d 309, 1986 N.C. App. LEXIS 2671 (1986).

G.S. 25-9-203 does not make an Article 9 transaction subject to this Section. Borg-Warner Acceptance Corp. v. Johnston, 107 N.C. App. 174, 419 S.E.2d 195, 1992 N.C. App. LEXIS 666 (1992).

Liability for Loan Servicer. —

Loan servicing company that filed a claim on behalf of a mortgage company and that represented the company through an assignment of the original loan could not be liable for alleged usury because the loan servicing company was an agent of the assignee mortgage company and was not the holder of the note. Tetterton v. Ocwen Fed. Bank, 379 B.R. 594, 2007 Bankr. LEXIS 4190 (Bankr. E.D.N.C. 2007).

Creditor Liable to Debtors for Damages for Failing to Put Forth Good Faith Effort to Ensure Ability to Repay. —

Creditor did not adhere to the requirements of G.S. 24-1.1 F(c) when assessing debtors’ creditworthiness nor did it put forth a good faith effort in ensuring they had the ability to repay the loan. Because it was without justifiable grounds for a reasonable and good faith belief that debtors could repay the home loan according to its terms, it violated the requirements of G.S. 24-1.1 F and was liable to debtors for damages; moreover, debtors’ agreement to the loan provisions throughout the underwriting process did not save the creditor from a violation of its good faith duty to debtors. McClendon v. Walter Home Mortg., 488 B.R. 876, 2013 Bankr. LEXIS 793 (Bankr. E.D.N.C. 2013).

Default Rate. —

Holder of a mortgage on the debtor’s property was allowed, pursuant to 11 U.S.C.S. § 502 and state law, to recover interest at the default rate of 11.13% from the date of the payment default because the debtor had not established that the default interest rate provided for in the loan agreement was outside the bounds of established parameters. In re Harvest Oaks Drive Assocs., LLC, 2011 Bankr. LEXIS 146 (Bankr. E.D.N.C. Jan. 14, 2011).

Parties to a loan in North Carolina in which the principal was more than $25,000 could contract in writing for payment of interest at any rate agreed to by the parties, and although North Carolina state law did not specifically address default rates of interest, because default interest had been included in judgments awarded by state courts, there was no state law or policy concern preventing inclusion of default interest in a bankruptcy claim. In re Johnson, 2005 Bankr. LEXIS 3569 (Bankr. E.D.N.C. Oct. 31, 2005).

Interest Rate Held Usurious. —

Where note was secured by a second deed of trust and the proceeds were to be used for development of the property, the loan was a “business property loan” as defined by the statute, and therefore, the twelve percent (12%) interest rate provided by the note was usurious. Merritt v. Knox, 94 N.C. App. 340, 380 S.E.2d 160, 1989 N.C. App. LEXIS 473 (1989) (decided under prior law).

Where evidence against a check cashing business established that it executed contracts for usurious loans, it used its alternative business purpose of providing Internet access to consumers as a guise to cover this illegal activity, and no evidentiary basis existed upon which a reasonable fact-finder could reach a contrary conclusion, the State’s claims of usury and violations of the Consumer Finance Act were established as a matter of law; moreover, the contracts which customers had with the business were cancelled pursuant to G.S. 75-15.1 , requiring all funds collected by the business pursuant to such contracts to be refunded to the customers. State ex rel. Cooper v. NCCS Loans, Inc., 174 N.C. App. 630, 624 S.E.2d 371, 2005 N.C. App. LEXIS 2588 (2005).

Litigation Lending Agreement was Usurious. —

Injured driver’s loan agreement with a litigation lender was usurious under G.S. 24-1.1 since the driver’s repayment obligations were ultimately subject to whether the recovery on the personal injury claim was sufficient to satisfy all or part of her debt to the lender, the agreement demonstrated the parties’ understanding that the principal “shall be or may be” returned, the interest rate exceeded the permitted amount, and the lender intentionally entered into the contract to receive a greater amount of interest than that allowed by G.S. 24-1.1 . Odell v. Legal Bucks, LLC, 192 N.C. App. 298, 665 S.E.2d 767, 2008 N.C. App. LEXIS 1619 (2008).

Payment Plan In Excess of Value of Services Held Usurious. —

Reorganized check cashing companies’ policy of extending an immediate cash rebate and Internet usage to its customers in exchange for a one-year commitment to make bi-weekly payments in an amount equal to five times the amount of the rebate, violated G.S. 24-2.1 , was usurious, and constituted an unfair and deceptive trade practice in violation of G.S. 75-1.1 . The fact that the reorganized companies characterized the transactions as rebates or Internet service agreements was subterfuge to conceal the usurious rate of interest. State ex rel. Cooper v. NCCS Loans, Inc., 174 N.C. App. 630, 624 S.E.2d 371, 2005 N.C. App. LEXIS 2588 (2005).

Interest Rate in Violation of This Section Not Enforced. —

Where interest due on the note was not subject to forfeiture, usurious twelve percent (12%) rate was not enforced; contract provisions in violation of a statute are contrary to public policy and will not be enforced. Merritt v. Knox, 94 N.C. App. 340, 380 S.E.2d 160, 1989 N.C. App. LEXIS 473 (1989).

A service charge taken for the creditor’s forbearance from collecting on a portion of a debt owed to it is subject to the usury laws. Western Auto Supply Co. v. Vick, 47 N.C. App. 701, 268 S.E.2d 842, 1980 N.C. App. LEXIS 3182 (1980), aff'd, 303 N.C. 30 , 277 S.E.2d 360, 1981 N.C. LEXIS 1083 (1981).

Forbearance Agreement Held Not Usurious. —

A forbearance agreement secured by a second deed of trust and executed after the effective date of former subdivision (3) was not usurious in providing for interest of 9% per annum, notwithstanding the note to which the forbearance agreement related was executed prior to the effective date of that subdivision and at a time when the maximum rate of interest was 6%. Ausband v. Wachovia Bank & Trust Co., 17 N.C. App. 325, 194 S.E.2d 160, 1973 N.C. App. LEXIS 1347 , cert. denied, 283 N.C. 257 , 195 S.E.2d 689, 1973 N.C. LEXIS 940 (1973).

Fraudulent Procurement of Money. —

No implied contract resulted from a defendant’s act of fraudulently obtaining the money from a plaintiff or from a court’s order that the defendant pay restitution to the plaintiff, because there was no meeting of the minds between the parties. The law in effect at the time of an agreement determines the rate of interest on an obligation only where an agreement has actually been reached. Otherwise, the law in effect at the time of judgment determines the rate of interest. Speros Constr. Co. v. Musselwhite, 103 N.C. App. 510, 405 S.E.2d 785, 1991 N.C. App. LEXIS 811 (1991).

Amendment of Complaint. —

Where plaintiff in its complaint sought interest in excess of the 12% allowed under this section, but presented evidence as to the amount of interest when calculated at 12%, the trial court did not abuse its discretion in granting an amendment to the pleadings so as to reduce the interest sought to that calculated at 12% per annum. Northwestern Bank v. Barber, 79 N.C. App. 425, 339 S.E.2d 452, 1986 N.C. App. LEXIS 2059 (1986).

§ 24-1.1A. Contract rates on home loans secured by first mortgages or first deeds of trust.

  1. Notwithstanding any other provision of this Chapter, but subject to the provisions of G.S. 24-1.1 E, parties to a home loan may contract in writing as follows:
    1. Where the principal amount is ten thousand dollars ($10,000) or more the parties may contract for the payment of interest as agreed upon by the parties;
    2. Where the principal amount is less than ten thousand dollars ($10,000) the parties may contract for the payment of interest as agreed upon by the parties, if the lender is either (i) approved as a mortgagee by the Secretary of Housing and Urban Development, the Federal Housing Administration, the Department of Veterans Affairs, a national mortgage association or any federal agency; or (ii) a local or foreign bank, savings and loan association or service corporation wholly owned by one or more savings and loan associations and permitted by law to make home loans, credit union or insurance company; or (iii) a State or federal agency;
    3. Where the principal amount is less than ten thousand dollars ($10,000) and the lender is not a lender described in the preceding subdivision (2) the parties may contract for the payment of interest not in excess of sixteen percent (16%) per annum.
    4. Notwithstanding any other provision of law, where the lender is an affiliate operating in the same office or subsidiary operating in the same office of a licensee under the North Carolina Consumer Finance Act, the lender may charge interest to be computed only on the following basis: monthly on the outstanding principal balance at a rate not to exceed the rate provided in this subdivision.On the fifteenth day of each month, the Commissioner of Banks shall announce and publish the maximum rate of interest permitted by this subdivision. Such rate shall be the latest published noncompetitive rate for U.S. Treasury bills with a six-month maturity as of the fifteenth day of the month plus six percent (6%), rounded upward or downward, as the case may be, to the nearest one-half of one percent (1/2 of 1%) or fifteen percent (15%), whichever is greater. If there is no nearest one-half of one percent (1/2 of 1%), the Commissioner shall round downward to the lower one-half of one percent (1/2 of 1%). The rate so announced shall be the maximum rate permitted for the term of loans made under this section during the following calendar month when the parties to such loans have agreed that the rate of interest to be charged by the lender and paid by the borrower shall not vary or be adjusted during the term of the loan. The parties to a loan made under this section may agree to a rate of interest which shall vary or be adjusted during the term of the loan in which case the maximum rate of interest permitted on such loans during a month during the term of the loan shall be the rate announced by the Commissioner in the preceding calendar month.An affiliate operating in the same office or subsidiary operating in the same office of a licensee under the North Carolina Consumer Finance Act may not make a home loan for a term in excess of six (6) months which provides for a balloon payment. For purposes of this subdivision, a balloon payment means any scheduled payment that is more than twice as large as the average of earlier scheduled payments. This subsection does not apply to equity lines of credit as defined in G.S. 45-81 . (a1) Subject to federal requirements, when a natural person applies for a home loan primarily for personal, family, or household purposes, the lender shall comply with the provisions of this subsection.

      (1) Not later than the date of the home loan closing or three business days after the lender receives an application for a home loan, whichever is earlier, the lender shall deliver or mail to the applicant information and examples of amortization of home loans reflecting various terms in a form made available by the Commissioner of Banks. The Commissioner of Banks shall develop and make available to home loan lenders materials necessary to satisfy the provisions of this subsection.

      (2) Not later than three business days after the home loan closing, the lender shall deliver or mail to the borrower an amortization schedule for the borrower’s home loan. Provided, however, that a lender shall not be required to provide an amortization schedule unless the loan is a fixed rate home loan that requires the borrower to make regularly scheduled periodic amortizing payments of principal and interest; and provided further that, with respect to a construction/permanent home loan, the amortization schedule must be provided only with respect to the permanent portion of the home loan during which amortization occurs.

      (3) If the home loan transaction involves more than one natural person, the lender may deliver or mail the materials required by this subsection to any one or more of such persons.

      (4) This subsection does not apply if the home loan applicant is not a natural person or if the home loan is for a purpose other than a personal, family, or household purpose.

  2. Except as provided in subdivision (1) of this subsection, a lender and a borrower may agree on any terms as to the prepayment of a home loan.
    1. No prepayment fees or penalties shall be contracted by the borrower and lender with respect to any home loan in which: (i) the principal amount borrowed is one hundred fifty thousand dollars ($150,000) or less, (ii) the borrower is a natural person, (iii) the debt is incurred by the borrower primarily for personal, family, or household purposes, and (iv) the loan is secured by a first mortgage or first deed of trust on real estate upon which there is located or there is to be located a structure or structures designed principally for occupancy of from one to four families which is or will be occupied by the borrower as the borrower’s principal dwelling.
    2. The limitations on prepayment fees and penalties contained in subdivision (b)(1) of this section shall not apply to the extent state law limitations on prepayment fees and penalties are preempted by federal law or regulation.
  3. If the home loan is one described in subdivision (a)(1) or subdivision (a)(2) of this section, the lender may charge the borrower the following fees and charges in addition to interest and other fees and charges as permitted in this section and late payment charges as permitted in G.S. 24-10.1 :
    1. At or before loan closing, the lender may charge such of the following fees and charges as may be agreed upon by the parties notwithstanding the provisions of any State law, other than G.S. 24-1.1 E, limiting the amount of such fees or charges:
      1. Loan application, origination, commitment, and interest rate lock fees; a1. Fees to administer a construction loan or a construction/permanent loan, including inspection fees and loan conversion fees;
      2. Discount points, but only to the extent the discount points are paid for the purpose of reducing, and in fact result in a bona fide reduction of the interest rate or time-price differential;
      3. Assumption fees to the extent permitted by G.S. 24-10 (d);
      4. Appraisal fees to the extent permitted by G.S. 24-10 (h);
      5. Fees and charges to the extent permitted by G.S. 24-8(d) ; and
      6. Additional fees and charges, however individually or collectively denominated, payable to the lender which, in the aggregate, do not exceed the greater of (i) one quarter of one percent (1/4 of 1%) of the principal amount of the loan, or (ii) one hundred fifty dollars ($150.00).
    2. Except as provided in subsection (g) of this section with respect to the deferral of loan payments, upon modification, renewal, extension, or amendment of any of the terms of a home loan, the lender may charge such of the following fees and charges as may be agreed upon by the parties notwithstanding the provisions of any State law, other than G.S. 24-1.1 E, limiting the amount of such fees or charges:
      1. Discount points, but only to the extent the discount points are paid for the purpose of reducing, and in fact result in a bona fide reduction of, the interest rate or time-price differential;

        a1. Fees which do not exceed one quarter of one percent (1/4 of 1%) of the principal amount of the loan if the principal amount of the loan is less than one hundred fifty thousand dollars ($150,000), or one percent of the principal amount of the loan if the principal amount of the loan is one hundred fifty thousand dollars ($150,000) or more, for the conversion of a variable interest rate loan to a fixed interest rate loan, of a fixed interest rate loan to a variable interest rate loan, of a closed-end loan to an open-end loan, or of an open-ended loan to a closed-end loan;

      2. Assumption fees to the extent permitted by G.S. 24-10(d);
      3. Appraisal fees to the extent permitted by G.S. 24-10(h);
      4. Fees and charges to the extent permitted by G.S. 24-8(d) ; and
      5. If no fees are charged under subdivision (c)(2)b. of this section, additional fees and charges, however individually or collectively denominated, payable to the lender which, in the aggregate, do not exceed the greater of (i) one quarter of one percent (1/4 of 1%) of the balance outstanding at the time of the modification, renewal, extension, or amendment of terms, or (ii) one hundred fifty dollars ($150.00). The fees and charges permitted by this sub-subdivision may be charged only pursuant to a written agreement which states the amount of the fee or charge and is made at the time of the specific modification, renewal, extension, or amendment, or at the time the specific modification, renewal, extension, or amendment is requested.

        (c1) No lender on home loans under subdivision (a)(3) of this section may charge or receive any interest, fees, charges, or discount points other than: (i) to the extent permitted by G.S. 24-8(d), sums for the payment of bona fide loan-related goods, products, and services provided or to be provided by third parties and sums for the payment of taxes, filing fees, recording fees, and other charges and fees, paid or to be paid to public officials; (ii) interest as permitted in subdivision (a)(3) of this section; and (iii) late payment charges to the extent permitted by G.S. 24-10.1 .

        (c2) No lender on home loans under subdivision (a)(4) of this section may charge or receive any interest, fees, charges, or discount points other than: (i) the fees described in G.S. 24-10; (ii) to the extent permitted by G.S. 24-8(d), sums for the payment of bona fide loan-related goods, products, and services provided or to be provided by third parties and sums for the payment of taxes, filing fees, recording fees, and other charges and fees, paid or to be paid to public officials; (iii) interest as permitted in subdivision (a)(4) of this section; and (iv) late payment charges to the extent permitted by G.S. 24-10.1.

  4. The loans or investments regulated by G.S. 53C-5-3 shall not be subject to the provisions of this section.
  5. The term “home loan” shall mean a loan, other than an open-end credit plan, where the principal amount is less than three hundred thousand dollars ($300,000) secured by a first mortgage or first deed of trust on real estate upon which there is located or there is to be located one or more single-family dwellings or dwelling units or secured by an equivalent first security interest in a manufactured home.
  6. Any home loan obligation existing before June 13, 1977, shall be construed with regard to the law existing at the time the home loan or commitment to lend was made and this act shall only apply to home loans or loan commitments made from and after June 13, 1977; provided, however, that variable rate home loan obligations executed prior to April 3, 1974, which by their terms provide that the interest rate shall be decreased and may be increased in accordance with a stated cost of money formula or other index shall be enforceable according to the terms and tenor of said written obligations.
  7. The parties to a home loan governed by subdivision (a)(1) or (2) of this section may contract to defer the payment of all or part of one or more unpaid installments and for payment of interest on deferred interest as agreed upon by the parties. The parties may agree that deferred interest may be added to the principal balance of the loan. This subsection shall not be construed to limit payment of interest upon interest in connection with other types of loans. Except as restricted by G.S. 24-1.1 E, the lender may charge deferral fees as may be agreed upon by the parties to defer the payment of one or more unpaid installments. If the home loan is of a type described in subdivision (1) of this subsection, the deferral fees shall be subject to the limitations set forth in subdivision (2) of this subsection:
    1. A home loan will be subject to the deferral fee limitations set forth in subdivision (2) of this subsection if:
      1. The borrower is a natural person;
      2. The debt is incurred by the borrower primarily for personal, family, or household purposes; and
      3. The loan is secured by a first mortgage or first deed of trust on real estate upon which there is located or there is to be located a structure or structures designed principally for occupancy of from one to four families which is or will be occupied by the borrower as the borrower’s principal dwelling.
    2. Deferral fees for home loans identified in subdivision (1) of this subsection shall be subject to the following limitations:
      1. Deferral fees may be charged only pursuant to an agreement which states the amount of the fee and is made at the time of the specific deferral or at the time the specific deferral is requested; provided, that if the agreement relates to an installment which is then past due for 15 days or more, the agreement must be in writing and signed by at least one of the borrowers. For purposes of this subdivision an agreement will be considered a signed writing if the lender receives from at least one of the borrowers a facsimile or computer-generated message confirming or otherwise accepting the agreement.
      2. Deferral fees may not exceed the greater of five percent (5%) of each installment deferred or fifty dollars ($50.00), multiplied by the number of complete months in the deferral period. A month shall be measured from the date an installment is due. The deferral period is that period during which no payment is required or made as measured from the date on which the deferred installment would otherwise have been due to the date the next installment is due under the terms of the note or the deferral agreement.
      3. If a deferral fee has once been imposed with respect to a particular installment, no deferral fee may be imposed with respect to any future payment which would have been timely and sufficient but for the previous deferral.
      4. If a deferral fee is charged pursuant to a deferral agreement, a late charge may be imposed with respect to the deferred payment only if the amount deferred is not paid when due under the terms of the deferral agreement and no new deferral agreement is entered into with respect to that installment.
      5. A lender may charge a deferral fee under this subsection for deferring the payment of all or part of one or more regularly scheduled payments, regardless of whether the deferral results in an extension of the loan maturity date or the date a balloon payment is due. A modification or extension of the loan maturity date or the date a balloon payment is due which is not incident to the deferral of a regularly scheduled payment shall be considered a modification or extension subject to the provisions of subdivision (c)(2) of this section.
  8. The parties to a home loan governed by subdivision (a)(1) or (2) of this section may agree in writing to a mortgage or deed of trust which provides that periodic payments may be graduated during parts of or over the entire term of the loan. The parties to such a loan may also agree in writing to a mortgage or deed of trust which provides that periodic disbursements of part of the loan proceeds may be made by the lender over a period of time agreed upon by the parties, or over a period of time agreed upon by the parties ending with the death of the borrower(s). Such mortgages or deeds of trust may include provisions for adding deferred interest to principal or otherwise providing for charging of interest on deferred interest as agreed upon by the parties. This subsection shall not be construed to limit other types of mortgages or deeds of trust or methods or plans of disbursement or repayment of loans that may be agreed upon by the parties.
  9. Nothing in this section shall be construed to authorize or prohibit a lender, a borrower, or any other party to pay compensation to a mortgage broker or a mortgage banker for services provided by the mortgage broker or the mortgage banker in connection with a home loan.

History. 1973, c. 1119, ss. 1, 2; 1975, c. 260, s. 1; 1977, c. 542, ss. 1, 2; 1979, c. 362; 1983, c. 126, s. 4; 1985, c. 154, s. 1; c. 381, ss. 1, 2; 1987, c. 444, ss. 1, 3, 4; c. 853, s. 4; 1989, c. 17, ss. 13, 14; 1999-332, s. 1; 2000-140, ss. 40(a), 40(b); 2001-340, s. 1; 2001-413, s. 9; 2001-487, s. 56; 2012-56, s. 6; 2014-115, s. 31.

Cross References.

As to permissible late payment charges, see G.S. 24-10 .

As to priority of security instruments securing certain home loans, see G.S. 45-80 .

Effect of Amendments.

Session Laws 2001-340, s. 1, effective July 1, 2002, and applicable to loans applied for on or after that date, added subsection (a1). See editor’s note.

Session Laws 2012-56, s. 6, effective October 1, 2012, substituted “G.S. 53C-5-3” for “G.S. 53-45” in subsection (d).

Session Laws 2014-115, s. 31, effective August 11, 2014, added “or secured by an equivalent first security interest in a manufactured home” in subsection (e).

Legal Periodicals.

For note on the operation of a due-on-sale clause in a deed of trust to allow a lender to exact higher interest rates from the grantee of a mortgagor, see 13 Wake Forest L. Rev. 490 (1977).

CASE NOTES

Subject Matter Jurisdiction. —

District court had subject matter jurisdiction under 28 U.S.C.S. § 1334, over a borrower’s claim that a securitization trustee, who held title to a mortgage loan given by a bankrupt lender to the borrower, violated North Carolina usury law and the Unfair and Deceptive Trade Practices Act; the borrower (1) was an obligor whose claim was barred by the clear terms of the stipulation and consent order of the bankruptcy court, (2) failed to successfully challenge the order in bankruptcy court, and (3) was thus bound by the order establishing that the case was related to the bankruptcy case for purposes of subject matter jurisdiction under 28 U.S.C.S. § 1334(b). Sowell v. U.S. Bank Trust Nat'l Ass'n, 317 B.R. 319, 2004 U.S. Dist. LEXIS 26521 (E.D.N.C. 2004).

Determining Principal Amount Financed. —

The only reasonable interpretation of this statute is that the principal amount financed must be determined on a transaction-by-transaction basis, at least where the transactions are not contemporaneous, and not on the basis of the aggregate amount owing between the parties. Western Auto Supply Co. v. Vick, 47 N.C. App. 701, 268 S.E.2d 842, 1980 N.C. App. LEXIS 3182 (1980), aff'd, 303 N.C. 30 , 277 S.E.2d 360, 1981 N.C. LEXIS 1083 (1981).

Prepayment Allowed Prior to Enactment of G.S. 24-2.4 . —

Considering the acts of the General Assembly, specifically G.S. 24-10 and this section, the law of North Carolina prior to the enactment of G.S. 24-2.4 was that the mortgagor had the right of prepayment when the note was silent. Hatcher v. Rose, 329 N.C. 626 , 407 S.E.2d 172, 1991 N.C. LEXIS 521 (1991).

OPINIONS OF ATTORNEY GENERAL

As to the maximum rate of interest on a $50,000 loan secured by a first mortgage or first deed of trust on real property extending over less than ten years and repayable in installments, see the opinion of the Attorney General to Mr. Frank L. Harrelson, Commissioner of Banks, 40 N.C.A.G. 54 (1969), issued prior to subsequent amendments.

§ 24-1.1B. [Repealed]

Repealed by Session Laws 1979, c. 335.

§ 24-1.1C. [Repealed]

Repealed by Session Laws 1998-119, s. 2, effective October 1, 1998, and applicable to variations or adjustments in rates occurring on or after that date regardless of the date on which the loan was made.

Legal Periodicals.

See legislative survey, 21 Campbell L. Rev. 323 (1999).

§ 24-1.1D.

Expired.

Editor’s Note.

This section was enacted by Session Laws 1981, c. 465, s. 2, and pursuant to s. 3 of that act, expired on July 1, 1983.

§ 24-1.1E. Restrictions and limitations on high-cost home loans.

  1. Definitions. —  The following definitions apply for the purposes of this section:
    1. “Affiliate” means any company that controls, is controlled by, or is under common control with another company, as set forth in the Bank Holding Company Act of 1956 (12 U.S.C. § 1841 et seq.), as amended from time to time.
    2. “Annual percentage rate” means the annual percentage rate for the loan calculated according to the provisions of the federal Truth-in-Lending Act (15 U.S.C. § 1601, et seq.), and the regulations promulgated thereunder by the Federal Reserve Board (as said Act and regulations are amended from time to time).
    3. “Bona fide loan discount points” means loan discount points knowingly paid by the borrower for the purpose of reducing, and which in fact result in a bona fide reduction of, the interest rate or time-price differential applicable to the loan, provided the amount of the interest rate reduction purchased by the discount points is reasonably consistent with established industry norms and practices for secondary mortgage market transactions.
    4. A “high-cost home loan” means a loan other than a reverse mortgage transaction in which:
      1. The principal amount of the loan (or, in the case of an open-end credit plan, the borrower’s initial maximum credit limit) does not exceed the lesser of (i) the conforming loan size limit for a single-family dwelling as established from time to time by Fannie Mae, or (ii) three hundred thousand dollars ($300,000);
      2. The borrower is a natural person;
      3. The debt is incurred by the borrower primarily for personal, family, or household purposes;
      4. The loan is secured by either (i) a security interest in a manufactured home (as defined in G.S. 143-147(7) ) which is or will be occupied by the borrower as the borrower’s principal dwelling, or (ii) a mortgage or deed of trust on real estate upon which there is located or there is to be located a structure or structures designed principally for occupancy of from one to four families which is or will be occupied by the borrower as the borrower’s principal dwelling; and
      5. The terms of the loan exceed one or more of the thresholds as defined in subdivision (6) of this section. (4a) “Mortgage broker” is as defined in G.S. 53-243.01.
    5. “Points and fees” is defined as provided in this subdivision.
      1. The term includes all of the following:
        1. All items paid by a borrower at or before closing and that are required to be disclosed under sections 226.4(a) and 226.4(b) of Title 12 of the Code of Federal Regulations, as amended from time to time, except interest or the time-price differential. However, the meaning of the term “points and fees” shall not include any up-front fees collected and paid to the Federal Housing Administration, the Veterans’ Administration, or the U.S. Department of Agriculture to insure or guarantee a home loan.
        2. All charges paid by a borrower at or before closing and that are for items listed under section 226.4(c)(7) of Title 12 of the Code of Federal Regulations, as amended from time to time, but only if the lender receives direct or indirect compensation in connection with the charge or the charge is paid to an affiliate of the lender; otherwise, the charges are not included within the meaning of the phrase “points and fees”.
        3. To the extent not otherwise included in sub-subdivision a.1. or a.2. of this subdivision, all compensation paid from any source to a mortgage broker, including compensation paid to a mortgage broker in a table-funded transaction. A bona fide sale of a loan in the secondary mortgage market shall not be considered a table-funded transaction, and a table-funded transaction shall not be considered a secondary market transaction.
        4. The maximum prepayment fees and penalties which may be charged or collected under the terms of the loan documents.
      2. Notwithstanding the remaining provisions of this subdivision, the term does not include (i) taxes, filing fees, recording and other charges and fees paid or to be paid to public officials for determining the existence of or for perfecting, releasing, or satisfying a security interest; and (ii) fees paid to a person other than a lender or an affiliate of the lender or to the mortgage broker or an affiliate of the mortgage broker for the following: fees for tax payment services; fees for flood certification; fees for pest infestation and flood determinations; appraisal fees; fees for inspections performed prior to closing; credit reports; surveys; attorneys’ fees (if the borrower has the right to select the attorney from an approved list or otherwise); notary fees; escrow charges, so long as not otherwise included under sub-subdivision a. of this subdivision; title insurance premiums; and premiums for insurance against loss or damage to property, including hazard insurance and flood insurance premiums, provided that the conditions in section 226.4(d)(2) of Title 12 of the Code of Federal Regulations are met.
      3. For open-end credit plans, the term includes those points and fees described in sub-subdivisions a.1. through a.3. of this subdivision, plus (i) the minimum additional fees the borrower would be required to pay to draw down an amount equal to the total loan amount, and (ii) the maximum prepayment fees and penalties which may be charged or collected under the terms of the loan documents.

        (5a) A “table-funded transaction” is a loan transaction closed by a mortgage broker in the mortgage broker’s own name with funds advanced by a person other than the mortgage broker in which the loan is assigned contemporaneously or within one business day of the funding of the loan to the person that advanced the funds.

    6. “Thresholds” means:
      1. Without regard to whether the loan transaction is or may be a “residential mortgage transaction” (as the term “residential mortgage transaction” is defined in section 226.2(a)(24) of Title 12 of the Code of Federal Regulations, as amended from time to time), the annual percentage rate of the loan at the time the loan is consummated is such that the loan is considered a “mortgage” under section 152 of the Home Ownership and Equity Protection Act of 1994 (Pub. Law 103-25, [15 U.S.C. § 1602(aa)]), as the same may be amended from time to time, and regulations adopted pursuant thereto by the Federal Reserve Board, including section 226.32 of Title 12 of the Code of Federal Regulations, as the same may be amended from time to time;
      2. The total points and fees, as defined in G.S. 24-1.1 E(a)(5), exceed five percent (5%) of the total loan amount if the total loan amount is twenty thousand dollars ($20,000) or more, or (ii) the lesser of eight percent (8%) of the total loan amount or one thousand dollars ($1,000), if the total loan amount is less than twenty thousand dollars ($20,000); provided, the following discount points and prepayment fees and penalties shall be excluded from the calculation of the total points and fees payable by the borrower:
        1. Up to and including two bona fide loan discount points payable by the borrower in connection with the loan transaction, but only if the interest rate from which the loan’s interest rate will be discounted does not exceed by more than one percentage point (1%) the required net yield for a 90-day standard mandatory delivery commitment for a reasonably comparable loan from either Fannie Mae or the Federal Home Loan Mortgage Corporation, whichever is greater;
        2. Up to and including one bona fide loan discount point payable by the borrower in connection with the loan transaction, but only if the interest rate from which the loan’s interest rate will be discounted does not exceed by more than two percentage points (2%) the required net yield for a 90-day standard mandatory delivery commitment for a reasonably comparable loan from either Fannie Mae or the Federal Home Loan Mortgage Corporation, whichever is greater;
        3. For a closed-end loan, prepayment fees and penalties which may be charged or collected under the terms of the loan documents which do not exceed one percent (1%) of the amount prepaid, provided the loan documents do not permit the lender to charge or collect any prepayment fees or penalties more than 30 months after the loan closing;
        4. For an open-end credit plan, prepayment fees and penalties which may be charged or collected under the terms of the loan documents which do not exceed one percent (1%) of the amount prepaid, provided the loan documents do not permit the lender to charge or collect any prepayment fees or penalties more than (i) 30 months after the loan closing if the borrower has no right or option under the loan documents to repay all or any portion of the outstanding balance of the open-end credit plan at a fixed interest rate over a specified period of time or, (ii) if the borrower has a right or option under the loan documents to repay all or any portion of the outstanding balance of the open-end credit plan at a fixed interest rate over a specified period of time, 30 months after the date the borrower voluntarily exercises that right or option; or
      3. If the loan is a closed-end loan, the loan documents permit the lender to charge or collect prepayment fees or penalties more than 30 months after the loan closing or which exceed, in the aggregate, more than two percent (2%) of the amount prepaid. If the loan is an open-end credit plan, the loan documents permit the lender to charge or collect prepayment fees or penalties (i) more than 30 months after the loan closing if the borrower has no right or option under the loan documents to repay all or any portion of the outstanding balance of the open-end credit plan at a fixed interest rate over a specified period of time or, (ii) if the borrower has a right or option under the loan documents to repay all or any portion of the outstanding balance of the open-end credit plan at a fixed interest rate over a specified period of time, more than 30 months after the date the borrower voluntarily exercises that right or option, or (iii) which exceed, in the aggregate, more than two percent (2%) of the amount prepaid.
    7. For a closed-end loan, “total loan amount” has the same meaning as the term “total loan amount” as used in section 226.32 of Title 12 of the Code of Federal Regulations, and shall be calculated in accordance with the Federal Reserve Board’s Official Staff Commentary thereto. For an open-end credit plan, “total loan amount” means the borrower’s initial maximum credit limit.
  2. Limitations. —  A high-cost home loan shall be subject to the following limitations:
    1. No call provision. —  No high-cost home loan may contain a provision which permits the lender, in its sole discretion, to accelerate the indebtedness. This provision does not apply when repayment of the loan has been accelerated by default, pursuant to a due-on-sale provision, or pursuant to some other provision of the loan documents unrelated to the payment schedule.
    2. No balloon payment. —  No high-cost home loan may contain a scheduled payment that is more than twice as large as the average of earlier scheduled payments. This provision does not apply when the payment schedule is adjusted to the seasonal or irregular income of the borrower.
    3. No negative amortization. —  No high-cost home loan may contain a payment schedule with regular periodic payments that cause the principal balance to increase.
    4. No increased interest rate. —  No high-cost home loan may contain a provision which increases the interest rate after default. This provision does not apply to interest rate changes in a variable rate loan otherwise consistent with the provisions of the loan documents, provided the change in the interest rate is not triggered by the event of default or the acceleration of the indebtedness.
    5. No advance payments. —  No high-cost home loan may include terms under which more than two periodic payments required under the loan are consolidated and paid in advance from the loan proceeds provided to the borrower.
    6. No modification or deferral fees. —  A lender may not charge a borrower any fees to modify, renew, extend, or amend a high-cost home loan or to defer any payment due under the terms of a high-cost home loan.
  3. Prohibited Acts and Practices. —  The following acts and practices are prohibited in the making of a high-cost home loan:
    1. No lending without home-ownership counseling. —  A lender may not make a high-cost home loan without first receiving certification from a counselor approved by the North Carolina Housing Finance Agency that the borrower has received counseling on the advisability of the loan transaction and the appropriate loan for the borrower.
    2. No lending without due regard to repayment ability. —  As used in this subsection, the term “obligor” refers to each borrower, co-borrower, cosigner, or guarantor obligated to repay a loan. A lender may not make a high-cost home loan unless the lender reasonably believes at the time the loan is consummated that one or more of the obligors, when considered individually or collectively, will be able to make the scheduled payments to repay the obligation based upon a consideration of their current and expected income, current obligations, employment status, and other financial resources (other than the borrower’s equity in the dwelling which secures repayment of the loan). An obligor shall be presumed to be able to make the scheduled payments to repay the obligation if, at the time the loan is consummated, the obligor’s total monthly debts, including amounts owed under the loan, do not exceed fifty percent (50%) of the obligor’s monthly gross income as verified by the credit application, the obligor’s financial statement, a credit report, financial information provided to the lender by or on behalf of the obligor, or any other reasonable means; provided, no presumption of inability to make the scheduled payments to repay the obligation shall arise solely from the fact that, at the time the loan is consummated, the obligor’s total monthly debts (including amounts owed under the loan) exceed fifty percent (50%) of the obligor’s monthly gross income.
    3. No financing of fees or charges. —  In making a high-cost home loan, a lender may not directly or indirectly finance:
      1. Any prepayment fees or penalties payable by the borrower in a refinancing transaction if the lender or an affiliate of the lender is the noteholder of the note being refinanced;
      2. Any points and fees; or
      3. Any other charges payable to third parties.
    4. No benefit from refinancing existing high-cost home loan with new high-cost home loan. —  A lender may not charge a borrower points and fees in connection with a high-cost home loan if the proceeds of the high-cost home loan are used to refinance an existing high-cost home loan held by the same lender as noteholder.
    5. Restrictions on home-improvement contracts. —  A lender may not pay a contractor under a home-improvement contract from the proceeds of a high-cost home loan other than (i) by an instrument payable to the borrower or jointly to the borrower and the contractor, or (ii) at the election of the borrower, through a third-party escrow agent in accordance with terms established in a written agreement signed by the borrower, the lender, and the contractor prior to the disbursement.
    6. No shifting of liability. —  A lender is prohibited from shifting any loss, liability, or claim of any kind to the closing agent or closing attorney for any violation of this section.
  4. Unfair and Deceptive Acts or Practices. —  Except as provided in subsection (e) of this section, the making of a high-cost home loan which violates any provisions of subsection (b) or (c) of this section is hereby declared usurious in violation of the provisions of this Chapter and unlawful as an unfair or deceptive act or practice in or affecting commerce in violation of the provisions of G.S. 75-1.1 . The provisions of this section shall apply to any person who in bad faith attempts to avoid the application of this section by (i) the structuring of a loan transaction as an open-end credit plan for the purpose and with the intent of evading the provisions of this section when the loan would have been a high-cost home loan if the loan had been structured as a closed-end loan, or (ii) dividing any loan transaction into separate parts for the purpose and with the intent of evading the provisions of this section, or (iii) any other such subterfuge. The Attorney General, the Commissioner of Banks, or any party to a high-cost home loan may enforce the provisions of this section. Any person seeking damages or penalties under the provisions of this section may recover damages under either this Chapter or Chapter 75, but not both.
  5. Corrections and Unintentional Violations. —  A lender in a high-cost home loan who, when acting in good faith, fails to comply with subsections (b) or (c) of this section, will not be deemed to have violated this section if the lender establishes that either:
    1. Within 30 days of the loan closing and prior to the institution of any action under this section, the borrower is notified of the compliance failure, appropriate restitution is made, and whatever adjustments are necessary are made to the loan to either, at the choice of the borrower, (i) make the high-cost home loan satisfy the requirements of subsections (b) and (c) of this section, or (ii) change the terms of the loan in a manner beneficial to the borrower so that the loan will no longer be considered a high-cost home loan subject to the provisions of this section; or
    2. The compliance failure was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid such errors, and within 60 days after the discovery of the compliance failure and prior to the institution of any action under this section or the receipt of written notice of the compliance failure, the borrower is notified of the compliance failure, appropriate restitution is made, and whatever adjustments are necessary are made to the loan to either, at the choice of the borrower, (i) make the high-cost home loan satisfy the requirements of subsections (b) and (c) of this section, or (ii) change the terms of the loan in a manner beneficial to the borrower so that the loan will no longer be considered a high-cost home loan subject to the provisions of this section. Examples of a bona fide error include clerical, calculation, computer malfunction and programming, and printing errors. An error of legal judgment with respect to a person’s obligations under this section is not a bona fide error.
  6. Severability. —  The provisions of this section shall be severable, and if any phrase, clause, sentence, or provision is declared to be invalid or is preempted by federal law or regulation, the validity of the remainder of this section shall not be affected thereby. If any provision of this section is declared to be inapplicable to any specific category, type, or kind of points and fees, the provisions of this section shall nonetheless continue to apply with respect to all other points and fees.
  7. A mortgage broker who brokers a high-cost home loan that violates any provisions of subsection (b) or (c) of this section shall be jointly and severally liable with the lender.

History. 1999-332, s. 2; 2000-140, s. 40.1; 2001-487, s. 14(a); 2003-401, s. 3; 2007-352, ss. 1-3; 2008-227, s. 2; 2008-228, s. 15; 2009-457, s. 1; 2010-168, ss. 7, 8; 2013-399, ss. 1, 2.

North Carolina Home Protection Pilot Program and Loan Fund.

Session Laws 2007-323, s. 22.1(a)-(f), provides for continuation and expansion of the North Carolina Home Protection Pilot Program. See note at G.S. 122A-1 .

For previous similar provisions, see Session Laws 2005-276, ss. 20.2(a)-(f).

Editor’s Note.

G.S. 53-243.01, referred to in subdivision (a)(4a), was repealed by Session Laws 2009-374, s. 1, effective July 31, 2009. See now G.S. 53-244.030 .

Effect of Amendments.

Session Laws 2003-401, s. 3, effective October 1, 2003, and applicable to contracts entered into or renewed on or after that date, in the introductory paragraph of subdivision (a)(4), deleted “an open end credit plan or” following “a loan other than”; in subdivision (a)(4)a, inserted “(or, in the case of an open-end credit plan, the borrower’s initial maximum credit limit)”; rewrote subdivision (a)(5); in subdivision (a)(6)b.3., added “For a closed-end loan” at the beginning; added subdivision (a)(6)b.4; rewrote subdivision (a)(6)c; in subdivision (a)(7), substituted “For a closed-end loan, ‘total loan amount’ has the same meaning” for “Total loan amount means the same” at the beginning of the first sentence, and added the last sentence; and made minor punctuation and stylistic changes throughout.

Session Laws 2007-352, ss. 2 and 3, effective January 1, 2008, added subdivisions (a)(4a) and (a)(5a), and added subsection (g).

Session Laws 2008-227, s. 2, effective October 1, 2008, substituted “fees, as defined in G.S. 24-1.1 E(a)(5)” for “fees payable by the borrower at or before the loan closing” in subdivision (a)(6)b.

Session Laws 2009-457, s. 1, effective October 1, 2009, in subdivisions (a)(5)a1 and (a)(5)a2, inserted “paid by a borrower at or before closing and that are”; and in subdivision (a)(5)c, substituted “subdivision” for “subdivision that are charged at or before loan closing.”

Session Laws 2010-168, ss. 7 and 8, effective September 1, 2010, added the last sentence in subdivision (a)(5)a.1.; and in the introductory paragraph in subdivision (a)(6)b., substituted “four percent (4%)” for “five percent (5%).”

Session Laws 2013-399, ss. 1 and 2, effective October 1, 2013, in subdivision (a)(5)a.1., substituted “any” for “either (i) the portion of the” in the second sentence, and deleted “that exceeds one and one-quarter percent (1.25%) of the total loan amount or (ii) the portion of any up-front private mortgage insurance premium charge, or fee that exceeds one and one-quarter percent (1.25%) of the total loan amount, provided that the private mortgage insurance premium charge or fee is required to be refundable on a prorated basis, the refund is automatically issued upon notification of the satisfaction of the underlying mortgage loan, and the borrower has the right to request or receive a prorated refund in accordance with state or federal law” at the end; and in subdivision (a)(6)b., substituted “five percent (5%)” for “four percent (4%).”

CASE NOTES

“High-Cost Home Loan.” —

Loan that the debtor had taken with the original creditor did not qualify as a high cost home loan, and the subsequent loan servicer was entitled to summary judgment as a matter of law because the debtor’s closing costs did not amount to five percent of the total loan amount when the appraisal fees and attorneys’ fees were excluded from the calculation. Tetterton v. Ocwen Fed. Bank, 379 B.R. 594, 2007 Bankr. LEXIS 4190 (Bankr. E.D.N.C. 2007).

§ 24-1.1F. Rate spread home loans.

  1. Repealed by Session Laws 2013-399, s. 3, effective October 1, 2013.

    (a1) A rate spread home loan is a loan that has an annual percentage rate that exceeds the limits set out in 15 U.S.C. § 1639c(c)(1)(B)(ii) and any regulations promulgated thereunder.

  2. Repealed by Session Laws 2013-399, s. 3, effective October 1, 2013.

    (b1) The making of a rate spread home loan that violates 15 U.S.C. § 1639c(a) and any regulations promulgated thereunder is hereby declared usurious in violation of the provisions of this Chapter.

  3. Repealed by Session Laws 2013-399, s. 3, effective October 1, 2013.

    (c1) Any prepayment penalty in violation of 15 U.S.C. § 1639c(c) and any regulations promulgated thereunder shall be unenforceable.

  4. Repealed by Session Laws 2013-399, s. 3, effective October 1, 2013.

    (d1) Notwithstanding the foregoing, a borrower shall not be entitled to recover twice for the same wrong. The Attorney General, the Commissioner of Banks, or any party to a rate spread home loan may enforce the provisions of this section. This section establishes specific consumer protections in rate spread home loans in addition to other consumer protections that may be otherwise available by law. A mortgage broker who brokers a rate spread home loan that violates the provisions of this section shall be jointly and severally liable with the lender.

  5. The provisions of this section shall apply to any person who in bad faith attempts to avoid the application of this section by (i) dividing any loan transaction into separate parts for the purpose and with the intent of evading the provisions of this section, or (ii) any other such subterfuge.
  6. A lender in a rate spread home loan who, when acting in good faith, fails to comply with this section, will not be deemed to have violated this section if the lender establishes that either:
    1. Within 90 days of the loan closing and prior to the institution of any action against the lender under this section, the borrower was notified of the compliance failure, the lender tendered appropriate restitution, the lender offered, at the borrower’s option, either to (i) make the rate spread home loan comply with subsection (b) or (c), or (ii) change the terms of the loan in a manner beneficial to the borrower so that the loan will no longer be considered a rate spread home loan subject to the provisions of this section, and within a reasonable period of time following the borrower’s election of remedies, the lender took appropriate action based on the borrower’s choice; or
    2. The compliance failure was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adopted to avoid such errors, and within 120 days after the discovery of the compliance failure and prior to the institution of any action against the lender under this section or the lender’s receipt of written notice of the compliance failure, the borrower was notified of the compliance failure, the lender tendered appropriate restitution, the lender offered, at the borrower’s option, either to (i) make the rate spread home loan comply with subsection (b) or (c) of this section, or (ii) change the terms of the loan in a manner beneficial to the borrower so that the loan will no longer be considered a rate spread home loan subject to the provisions of this section, and within a reasonable period of time following the borrower’s election of remedies, the lender took appropriate action based on the borrower’s choice. Examples of a bona fide error include clerical, calculation, computer malfunction and programming, and printing errors. An error of legal judgment with respect to a person’s obligations under this section is not a bona fide error.
  7. The provisions of this section shall be severable, and if any phrase, clause, sentence, or provision is declared to be invalid or is preempted by federal law or regulation, the validity of the remainder of this section shall not be affected thereby.

History. 2007-352, s. 4; 2008-228, s. 16; 2009-457, s. 2; 2013-399, s. 3.

Editor’s Note.

G.S. 53-243.01, referred to in subdivision (a)(4), was repealed by Session Laws 2009-374, s. 1, effective July 31, 2009. See now G.S. 53-244.030 .

Effect of Amendments.

Session Laws 2008-228, s. 16, effective January 1, 2009, and applicable to anyone engaged in the business of mortgage servicing on or after that date, substituted “G.S. 53-243.01” for “G.S. 53-243.01(14)” in subdivision (a)(4).

Session Laws 2009-457, s. 2, effective October 1, 2009, rewrote the section.

Session Laws 2013-399, s. 3, effective October 1, 2013, deleted subsections (a), (b), (c), and (d); and added subsections (a1), (b1), (c1), and (d1).

CASE NOTES

Lender’s Duty. —

Language of G.S. 24-1.1 F(c) makes plain that a lender does in fact owe a duty of care to make reasonable inquiries into a borrower’s ability to repay a loan, together with applicable taxes and insurance. McClendon v. Walter Home Mortg., 488 B.R. 876, 2013 Bankr. LEXIS 793 (Bankr. E.D.N.C. 2013).

§ 24-1.2. [Repealed]

Repealed by Session Laws 1998-119, s. 2, effective October 1, 1998, and applicable to variations or adjustments in rates occurring on or after that date regardless of the date on which the loan was made.

§ 24-1.2A. Equity lines of credit.

  1. Notwithstanding any other provision of this Chapter, the parties to an equity line of credit, as defined in G.S. 45-81 , may contract in writing for interest at rates which shall not exceed the maximum rates permitted under G.S. 24-1.1(c) ; provided, however, that the parties may contract for interest rates which shall be adjustable or variable, so long as for adjustable or variable rate contracts the rate in effect for a given period does not exceed the maximum rate permitted under G.S. 24-1.1(c) for the same period.
  2. Fees may be charged on equity lines of credit which in the aggregate, over the life of the contract based on the maximum limit of the line of credit, do not exceed those permitted under G.S. 24-10 . Any lender may charge a party to a loan or extension of credit governed by this section a fee for the modification, renewal, extension, or amendment of any terms of the loan or extension of credit, such fee not to exceed the greater of one-quarter of one percent (1/4 of 1%) of the balance outstanding at the time of the modification, renewal, extension, or amendment of terms, or fifty dollars ($50.00).

History. 1985, c. 207, s. 1; 1991, c. 506, s. 4; 1998-119, s. 2.1.

§ 24-1.3. [Repealed]

Repealed by Session Laws 1979, 2nd Session, c. 1302, s. 3.

Editor’s Note.

Session Laws 1979, 2nd Sess., c. 1302, s. 4, made the repeal effective retroactively to June 25, 1975.

§ 24-1.4. Interest rates for savings and loan associations.

  1. Notwithstanding any other provision of law, a savings and loan association domiciled in North Carolina may charge interest or collect fees with respect to any loan to the same extent as if the provisions of section 501 of Public Laws 96-221, as interpreted by the Federal Home Loan Bank Board prior to the effective date of this section, were still in effect in North Carolina.
  2. Notwithstanding any other provision of law, any savings and loan association in North Carolina may contract for interest on any loan, purchase money loan, advance, commitment for a loan or forbearance at any rate permitted by federal law to a savings and loan association the accounts of which are insured by the Federal Savings and Loan Insurance Corporation.

History. 1981, c. 282, s. 3; 1983, c. 126, s. 6.

§ 24-2. Penalty for usury; corporate bonds may be sold below par.

The taking, receiving, reserving or charging a greater rate of interest than permitted by this chapter or other applicable law, either before or after the interest may accrue, when knowingly done, shall be a forfeiture of the entire interest which the note or other evidence of debt carries with it, or which has been agreed to be paid thereon. And in case a greater rate of interest has been paid, the person or his legal representatives or corporation by whom it has been paid, may recover back twice the amount of interest paid in an action in the nature of action for debt. In any action brought in any court of competent jurisdiction to recover upon any such note or other evidence of debt, it is lawful for the party against whom the action is brought to plead as a counterclaim the penalty above provided for, to wit, twice the amount of interest paid as aforesaid, and also the forfeiture of the entire interest. If security has been given for an usurious loan and the debtor or other person having an interest in the security seeks relief against the enforcement of the security or seeks any other affirmative relief, the debtor or other person having an interest in the security shall not be required to pay or to offer to pay the principal plus legal interest as a condition to obtaining the relief sought but shall be entitled to the advantages provided in this section. Nothing contained in this section or in G.S. 24-1 , however, shall be held or construed to prohibit private corporations from paying a commission on or for the sale of their coupon bonds, nor from selling such bonds for less than the par value thereof.

History. 1876-7, c. 91; Code, s. 3836; 1895, c. 69; 1903, c. 154; Rev., s. 1951; C.S., s. 2306; 1955, c. 1196; 1959, c. 110; 1969, c. 1303, s. 3.

Cross References.

As to limitation of actions to recover penalty and forfeiture of interest for usury, see G.S. 1-53 .

As to party seeking to recover on any usurious contract not being allowed costs, see G.S. 6-25 .

As to usurious loans on household and kitchen furniture or assignments of wages being made a misdemeanor, see G.S. 14-391 .

For the Consumer Finance Act, see G.S. 53-164 to 53-191.

As to applicability of usury provisions to pawnbrokers, see G.S. 91A-8.

Legal Periodicals.

For note in reference to this section, see 12 N.C.L. Rev. 279 (1934).

For brief comment on the 1955 amendment, see 33 N.C.L. Rev. 537 (1955).

For comment on Michigan Nat’l Bank v. Hanner, 268 N.C. 668 , 151 S.E.2d 579 (1966), see 45 N.C.L. Rev. 899, 1151 (1967).

For comment on usury law in North Carolina, see 47 N.C.L. Rev. 761 (1969).

For comment on equity participation (a device to circumvent usury laws) in real estate finance, see 7 N.C. Cent. L.J. 387 (1976).

For note, “Judicially Imposed Usury Penalties in the Absence of Statutory Penalties: Can Freedom of Contract Co-Exist with Public Policy After Merritt v. Knox?,” see 68 N.C.L. Rev. 1021 (1990).

For survey on usury law, see 70 N.C.L. Rev. 1983 (1992).

CASE NOTES

Analysis

I.General Consideration

History. —

For history of this section, see Commercial Credit Corp. v. Robeson Motors, Inc., 243 N.C. 326 , 90 S.E.2d 886, 1956 N.C. LEXIS 364 (1956).

Allowing Interest Is Matter of Legislative Discretion. —

At common law the taking of any interest was an indictable offense; hence, interest is now purely statutory, being chargeable in such cases and to such extent only as is expressly allowed by statute. The entire subject of the rate of interest and penalties for usury rests in legislative discretion, and the courts have no power other than to interpret and execute the legislative will. Smith v. Old Dominion Bldg. & Loan Ass'n, 119 N.C. 249 , 26 S.E. 41, 1896 N.C. LEXIS 267 (1896).

Provisions Forbidding Usury and Declaring Forfeiture Are Clear. —

The provisions of the law forbidding usury are very clear and explicit. No one can possibly misunderstand them. If, moved by avarice, a party deliberately violates this law, he has no ground to complain that his punishment has been in the very respect which caused him to sin, and that in grasping after illegitimate interest he has lost also the legitimate interest which the law would have given a law-abiding citizen. Moore v. Beaman, 111 N.C. 328 , 16 S.E. 177, 1892 N.C. LEXIS 179 (1892).

They will be strictly construed. Dixon v. Smith, 204 N.C. 480 , 168 S.E. 683, 1933 N.C. LEXIS 171 (1933); Argo Air, Inc. v. Scott, 18 N.C. App. 506, 197 S.E.2d 256, 1973 N.C. App. LEXIS 1924 (1973).

This section was copied from the National Bank Act, and has gone into the laws of many states in exactly the same form. Pinnix v. Maryland Cas. Co., 214 N.C. 760 , 200 S.E. 874, 1939 N.C. LEXIS 427 (1939).

The North Carolina penalties for usury were identical with those prescribed in the National Bank Act. Smith v. Old Dominion Bldg. & Loan Ass'n, 119 N.C. 249 , 26 S.E. 41, 1896 N.C. LEXIS 267 (1896).

Purpose of Statute. —

Both the former and the present statutes were enacted in restraint of excessive interest for the same general policy, and especially on the idea of protecting the borrower against the oppression of the lender, the chief difference being that a violation under the old statute invalidated the contract, working a forfeiture of the sum lent as well as of the interest, whereas the present law leaves the contract valid for the principal, but makes the interest forfeitable. Moore v. Woodward, 83 N.C. 531 , 1880 N.C. LEXIS 111 (1880).

Statutes prohibiting charging usury or an illegal rate of interest are enacted for the benefit of the borrower. Ector v. Osborne, 179 N.C. 667 , 103 S.E. 388, 1920 N.C. LEXIS 313 (1920).

The statute against usury is striking at, and forbidding, the extraction or reception of more than a specified legal rate for the hire of money, and not for anything else. Michigan Nat'l Bank v. Hanner, 268 N.C. 668 , 151 S.E.2d 579, 1966 N.C. LEXIS 1281 (1966); State Whsle. Supply, Inc. v. Allen, 30 N.C. App. 272, 227 S.E.2d 120, 1976 N.C. App. LEXIS 2239 (1976).

Duty of Courts to Carry Out Legislative Intent. —

The forfeiture of the entire unpaid interest and recovery back of twice the interest paid is in the nature of a penalty intended to induce an observance of the statute, and it is the duty of the courts so to expound and apply the law as to carry out the legislative intent. Moore v. Woodward, 83 N.C. 531 , 1880 N.C. LEXIS 111 (1880).

Enforceability of Unlawful Interest in Absence of Penalty. —

Even in the absence of a penalty on charging usurious interest, such as contained in this section, a rate of interest above the one prescribed by law would not be enforceable. Hughes v. Boone, 102 N.C. 137 , 9 S.E. 286, 1889 N.C. LEXIS 25 (1889).

Effect of Usury Formerly and Now. —

By the former law, the taint of usury made the contract void both as to principal and interest into whose hands it might come, and so likewise any appearance, shift or device whereupon or whereby an illegal rate of interest was received or taken was declared to be void. By G.S. 24-1 six percent (now eight percent) is fixed as the legal rate of interest, and in case more than the rate allowed is taken, received, reserved, or charged, the contract is not invalidated as to the principal, but the entire interest carried by the note or other evidence of debt, or otherwise agreed to be paid thereon, is, under this section, forfeited; and in case such greater rate has been paid, a remedy is given to the party paying the same to recover by action of debt twice the amount of the interest paid. Moore v. Woodward, 83 N.C. 531 , 1880 N.C. LEXIS 111 (1880).

The forfeiture provided by this section will be enforced against the usurer, when he seeks to recover upon the usurious contract or transaction. His debt will be stripped of all its interest-bearing quality, and he will be permitted to recover only the principal sum loaned. If a sum in excess of interest at the legal rate has not only been charged by the lender, but has also been paid by the borrower for the use of money, then the person, or his legal representative, or the corporation by whom the same has been paid, may recover twice the amount paid in an action in the nature of action for debt. Waters v. Garris, 188 N.C. 305 , 124 S.E. 334, 1924 N.C. LEXIS 58 (1924); Sloan v. Piedmont Fire Ins. Co., 189 N.C. 690 , 128 S.E. 2, 1925 N.C. LEXIS 381 (1925); Ripple v. Mortgage & Acceptance Corp., 193 N.C. 422 , 137 S.E. 156, 1927 N.C. LEXIS 363 (1927).

Under this section, usury does not invalidate a contract. It simply works a forfeiture of the entire interest, and subjects the lender to liability to the borrower for twice the amount of interest paid. Wilkins v. Commercial Fin. Co., 237 N.C. 396 , 75 S.E.2d 118, 1953 N.C. LEXIS 532 (1953).

A note otherwise valid is not rendered void either as to principal or interest by the taint of usury, but is subject only to the penalties and forfeitures of this section, one of which is the forfeiture of all interest when usury is properly pleaded and proven. Pinnix v. Maryland Cas. Co., 214 N.C. 760 , 200 S.E. 874 (1939), overruling in this respect, Ward v. Sugg, 113 N.C. 489 , 18 S.E. 695, 24 L.R.A. 280 (1893); Ripple v. Mortgage & Acceptance Corp., 193 N.C. 422 , 137 S.E. 156, 1927 N.C. LEXIS 363 (1927).

A note executed and delivered as evidence of the promise of the maker to pay to the payee or his order a sum of money which has been loaned by the payee to the maker is not void, although the payee has knowingly taken, received, reserved, or charged interest on the note at a greater rate than six percent (now eight percent) per annum, which is the legal rate in this State; only the promise to pay interest is void in such case. Federal Reserve Bank v. Jones, 205 N.C. 648 , 172 S.E. 185, 1934 N.C. LEXIS 37 (1934).

The charging of usurious interest strips the debt of all interest, and it simply becomes a loan which in law bears no interest. Hansen v. Jonas W. Kessing Co., 15 N.C. App. 554, 190 S.E.2d 407, 1972 N.C. App. LEXIS 1966 , cert. denied, 282 N.C. 151 , 191 S.E.2d 601, 1972 N.C. LEXIS 900 (1972).

Effect of Repeal of Old Law. —

A contract absolutely void under the old law for being usurious is not validated by the repeal of that law and the enactment of this section, which does not invalidate the principal of a usurious contract. Pond v. Horne, 65 N.C. 84 , 1871 N.C. LEXIS 26 (1871).

Four Requisites of Usurious Transaction. —

In order to constitute a usurious transaction, four requisites must appear: (1) There must be a loan, express or implied; (2) There must be an understanding between the parties that the money lent shall be returned; (3) For such loan a greater rate of interest than is allowed by law shall be paid or agreed to be paid, as the case may be; and (4) There must exist a corrupt intent to take more than the legal rate for the use of the money loaned. A profit greater than the lawful rate of interest, intentionally exacted as a bonus for the loan of money, imposed upon the necessities of the borrower in a transaction where the treaty is for a loan and the money is to be returned at all events is a violation of the usury laws, it matters not what form or disguise it may assume. Doster v. English, 152 N.C. 339 , 67 S.E. 754, 1910 N.C. LEXIS 270 (1910); Swamp Loan & Trust Co. v. Yokley, 174 N.C. 573 , 94 S.E. 102, 1917 N.C. LEXIS 147 (1917); Ector v. Osborne, 179 N.C. 667 , 103 S.E. 388, 1920 N.C. LEXIS 313 (1920); Preyer v. Parker, 257 N.C. 440 , 125 S.E.2d 916, 1962 N.C. LEXIS 355 (1962); Associated Stores, Inc. v. Industrial Loan & Inv. Co., 202 F. Supp. 251, 1962 U.S. Dist. LEXIS 3905 (E.D.N.C. 1962), aff'd, 326 F.2d 756, 1964 U.S. App. LEXIS 6612 (4th Cir. 1964).

To maintain an action for the usury penalty the claimant must show: (1) That there was a loan, express or implied, or a forbearance of money; (2) That there was an understanding between the parties that the money lent would be returned; (3) That for such loan or forbearance a greater rate of interest than is allowed by law was paid; and (4) That there was a corrupt intent to take more than the legal rate for the use of the money. Carolina Indus. Bank v. Merrimon, 260 N.C. 335 , 132 S.E.2d 692 (1963); Michigan Nat’l Bank v. Hanner, 268 N.C. 668 , 151 S.E.2d 579 (1966). In accord with second paragraph in the main volume. See Bagri v. Desai, 83 N.C. App. 150, 349 S.E.2d 309, 1986 N.C. App. LEXIS 2671 (1986).

The elements of usury are these: (1) a loan or forbearance of money; (2) an understanding that the money loaned shall be returned; (3) payment or an agreement to pay a greater rate of interest than that allowed by law; and (4) a corrupt intent to take more than the legal rate for the use of the money loaned. Henderson v. Security Mtg. & Fin. Co., 273 N.C. 253 , 160 S.E.2d 39, 1968 N.C. LEXIS 585 (1968); Hodge v. First Atl. Corp., 10 N.C. App. 632, 179 S.E.2d 855, 1971 N.C. App. LEXIS 1686 , cert. denied, 278 N.C. 701 , 181 S.E.2d 602, 1971 N.C. LEXIS 1029 (1971); Western Auto Supply Co. v. Vick, 47 N.C. App. 701, 268 S.E.2d 842, 1980 N.C. App. LEXIS 3182 (1980), aff'd, 303 N.C. 30 , 277 S.E.2d 360, 1981 N.C. LEXIS 1083 (1981); Swindell v. Overton, 80 N.C. App. 504, 342 S.E.2d 391, 1986 N.C. App. LEXIS 2207 (1986).

Forbearance of Debt or Loan of Money Is Essential. —

It is universally held that in order that a transaction shall fall within the prohibition of the statutes against usury it is essential that there should be a contract for the forbearance of an existing indebtedness or a loan of money. There is no exception to this universal rule, that there must be an extension of credit and an illegal compensation for it, knowingly taken, in order to constitute usury. This is recognized in the earliest cases on the subject up to the present time. Smithwick v. Whitley, 152 N.C. 366 , 67 S.E. 914, 1910 N.C. LEXIS 279 (1910); Western Auto Supply Co. v. Vick, 303 N.C. 30 , 277 S.E.2d 360, 1981 N.C. LEXIS 1083 (1981).

Usury can only attach to a loan of money or to forbearance of a debt. Carolina Indus. Bank v. Merrimon, 260 N.C. 335 , 132 S.E.2d 692, 1963 N.C. LEXIS 704 (1963).

Forbearance Defined. —

For the purpose of applying the law of usury to a given transaction in order to determine its applicability, the term “forbearance” means the contractual obligation of a lender or creditor to refrain for a given period of time from requiring the borrower or debtor to repay the loan or debt which is then due and payable. Western Auto Supply Co. v. Vick, 303 N.C. 30 , 277 S.E.2d 360, 1981 N.C. LEXIS 1083 (1981).

Corrupt Intent Is Also Essential. —

To constitute a usurious transaction, corrupt intent to take more than the legal rate of interest is an essential element. Bailey v. Inman, 224 N.C. 571 , 31 S.E.2d 769, 1944 N.C. LEXIS 436 (1944).

The statutory penalty for charging usurious interest is imposed only when a corrupt intent exists to take more than the legal rate. Perry v. Doub, 249 N.C. 322 , 106 S.E.2d 582, 1959 N.C. LEXIS 363 (1959).

That Is, Intentional Charging of More Than Lawful Rate. —

The “corrupt intent” required to constitute usury is simply the intentional charging of more for money lent than the law allows. Associated Stores, Inc. v. Industrial Loan & Inv. Co., 202 F. Supp. 251 (E.D.N.C. 1962), appeal dismissed, 313 F.2d 134 (4th Cir. 1963), cert. denied, 379 U.S. 830, 85 S. Ct. 60, 13 L. Ed. 2d 39 (1964), aff’d, 326 F.2d 756 (4th Cir. 1964); Western Auto Supply Co. v. Vick, 47 N.C. App. 701, 268 S.E.2d 842, aff’d, 303 N.C. 30 , 277 S.E.2d 360, aff’d on rehearing, 304 N.C. 191 , 283 S.E.2d 101 (1981). In accord with first paragraph in the main volume. See Bagri v. Desai, 83 N.C. App. 150, 349 S.E.2d 309, 1986 N.C. App. LEXIS 2671 (1986).

The statutory penalty for charging usury is the forfeiture of all interest on the loan. The charging of usurious interest as provided for by a partnership agreement is sufficient to cause a forfeiture of all the interest charged. The charging of such usurious interest strips the debt of all interest. It becomes simply a loan which in law bears no interest. Any payments of interest which have been made at a legal rate are by law applied to the only legal indebtedness — the principal sum. Kessing v. National Mtg. Corp., 278 N.C. 523 , 180 S.E.2d 823, 1971 N.C. LEXIS 1010 (1971); Argo Air, Inc. v. Scott, 18 N.C. App. 506, 197 S.E.2d 256, 1973 N.C. App. LEXIS 1924 (1973).

Should the court determine that the transaction was usurious, the court will (1) eliminate the indebtedness of all interest charged, (2) determine the amount of interest paid, and (3) give plaintiff credit on the indebtedness for twice the amount of interest paid. Argo Air, Inc. v. Scott, 18 N.C. App. 506, 197 S.E.2d 256, 1973 N.C. App. LEXIS 1924 (1973).

The corrupt intent required to constitute usury is simply the intentional charging of more for money lent than the law allows. Where the lender intentionally charges the borrower a greater rate of interest than the law allows and his purpose is clearly revealed on the face of the instrument, a corrupt intent to violate the usury law on the part of the lender is shown. And where there is no dispute as to the facts, the court may declare a transaction usurious as a matter of law. Swindell v. Overton, 80 N.C. App. 504, 342 S.E.2d 391, 1986 N.C. App. LEXIS 2207 (1986).

The corrupt intention which is required is not that the offender intended to violate the usury laws. The intent which is required is merely the intention to take the interest which is called for in the loan or forbearance agreement. In the event that the interest agreed upon exceeds that allowed by law under the particular circumstances of the case, the requisite usurious intention exists. Swindell v. Overton, 80 N.C. App. 504, 342 S.E.2d 391, 1986 N.C. App. LEXIS 2207 (1986).

Applicability To Check Cashing Business That Charged Usurious Interest Rates. —

Where evidence against a check cashing business established that it executed contracts for usurious loans, it used its alternative business purpose of providing Internet access to consumers as a guise to cover this illegal activity, and no evidentiary basis existed upon which a reasonable fact-finder could reach a contrary conclusion, the State’s claims of usury and violations of the Consumer Finance Act were established as a matter of law; moreover, the contracts which customers had with the business were cancelled pursuant to G.S. 75-15.1 , requiring all funds collected by the business pursuant to such contracts to be refunded to the customers. State ex rel. Cooper v. NCCS Loans, Inc., 174 N.C. App. 630, 624 S.E.2d 371, 2005 N.C. App. LEXIS 2588 (2005).

Evidence of a lender’s good intentions is not relevant to the issue of “corrupt intent.” Rather, corrupt intent is present where the interest agreed upon exceeds that allowed by law. Swindell v. Overton, 80 N.C. App. 504, 342 S.E.2d 391, 1986 N.C. App. LEXIS 2207 (1986).

Which in Itself Shows Corrupt Intent. —

Where the lender of money intentionally charges the borrower a greater rate of interest than the law allows, and his purpose stands clearly revealed on the face of the instrument, a corrupt intent to violate the usury law on the part of the lender is shown. Riley v. Sears, 154 N.C. 509 , 70 S.E. 997, 1911 N.C. LEXIS 303 (1911).

But Contract Must Have Been Executed in Bad Faith. —

To constitute an intent to circumvent the usury laws, the contract must have been executed in bad faith, such “bad faith” meaning that the transaction involved was dishonestly conceived and consummated with knowledge of a fraudulent design or deception. Clarkson v. Finance Co. of Am., 328 F.2d 404, 1964 U.S. App. LEXIS 6276 (4th Cir. 1964).

Penalties for Charging and Collecting Usurious Rate of Interest. —

Where a usurious rate of interest on money has been paid by the borrower of money, the statutory penalty is double the amount of the usury, but where it is only charged, and not collected, the statute eliminates the usury and forfeits the interest on the amount of the loan. Ragan v. Stephens, 178 N.C. 101 , 100 S.E. 196, 1919 N.C. LEXIS 399 (1919).

Amount of Recovery. —

Under the clear terms of this section the plaintiff is entitled to recover back double the entire interest paid, not merely double the usurious excess. Tayloe v. Parker, 137 N.C. 418 , 49 S.E. 921, 1905 N.C. LEXIS 187 (1905).

Even Where Plaintiff Is in Pari Delicto. —

A borrower who has paid usurious interest may under this section recover of the lender twice the amount of usurious interest so paid, notwithstanding that he is in pari delicto in the transaction. Hollowell v. Southern Bldg. & Loan Ass'n, 120 N.C. 286 , 26 S.E. 781, 1897 N.C. LEXIS 54 (1897).

But Payment Is Necessary for Recovery. —

Before the plaintiff can maintain the action he must pay the usury in money or money’s worth. It is well settled that the penalty is not incurred by the charging of usurious interest; it is by taking the usury that the party incurs the penalty, and no action lies therefor until it is paid. Stedman v. Bland, 26 N.C. 296 , 1844 N.C. LEXIS 175 (1844); Godfrey v. Leigh, 28 N.C. 390 , 1846 N.C. LEXIS 70 (1846); Rushing v. Bivens, 132 N.C. 273 , 43 S.E. 798, 1903 N.C. LEXIS 275 (1903).

Usurious interest must first be paid before any recovery may be had by the borrower. Steed v. First Union Nat'l Bank, 58 N.C. App. 189, 293 S.E.2d 217, 1982 N.C. App. LEXIS 2742 (1982).

To be entitled to recover this penalty for usury, plaintiff must have been charged usurious interest and must have actually paid the usurious interest. Adams v. Beard Dev. Corp., 116 N.C. App. 105, 446 S.E.2d 862, 1994 N.C. App. LEXIS 862 (1994).

Renewal of the note does not constitute such payment of the original debt. Ragan v. Stephens, 178 N.C. 101 , 100 S.E. 196, 1919 N.C. LEXIS 399 (1919).

Double Damages Proper. —

Plaintiff was properly awarded $1,700 in damages for usury, and was entitled to have the damages doubled pursuant to this section. Britt v. Jones, 123 N.C. App. 108, 472 S.E.2d 199, 1996 N.C. App. LEXIS 572 (1996).

Double Recovery Not Allowed If Actual Interest Paid Was Not Usurious. —

Where a greater rate of interest than allowed by law was charged by means of a partnership agreement required, but no profit inured to the defendant under this agreement, and the only interest actually paid by plaintiff company was the 8% provided for in the note, this in itself was a legal rate so no usurious interest had been paid, and plaintiff company was not entitled to recover double the amount of the interest. Kessing v. National Mtg. Corp., 278 N.C. 523 , 180 S.E.2d 823, 1971 N.C. LEXIS 1010 (1971).

Only where a usurious rate of interest has been paid by the borrower, rather than merely charged by the lender, may the borrower recover double the interest. If a usurious interest rate has been charged but not actually paid, the penalty is forfeiture of the entire interest paid; the borrower is not allowed to recover double the interest. Swindell v. Overton, 80 N.C. App. 504, 342 S.E.2d 391, 1986 N.C. App. LEXIS 2207 (1986).

Recovery Cannot Be Had on Allegation of Overpayment by Mistake. —

In an action to recover for overpayment of interest, made by mistake, recovery cannot be had for the forfeiture of double the interest as a penalty for usury, since, upon the allegation of such overpayment by mistake, no legal implications arise that the plaintiff is suing for the forfeiture. Gillam v. Life Ins. Co., 121 N.C. 369 , 28 S.E. 470, 1897 N.C. LEXIS 243 (1897).

Intentional Charging Forfeits Entire Interest. —

This section makes the “taking, receiving, reserving or charging usury,” when knowingly done, i.e., intentionally done, and not by a mere error of calculation, a forfeiture (not merely forfeitable) of the entire interest which the note carries with it, or which has been agreed to be paid thereon. Ward v. Sugg, 113 N.C. 489 , 18 S.E. 717, 1893 N.C. LEXIS 112 (1893).

All interest is forfeited when usury is knowingly exacted. Guaranty Bond & Mtg. Co. v. Fair Promise A.M.E. Zion Church, 219 N.C. 395 , 14 S.E.2d 37, 1941 N.C. LEXIS 334 (1941); Haanebrink v. Meyer, 47 N.C. App. 646, 267 S.E.2d 598, 1980 N.C. App. LEXIS 3180 (1980).

But Mere Entry Does Not Constitute Charging. —

The mere entry on account and subsequent presentation of a usurious claim is not a “charging” within the meaning of this section. Grant v. Morris & Sons, 81 N.C. 150 , 1879 N.C. LEXIS 156 (1879).

The charging which constitutes a forfeiture is the contract, promise or agreement to a usurious rate of interest as opposed to the actual payment of that interest. Haanebrink v. Meyer, 47 N.C. App. 646, 267 S.E.2d 598, 1980 N.C. App. LEXIS 3180 (1980); Northwestern Bank v. Barber, 79 N.C. App. 425, 339 S.E.2d 452, 1986 N.C. App. LEXIS 2059 (1986); Adams v. Beard Dev. Corp., 116 N.C. App. 105, 446 S.E.2d 862, 1994 N.C. App. LEXIS 862 (1994).

Junior Lienor Has Same Rights as Mortgagor as to Senior Debt. —

A junior mortgagee enjoining the sale under a senior lien is entitled to have the senior debt stripped of usury and the amount of the debt ascertained at the amount advanced plus interest thereon at the legal rate of six percent (now eight percent), this being the relief to which the mortgagor would be entitled, and equity requiring that the same rule should be applicable to the junior lienor. Pinnix v. Maryland Cas. Co., 214 N.C. 760 , 200 S.E. 874, 1939 N.C. LEXIS 427 (1939).

Creditor May Not Evade Statute by Assigning His Debt. —

Where defendants had a right to plead usurious payments as a setoff or defense to any action brought by the original creditor, the creditor could not evade the express language of this section by assigning his debt to a third person. Overton v. Tarkington, 249 N.C. 340 , 106 S.E.2d 717, 1959 N.C. LEXIS 372 (1959).

Insurance Companies Are Subject to Penalties. —

An insurance company which charges, retains, or receives interest on a loan made by it in this State, to a policyholder or other person, at a rate in excess of six per centum (now eight percent) per annum is subject to the penalties prescribed by this section notwithstanding the provisions of G.S. 58-32 as to the premiums paid on policies. Cowan v. Security Life & Trust Co., 211 N.C. 18 , 188 S.E. 812, 1936 N.C. LEXIS 391 (1936).

Two remedies are provided for the enforcement of the penalties authorized by this section: First. Where a greater rate of interest than six per centum (now eight percent) per annum has been paid, the person or his legal representatives or the corporation by whom it has been paid, may recover back twice the amount of interest paid, in an action at law in the nature of an action for debt. Second. In any action brought by the creditor to recover upon any usurious note or other evidence of debt affected with usury, it is lawful for the party against whom the action is brought to plead as a counterclaim or setoff, the penalties provided by the statute, to-wit, twice the amount of interest paid, and also the forfeiture of the entire interest charged. Waters v. Garris, 188 N.C. 305 , 124 S.E. 334, 1924 N.C. LEXIS 58 (1924); Overton v. Tarkington, 249 N.C. 340 , 106 S.E.2d 717, 1959 N.C. LEXIS 372 (1959).

The borrower may waive his rights under this section. Ector v. Osborne, 179 N.C. 667 , 103 S.E. 388, 1920 N.C. LEXIS 313 (1920).

By consent judgment entered in an action upon a note, wherein usury is set up by the defendant, and the parties have agreed upon a compromise in a certain sum, signed and entered by the court, the defendant waives his right under the usury law, and may not thereafter maintain the defense that a note he had given the plaintiff, in the amount of the judgment, was tainted with the usury of the first transaction. Ector v. Osborne, 179 N.C. 667 , 103 S.E. 388, 1920 N.C. LEXIS 313 (1920).

Recoupment and Revival of Claims. —

With respect to interest paid on the note to date, debtors asked the court to extend additional, affirmative relief in the form of a recovery of “twice the amount of interest paid,” G.S. 24-2 . Because such demand was affirmative in character, recoupment did not revive monetary damages on claims of interest paid beyond the two year statute of limitations period. however, any interest payments made on the usurious loan on or after November 29, 2008, were within the limitations period and did not require recoupment to revive such claims for relief. McClendon v. Walter Home Mortg., 488 B.R. 876, 2013 Bankr. LEXIS 793 (Bankr. E.D.N.C. 2013).

New Note Must Be in the Nature of a Compromise in Order to Constitute a Waiver of Right to Plead Usury. —

A usurious contract is not purged of the usury by the execution of renewals or by a change in the form of the contract, or by the giving of a separate note for the usurious charge, and in order for an agreement as to the total debt and the execution of a new note therefor to constitute a waiver of the right to plead usury, the new amount arrived at must be agreed to by the debtor as just and due the creditor, taking into consideration his claim of usury, and be in the nature of a compromise and settlement and be a novation rather than a renewal. Hill v. Lindsay, 210 N.C. 694 , 188 S.E. 406, 1936 N.C. LEXIS 203 (1936).

Thus, where it was found that the parties agreed upon the total amount of the debt after an accounting involving the credit of sums obtained from the sale of collateral given for the debt, but not involving the question of usury, and that the debtor executed a new note for the balance thus arrived at, it was held insufficient to support the court’s conclusion of law that the debtor waived the right to claim usury, the transaction being a renewal rather than a novation. Hill v. Lindsay, 210 N.C. 694 , 188 S.E. 406, 1936 N.C. LEXIS 203 (1936).

A renewal of the original obligations does not constitute a settlement of the plaintiff’s right to invoke the statutory remedy for usury so as to purge the renewal contract of the taint. Henderson v. Security Mtg. & Fin. Co., 273 N.C. 253 , 160 S.E.2d 39, 1968 N.C. LEXIS 585 (1968).

Usurious Interest on Other Bonds Is Defense to Suit on Chattel Mortgage Securing Such Interest. —

In an action of claim and delivery for certain property conveyed by a chattel mortgage, the defendant can set up the defense of usury upon the allegation that the sole consideration of the bond secured by the mortgage was usurious interest, which had accrued upon certain other bonds executed by the defendant to the plaintiff. Moore v. Woodward, 83 N.C. 531 , 1880 N.C. LEXIS 111 (1880).

Brokerage Commission for Usurious Loan Not Prohibited. —

The conduct condemned by the usury statutes is the extraction or reception of more than a specified legal rate for the hire of money, and not for anything else and brokerage commissions may be recovered for negotiating a usurious loan. Hansen v. Jonas W. Kessing Co., 15 N.C. App. 554, 190 S.E.2d 407, 1972 N.C. App. LEXIS 1966 , cert. denied, 282 N.C. 151 , 191 S.E.2d 601, 1972 N.C. LEXIS 900 (1972).

Defendant cannot avoid payment for brokerage services simply because the defendant and the lender chose to enter into an agreement which was in violation of the North Carolina usury statutes. There is nothing in this record to show that the plaintiff did more than bring the borrower and the lender together. He did not make the loan or negotiate its terms. Hansen v. Jonas W. Kessing Co., 15 N.C. App. 554, 190 S.E.2d 407, 1972 N.C. App. LEXIS 1966 , cert. denied, 282 N.C. 151 , 191 S.E.2d 601, 1972 N.C. LEXIS 900 (1972).

Time Limitation on Forfeiture of Interest for Usury. —

There shall be no forfeiture of interest for usury after the expiration of two years from the date of forfeiture under the provisions of this section. Haanebrink v. Meyer, 47 N.C. App. 646, 267 S.E.2d 598, 1980 N.C. App. LEXIS 3180 (1980).

Late Payment Fees Are “Interest”. —

The General Assembly, which specified a maximum legal rate for late payment fees in G.S. 24-10.1 , considered such fees “interest” and intended to induce observance of that law through the penalty provisions of this section. Swindell v. Federal Nat'l Mtg. Assoc., 330 N.C. 153 , 409 S.E.2d 892, 1991 N.C. LEXIS 739 (1991).

Penalty fees for late payments are “interest” and are compensation for the detention of money owed another, and all such compensation must be forfeited when its rate is usurious, as defined by the laws of this State. Swindell v. Federal Nat'l Mtg. Assoc., 330 N.C. 153 , 409 S.E.2d 892, 1991 N.C. LEXIS 739 (1991).

This Section Applicable to Enforce Violations of G.S. 24-10.1 . —

The statutory penalty for usury requires a defendant which has charged late payments in excess of the legal maximum rate permitted by former G.S. 24-10(e) (see now G.S. 24-10.1 ) to forfeit all late payment charges to which it might otherwise have been entitled under the terms of the loan, but defendant is not required to forfeit the interest due on the loan itself. Swindell v. Federal Nat'l Mtg. Assoc., 330 N.C. 153 , 409 S.E.2d 892, 1991 N.C. LEXIS 739 (1991).

Applicable Remedy Was Appropriate. —

Debtors’ Note was indeed usurious in its contracted rate of interest and was, therefore, an illegal contract as written. The applicable remedy as outlined in statute and case law was appropriate with respect to a forfeiture of the entire interest which the Note carried with it, G.S. 24-2 ; because debtors’ posture with respect to the contract as written was defensive in nature, recoupment permitted such remedy despite a tolling of the statute of limitations. McClendon v. Walter Home Mortg., 488 B.R. 876, 2013 Bankr. LEXIS 793 (Bankr. E.D.N.C. 2013).

II.Substance Controls Nature of Transaction
A.General Doctrine

Form of Transaction Cannot Conceal Its Usurious Nature. —

An express or implied loan, upon the understanding that the money shall be returned at a greater interest rate than the statute allows, whatever the form of the transaction, and with corrupt intent on the part of the lender, is usury under this section, the corrupt intent consisting in “taking, receiving, reserving, or charging” a greater rate than that allowed by law. Swamp Loan & Trust Co. v. Yokley, 174 N.C. 573 , 94 S.E. 102, 1917 N.C. LEXIS 147 (1917).

Where a transaction is in reality a loan of money, whatever may be its form, and the lender charges for the use of his money a sum in excess of interest at the legal rate, by whatever name the charge may be called, the transaction will be held to be usurious. The law considers the substance and not the mere form or outward appearance of the transaction in order to determine what it in reality is. If this were not so, the usury laws of the State would easily be evaded by lenders of money who would exact from borrowers with impunity compensation for money loaned in excess of interest at the legal rate. Ripple v. Mortgage & Acceptance Corp., 193 N.C. 422 , 137 S.E. 156, 1927 N.C. LEXIS 363 (1927).

Where there is negotiation for a loan of money, and the borrower agrees to return the amount advanced at all events, it is a contract of lending; and however the transaction may be shaped or disguised, if a profit or return beyond the legal rate of interest is intended to be made out of the necessities or improvidence of the borrower, or otherwise, the contract is usurious. MacRackan v. Bank of Columbus, 164 N.C. 24 , 80 S.E. 184, 1913 N.C. LEXIS 6 (1913); Swamp Loan & Trust Co. v. Yokley, 174 N.C. 573 , 94 S.E. 102, 1917 N.C. LEXIS 147 (1917).

The nature and terms of the contract determine its character and purpose, and if usurious in itself it must be so understood to have been intended by the parties, and they cannot be heard to the contrary. So the parties to a contract usurious upon its face, understandingly entered into, must be deemed to have intended to provide for the payment of a rate of interest in excess of that allowed by law, and that is itself a usurious contract. Burwell v. Burgwyn, 100 N.C. 389 , 6 S.E. 409, 1888 N.C. LEXIS 197 (1888).

The courts do not hesitate to look beneath the forms of transactions alleged to be usurious in order to determine whether or not such transactions are in truth and in realty usurious. Ripple v. Mortgage & Acceptance Corp., 193 N.C. 422 , 137 S.E. 156, 1927 N.C. LEXIS 363 (1927); Western Auto Supply Co. v. Vick, 47 N.C. App. 701, 268 S.E.2d 842, 1980 N.C. App. LEXIS 3182 (1980), aff'd, 303 N.C. 30 , 277 S.E.2d 360, 1981 N.C. LEXIS 1083 (1981).

The vitality of the usury statutes would not be maintained by allowing creditors to charge unlawful interest rates merely by disguising the form of their transactions; the court must be concerned with substance and not form. Western Auto Supply Co. v. Vick, 47 N.C. App. 701, 268 S.E.2d 842, 1980 N.C. App. LEXIS 3182 (1980), aff'd, 303 N.C. 30 , 277 S.E.2d 360, 1981 N.C. LEXIS 1083 (1981).

In construing a transaction with regard to the usury statutes the court will look to its substance and not to its form. Pratt v. American Bond & Mtg. Co., 196 N.C. 294 , 145 S.E. 396, 1928 N.C. LEXIS 352 (1928).

And if transaction is a subterfuge it will be treated accordingly. —

If in fact the transaction is a bona fide sale and not a loan of money, it is not usurious. But if the form of the transaction is a subterfuge to conceal an exaction of more than the legal rate of interest on what is in fact a loan and not a sale, the transaction will be regarded according to its true character and will be held usurious. Michigan Nat'l Bank v. Hanner, 268 N.C. 668 , 151 S.E.2d 579, 1966 N.C. LEXIS 1281 (1966).

B.Specific Instances

Where a bank followed an arrangement made by its depositor that the latter keep a certain percent of the money borrowed upon his own paper and paper of its customers upon which he remained responsible, and which was good and collectible by the bank without trouble to it, and thus collected on the series of transactions a rate of interest in excess of the legal rate, the interest thus received was usurious and comes within the intent and meaning of the statute forbidding it. English Lumber Co. v. Wachovia Bank & Trust Co., 179 N.C. 211 , 102 S.E. 205, 1920 N.C. LEXIS 210 (1920).

Where a building and loan association charged a stockholder certain fines under former G.S. 54-15, such fines could not be alleged as interest paid on the loan from the corporation. Moore v. Mutual Bldg. & Loan Ass'n, 203 N.C. 592 , 166 S.E. 597, 1932 N.C. LEXIS 47 (1932).

Where a borrower executed notes for the principal sum borrowed and notes for the interest on the principal notes from the time of their execution until their respective maturities, and the lender paid the borrower the principal sum borrowed less an amount deducted and retained by the lender, in the absence of an agreed fact or a finding by the court that the sum deducted was reserved by the lender as interest, the transaction did not constitute usury, and therefore the notes were not tainted with usury in the hands of a purchaser. Ray v. Atlantic Life Ins. Co., 207 N.C. 654 , 178 S.E. 89, 1935 N.C. LEXIS 237 (1935).

Any charges made by a building and loan association against a borrowing member, in excess of the legal rate of interest, whether such charges are called “fines,” “dues” or “interest,” are usurious. Hollowell v. Southern Bldg. & Loan Ass'n, 120 N.C. 286 , 26 S.E. 781, 1897 N.C. LEXIS 54 (1897).

Stipulation That Laws of Another State Should Apply. —

Where the court finds that the stipulation in a contract that the laws of another state should apply was made in bad faith for the purpose of evading the usury laws of this State, and that defendant charged and received payment of usurious interest, the findings are sufficient to support a judgment in plaintiff’s favor that he recover of defendant twice the amount of usurious interest paid as determined by this section. Polikoff v. Finance Serv. Co., 205 N.C. 631 , 172 S.E. 356, 1934 N.C. LEXIS 33 (1934).

The Maryland usury statute was controlling in determining whether a loan agreement between a North Carolina corporation and a Maryland finance corporation was usurious where the agreement was first executed in this State and then mailed to the Maryland office of the finance corporation for signing and where the agreement’s direction that the entire transaction be measured upon the laws of Maryland was in no degree illegal, opposed to public policy, or offensive to the good morals of either state. Clarkson v. Finance Co. of Am., 328 F.2d 404, 1964 U.S. App. LEXIS 6276 (4th Cir. 1964).

Usury in Fact Made Payable in This State. —

Where in fact a contract for the payment of usurious interest, in violation of G.S. 24-1 et seq., was made payable in this State, the fact that it appeared from the face of the contract that it was payable in another state did not relieve it of its usurious charge of interest contrary to the statute of this State. Ripple v. Mortgage & Acceptance Corp., 193 N.C. 422 , 137 S.E. 156, 1927 N.C. LEXIS 363 (1927).

Sum Paid to Trust Company Held to Be a Reasonable Brokerage Fee. —

Two thousand six hundred dollars paid to a trust company for its services in handling ninety $1,000 bonds bearing interest at the legal rate was held not to constitute usury, but a reasonable brokerage fee. McCubbins v. Virginia Trust Co., 80 F.2d 984, 1936 U.S. App. LEXIS 3310 (4th Cir. 1936).

Bonus. —

A profit, greater than the lawful rate of interest, intentionally exacted as a bonus for the loan of money, is a violation of the usury laws; it matters not what form or disguise it may assume. Henderson v. Security Mtg. & Fin. Co., 273 N.C. 253 , 160 S.E.2d 39, 1968 N.C. LEXIS 585 (1968).

A profit, greater than the lawful rate of interest, intentionally exacted as a bonus for the loan of money, imposed upon the necessities of the borrower in a transaction where the treaty is for a loan and the money is to be returned at all events, is a violation of the usury laws; it matters not what form or disguise it may assume. Western Auto Supply Co. v. Vick, 47 N.C. App. 701, 268 S.E.2d 842, 1980 N.C. App. LEXIS 3182 (1980), aff'd, 303 N.C. 30 , 277 S.E.2d 360, 1981 N.C. LEXIS 1083 (1981).

Commission. —

If the lender charges a commission in addition to the maximum rate of interest permitted by the statute, such charge is usury. Henderson v. Security Mtg. & Fin. Co., 273 N.C. 253 , 160 S.E.2d 39, 1968 N.C. LEXIS 585 (1968).

Fee for Finding Lender. —

One who makes no loan but, as broker or agent of the borrower, finds a lender and procures the making of a loan by him, has not received usury when he collects a fee for his services. Henderson v. Security Mtg. & Fin. Co., 273 N.C. 253 , 160 S.E.2d 39, 1968 N.C. LEXIS 585 (1968).

A bona fide credit sale upon an installment payment basis does not involve a loan of money or a forbearance of a debt within the meaning and application of the usury laws. Carolina Indus. Bank v. Merrimon, 260 N.C. 335 , 132 S.E.2d 692, 1963 N.C. LEXIS 704 (1963); Michigan Nat'l Bank v. Hanner, 268 N.C. 668 , 151 S.E.2d 579, 1966 N.C. LEXIS 1281 (1966).

If there is a real and bona fide purchase, not made as the occasion or pretext for a loan, the transaction will not be usurious even though the sale be for an exorbitant price, and a note is taken, at legal rates, for the unpaid purchase money. Carolina Indus. Bank v. Merrimon, 260 N.C. 335 , 132 S.E.2d 692, 1963 N.C. LEXIS 704 (1963); Michigan Nat'l Bank v. Hanner, 268 N.C. 668 , 151 S.E.2d 579, 1966 N.C. LEXIS 1281 (1966); State Whsle. Supply, Inc. v. Allen, 30 N.C. App. 272, 227 S.E.2d 120, 1976 N.C. App. LEXIS 2239 (1976); Western Auto Supply Co. v. Vick, 47 N.C. App. 701, 268 S.E.2d 842, 1980 N.C. App. LEXIS 3182 (1980), aff'd, 303 N.C. 30 , 277 S.E.2d 360, 1981 N.C. LEXIS 1083 (1981).

There is no statute regulating time prices in general retail credit sales payable in installments. Michigan Nat'l Bank v. Hanner, 268 N.C. 668 , 151 S.E.2d 579, 1966 N.C. LEXIS 1281 (1966).

A purchaser is not, like the needy borrower, a victim of a rapacious lender, since he can refrain from the purchase if he does not choose to pay the price asked by the seller. Michigan Nat'l Bank v. Hanner, 268 N.C. 668 , 151 S.E.2d 579, 1966 N.C. LEXIS 1281 (1966); State Whsle. Supply, Inc. v. Allen, 30 N.C. App. 272, 227 S.E.2d 120, 1976 N.C. App. LEXIS 2239 (1976).

Usury cannot be predicated upon the fact that property is sold on credit at an advance over what would be charged in case of a cash sale so long as it appears that the price charged is in fact fixed for the purchase of goods on credit with no intention or purpose of defeating the usury laws, even though the difference between the cash price and the credit price, if considered as interest, amounts to more than the legal rate. Michigan Nat'l Bank v. Hanner, 268 N.C. 668 , 151 S.E.2d 579, 1966 N.C. LEXIS 1281 (1966).

A vendor may fix on his property one price for cash and another for credit, and the mere fact that the credit price exceeds the cash price by a greater percentage than is permitted by the usury laws is a matter of concern to the parties and not to the courts, barring evidence of bad faith. Michigan Nat'l Bank v. Hanner, 268 N.C. 668 , 151 S.E.2d 579, 1966 N.C. LEXIS 1281 (1966); State Whsle. Supply, Inc. v. Allen, 30 N.C. App. 272, 227 S.E.2d 120, 1976 N.C. App. LEXIS 2239 (1976).

The sale of merchandise is not usurious when the sale is made for one price if cash is paid and for a higher price if payment is deferred or made in future installments, so long as the transaction is not a subterfuge to conceal a usurious loan. State Whsle. Supply, Inc. v. Allen, 30 N.C. App. 272, 227 S.E.2d 120, 1976 N.C. App. LEXIS 2239 (1976).

If there is a bona fide purchase of property as opposed to a subterfuge to conceal a loan at a usurious rate, then the usury laws have no application whatsoever, even though the sale is made at an exorbitant price. The reason for the recognition of the time-price doctrine is manifest: The usury laws are directed at the extraction of more than the legal rate of interest for the use of money, and a purchaser can refrain from paying the price asked by the seller if he so chooses. Western Auto Supply Co. v. Vick, 303 N.C. 30 , 277 S.E.2d 360, 1981 N.C. LEXIS 1083 (1981).

Conditional Sale. —

An action to recover alleged usurious interest paid cannot be maintained upon evidence disclosing that the transaction alleged was not a loan but was a sale with deferred payment secured by conditional sale contract. Hendrix v. Harry's Cadillac Co., 220 N.C. 84 , 16 S.E.2d 456, 1941 N.C. LEXIS 481 (1941).

Loan by Finance Corporation for Purchase of Automobiles. —

Where a finance corporation loaned money for the purchase of automobiles sold in this State to be paid for at a greater rate of interest than six percent (now eight percent) the transaction was a usurious one coming within the inhibition of the usury statute and the penalty it imposed, though the contract was couched in the language of bargain and sale in order to evade the usury law. Ripple v. Mortgage & Acceptance Corp., 193 N.C. 422 , 137 S.E. 156, 1927 N.C. LEXIS 363 (1927).

Charge for Forbearance in Collection of Debt at End of Payment Period. —

The two percent per month service charge sought to be imposed by plaintiff did not constitute a “time price” but was a charge for plaintiff’s forbearance in the collection of the debt at the end of the payment period; as such, the two percent per month service charge was interest and usurious. State Whsle. Supply, Inc. v. Allen, 30 N.C. App. 272, 227 S.E.2d 120, 1976 N.C. App. LEXIS 2239 (1976).

Requiring Endorsement of Seller as Guaranty of Payment. —

It has been repeatedly held in this State that while one may buy a note from another, at any price that may be agreed upon, the bargain being free from fraud or unlawful imposition, if the purchaser requires the endorsement of the seller as a guaranty of payment, the transaction, as between the immediate parties thereto, is in effect a loan, and will be so considered, within the meaning and purport of the laws against usury. Western Auto Supply Co. v. Vick, 47 N.C. App. 701, 268 S.E.2d 842, 1980 N.C. App. LEXIS 3182 (1980), aff'd, 303 N.C. 30 , 277 S.E.2d 360, 1981 N.C. LEXIS 1083 (1981).

Where a usurious note called for level monthly payments and the note provided that each payment was to be applied to principal and interest, defendant was entitled to recover twice the amount of interest paid. Equilease Corp. v. Belk Hotel Corp., 42 N.C. App. 436, 256 S.E.2d 836, 1979 N.C. App. LEXIS 2773 , cert. denied, 298 N.C. 568 , 261 S.E.2d 121, 1979 N.C. LEXIS 1632 (1979).

Documents Not Stating Interest Rate. —

Promissory note, deed of trust and sales contract showing a face amount of $9,645.12, payable in 144 equal monthly installments, but not stating the specific interest rate charged, which interest was added to the amount of the note in advance, did not entitle defendants, who allegedly loaned plaintiffs only $5,600.00 and charged an illegal 10% thereon, to a directed verdict or judgment n.o.v. DeHart v. R/S Fin. Corp., 78 N.C. App. 93, 337 S.E.2d 94, 1985 N.C. App. LEXIS 4264 (1985).

III.Equitable Doctrines as Affecting Rights of Parties

History. —

Prior to the 1959 amendment to this section, it was held that in equity, while a usurious lender could have no relief whatever, neither could a borrower have relief against such a lender, such as enjoining the enforcement of a mortgage, without repaying the principal plus lawful interest. The basis of this principle was the equitable maxim, “He who seeks equity must do equity.” See McBrayer v. Roberts, 17 N.C. 75 (1831); Cook v. Patterson, 103 N.C. 127 , 9 S.E. 402 (1889); Waters v. Garris, 188 N.C. 305 , 124 S.E. 334 (1924); Miller v. Dunn, 188 N.C. 397 , 124 S.E. 746 (1924); Jonas v. Home Mtg. Co., 205 N.C. 89 , 170 S.E. 127 (1933); North Carolina Mtg. Corp. v. Wilson, 205 N.C. 493 , 171 S.E. 783 (1933); Pinnix v. Maryland Cas. Co., 214 N.C. 760 , 200 S.E. 874 (1939). However, it was held that such principle did not apply to a proceeding by a debtor at law for the statutory penalty. See Cheek v. Iron Belt Bldg. & Loan Ass’n, 127 N.C. 121 , 37 S.E. 150 (1900); Currituck Grain, Inc. v. Powell, 28 N.C. App. 563, 222 S.E.2d 1 (1976). And there had been some criticism of cases applying the doctrine. See Currituck Grain, Inc. v. Powell, 28 N.C. App. 563, 222 S.E.2d 1, 1976 N.C. App. LEXIS 2756 (1976).

Where the payee withholds from the borrower a part of the face amount of the note, the same being a device to evade the usury laws, the borrower is entitled in equity to have the note credited with the amount so withheld upon the maturity of the note as against the payee under this section. Federal Reserve Bank v. Jones, 205 N.C. 648 , 172 S.E. 185, 1934 N.C. LEXIS 37 (1934).

IV.Rights of Subsequent Purchasers

Holder in Due Course Occupies No Better Position than Lender. —

As to usurious contracts, the law regards the maker, not as in pari delicto, but as acting “in chains,” and to permit his contract, which is deemed exacted under duress, to come under the general rule in favor of innocent holders for value of commercial paper, would be to nullify the protecting statute. The recourse of the holder is against the payee and indorser, who is more likely by far to be able to respond than the maker. Ward v. Sugg, 113 N.C. 489 , 18 S.E. 717, 1893 N.C. LEXIS 112 (1893).

Prior to this section, a usurious contract worked a forfeiture of both the interest and the debt, and it was stated in Coor v. Spicer, 65 N.C. 401 (1871), that under the operation of such a statute, innocent and meritorious holders were obliged to suffer. Faison v. Grandy & Sons, 126 N.C. 827 , 36 S.E. 276, 1900 N.C. LEXIS 328 (1900).

A note tainted with usury retains the taint in the hands of a subsequent holder. The forfeiture of interest is the decree of the law. Faison v. Grandy & Sons, 126 N.C. 827 , 36 S.E. 276, 1900 N.C. LEXIS 328 (1900).

Notes vitiated by an usurious or gaming consideration cannot be enforced in the most innocent hands, but are always and under all circumstances void. Glenn v. Farmer's Bank, 70 N.C. 191 , 1874 N.C. LEXIS 195 (1874); Ward v. Sugg, 113 N.C. 489 , 18 S.E. 717, 1893 N.C. LEXIS 112 (1893).

Contrary Rule Would Render Usury Statute Nugatory. —

If, by passing the note off before maturity and for value, the indorsee may recover on it, the statute is useless, as the protection intended and the penalty and prohibition are alike rendered nugatory. The victim would have no recourse but to suffer in silence. The usury would be collected in spite of the law which had declared the “entire interest forfeited” ab initio, by the fact of “charging or reserving” it. On the other hand, the innocent indorsee has his recourse against the payee who has indorsed the note to him, a recourse which would more surely protect him, being against the party who has money to loan, not to borrow. Ward v. Sugg, 113 N.C. 489 , 18 S.E. 717, 1893 N.C. LEXIS 112 (1893).

Rule Applies to Obligations Secured by Mortgages. —

The only case that seems to mitigate against the otherwise uniform tenor of the decisions on this subject is Coor v. Spicer, 65 N.C. 401 (1871), which holds that a mortgage given to secure a usurious bond might be enforced in the hands of an innocent purchaser for value. The case recognizes the general rule, but takes mortgages out of it upon the supposed wording of former G.S. 39-20. Aside from the fact that this is held expressly otherwise in the later case of Moore v. Woodward, 83 N.C. 531 (1880), an examination of former G.S. 39-20 will show that Coor v. Spicer was a palpable inadvertence. That statute in fact does not purport to protect the innocent holder of a mortgage note which is tainted with usury but the “purchaser of the estate or property” at sale under the mortgage, who buys without notice of the usurious taint in the debt secured. It would be a fraud for the mortgagor to stand by and let him purchase without giving him notice, but the make can give no notice usually to the assignee of the note. Ward v. Sugg, 113 N.C. 489 , 18 S.E. 717, 1893 N.C. LEXIS 112 (1893).

“Shall Be a Forfeiture” Construed. —

The Supreme Court has expressly held that the words “shall be a forfeiture” in this section makes void the agreement as to interest. Ward v. Sugg, 113 N.C. 489 , 18 S.E. 717, 1893 N.C. LEXIS 112 (1893).

V.Usury Laws as Affecting Corporations

Corporations Are Embraced Within Usury Laws. —

In the absence of special legislation, corporations are embraced in the usury laws just as natural persons are. Commissioners of Craven v. Atlantic & N.C.R.R., 77 N.C. 289 , 1877 N.C. LEXIS 81 (1877).

Conflict of Laws. —

A statute of another state forbidding corporations to plead usury as a defense cannot govern a corporation of this State sued in this State, although the bonds in question were delivered in the other state and made payable there. Commissioners of Craven v. Atlantic & N.C.R.R., 77 N.C. 289 , 1877 N.C. LEXIS 81 (1877).

Where such bonds express a rate of interest illegal in this State, and also in the other state, and were issued in payment of a precedent debt and secured by a mortgage on the corporation’s property, they could legally bear no greater rate of interest than that allowed in this State. Commissioners of Craven v. Atlantic & N.C.R.R., 77 N.C. 289 , 1877 N.C. LEXIS 81 (1877).

Sale of Bonds at Discount. —

Under this section as it then read, a corporation could not legally sell its bonds, bearing the highest legal rate of interest, at a discount for the purpose of borrowing money. Such a sale was in effect a loan, and was usurious. Commissioners of Craven v. Atlantic & N.C.R.R., 77 N.C. 289 , 1877 N.C. LEXIS 81 (1877).

Provisions of Corporate Charter Construed. —

The language in alleged act of incorporation, “May discount notes and other evidences of debt, and lend money upon such terms and rates of interest as may be agreed upon,” did not confer the right to exact a rate of interest greater than the legal rate. The statute nowhere confers an express power to exceed the legal rate of interest and the operative words, “any rate of interest that may be agreed on,” meant any rate of interest not greater than the legal rate. Simonton v. Lanier, 71 N.C. 498 , 1874 N.C. LEXIS 137 (1874).

VI.Pleading and Practice

Usury must be pleaded. Dixon v. Smith, 204 N.C. 480 , 168 S.E. 683, 1933 N.C. LEXIS 171 (1933).

And Proved. —

Where there is no evidence that any holder of the note executed by plaintiffs has charged or received interest thereon in excess of six percent (now eight percent), in an action on the note plaintiffs may not invoke the forfeiture of interest for usury. Smith v. Bryant, 209 N.C. 213 , 183 S.E. 276, 1936 N.C. LEXIS 427 (1936).

By Whom Pleaded. —

The plea of usury is open to the parties and their privies, and may be made when, by the transaction, the debtor’s estate is wrongfully depleted, and ordinarily by one having the legal right to protect the estate, as a receiver of an insolvent corporation against which a usurious contract is sought to be enforced. Riley v. Sears, 154 N.C. 509 , 70 S.E. 997, 1911 N.C. LEXIS 303 (1911).

Class Actions Allowed. —

When the General Assembly has wished to prevent class actions to enforce statutory claims for relief, where the relief sought was personal and penal in nature, it has said so expressly and unequivocally. The failure of the General Assembly to expressly prohibit class actions to enforce this statute convinces the Supreme Court that it intended to allow them for such purposes. Crow v. Citicorp Acceptance Co., 319 N.C. 274 , 354 S.E.2d 459, 1987 N.C. LEXIS 1933 (1987).

Rights of Trustee in Bankruptcy. —

A right of action to recover the penalty for a usury charge is in the nature of an action for debt, and is a wrongful detention of, or injury to, the estate of the bankrupt which passes to his trustee in bankruptcy. Ripple v. Mortgage & Acceptance Corp., 193 N.C. 422 , 137 S.E. 156, 1927 N.C. LEXIS 363 (1927).

When Tender Is Required. —

A claim of forfeiture of all interest for usury may be properly set up as a defense in the creditor’s action on the debt without a tender of the debt with legal interest. Tender is required only when the debtor seeks affirmative equitable relief such as enjoining the collection of the debt or the foreclosure of the security therefor. Virginia Trust Co. v. Lambeth Realty Corp., 215 N.C. 526 , 2 S.E.2d 544, 1939 N.C. LEXIS 302 (1939).

When Counterclaim Is Available. —

While a counterclaim for usury may be set up in an action on a note under this section, such counterclaim may not be set up in an action in ejectment based on title to the property under foreclosure of the deed of trust securing the note. North Carolina Mtg. Corp. v. Wilson, 205 N.C. 493 , 171 S.E. 783, 1933 N.C. LEXIS 600 (1933).

The purpose and intent of the counterclaim provision was not to restrict the right of recovery by way of counterclaim, but rather to make it clear that the right granted by the statute to recover the penalty for usurious interest paid “in the action in the nature of action for debt,” could be pleaded as a counterclaim in an action between the parties. Commercial Credit Corp. v. Robeson Motors, Inc., 243 N.C. 326 , 90 S.E.2d 886, 1956 N.C. LEXIS 364 (1956).

While this section provides that a counterclaim for usury may be set up in an action to recover upon the note or other evidence of debt, on which the alleged usurious interest has been charged, such a counterclaim may not be pleaded in an action based on other cause of action. Commercial Fin. Co. v. Holder, 235 N.C. 96 , 68 S.E.2d 794, 1952 N.C. LEXIS 327 (1952).

There was no conflict between this section and subsection (2) of former G.S. 1-137 in reference to pleading of counterclaim for usury. Commercial Credit Corp. v. Robeson Motors, Inc., 243 N.C. 326 , 90 S.E.2d 886, 1956 N.C. LEXIS 364 (1956).

Construing this section and former G.S. 1-137 (2) in pari materia, where a lender brings an action to recover on a note or other evidence of debt, the borrower, by counterclaim in such action, can recover the penalty for usurious interest paid by the borrower to the lender in connection with separate and independent transactions between them. Commercial Credit Corp. v. Robeson Motors, Inc., 243 N.C. 326 , 90 S.E.2d 886, 1956 N.C. LEXIS 364 (1956).

Definiteness of Allegations. —

In an action brought to recover money alleged to be due on a contract entered into between the parties, wherein the plea of usury is set up in the answer and a recovery is sought under this section for double the amount of the interest paid, the recovery sought is in the nature of a penalty; when the facts are known or readily obtainable the law requires a definite statement in the pleading as to the time and amount, before allegations in such action are held to be sufficient, and when such statement is not made no amendment to the pleadings should be allowed. Riley v. Sears, 154 N.C. 509 , 70 S.E. 997, 1911 N.C. LEXIS 303 (1911).

Burden of Proof on Plaintiff. —

Upon the trial of an action to recover for usury, the burden of proof is on the plaintiff throughout the trial to establish his cause of action. Hodge v. First Atl. Corp., 10 N.C. App. 632, 179 S.E.2d 855, 1971 N.C. App. LEXIS 1686 , cert. denied, 278 N.C. 701 , 181 S.E.2d 602, 1971 N.C. LEXIS 1029 (1971).

Where plaintiff failed to show that defendant did not in fact render services for the one percent “service charge” or “construction loan fee,” defendant was entitled to directed verdict that such “charge” or “fee” was not a part of the interest charged on the loan. Hodge v. First Atl. Corp., 10 N.C. App. 632, 179 S.E.2d 855, 1971 N.C. App. LEXIS 1686 , cert. denied, 278 N.C. 701 , 181 S.E.2d 602, 1971 N.C. LEXIS 1029 (1971).

Amendment of Complaint. —

Where plaintiff in its complaint sought interest in excess of the 12% allowed under G.S. 24-1.1 , but presented evidence as to the amount of interest when calculated at 12%, the trial court did not abuse its discretion in granting an amendment to the pleadings so as to reduce the interest sought to that calculated at 12% per annum. Northwestern Bank v. Barber, 79 N.C. App. 425, 339 S.E.2d 452, 1986 N.C. App. LEXIS 2059 (1986).

Statute of Limitations. —

An action to recover the penalty for usury, under this section, is barred after the lapse of two years from the accrual of the cause of action in the absence of disability or nonresidence affecting the running of the statute. Smith v. Finance Co. of Am., 207 N.C. 367 , 177 S.E. 183, 1934 N.C. LEXIS 471 (1934).

Where plaintiff filed his complaint seeking forfeiture of all interest more than two years after the execution of promissory note, the two-year statute of limitations barred plaintiff’s claim for forfeiture of interest pursuant to this section. Adams v. Beard Dev. Corp., 116 N.C. App. 105, 446 S.E.2d 862, 1994 N.C. App. LEXIS 862 (1994).

Same — Nonresident Creditor. —

An action for the statutory penalty for charging usury, brought against a nonresident creditor who has no agent here upon whom process may be served, is not barred by the statute of limitations, nor does the fact in such case that one of the plaintiffs is a nonresident and the other has changed his residence affect the matter. Cuthberton v. Peoples Bank, 170 N.C. 531 , 87 S.E. 333, 1915 N.C. LEXIS 446 (1915).

Setting Aside Fraudulent Conveyance. —

In a creditor’s action to establish its debt and to have a subsequent conveyance by the debtor set aside as fraudulent as to creditors, the fact that plaintiff’s debt is tainted with usury entitles defendant debtor to invoke the forfeiture of interest, but does not defeat plaintiff’s action, or estop plaintiff from asserting the equitable remedy of setting aside the fraudulent conveyance under the doctrine that he who seeks equity must come into court with clean hands. Virginia Trust Co. v. Lambeth Realty Corp., 215 N.C. 526 , 2 S.E.2d 544, 1939 N.C. LEXIS 302 (1939).

Restraining Foreclosure. —

The holder of a second mortgage, able and willing to pay the amount of the debt secured by the first mortgage, but alleging usury under this section, is entitled to have a restraining order against foreclosure continued until determination of the issue of usury. Wilson v. Union Trust Co., 200 N.C. 788 , 158 S.E. 479, 1931 N.C. LEXIS 444 (1931).

Borrower May Use Lender as Witness. —

To the end that the defense may be ample and complete, if the borrower in his discretion should resort to his remedy under this section he is authorized to examine the lender as a witness. Merchants Bank v. Lutterloh, 81 N.C. 142 , 1879 N.C. LEXIS 155 (1879).

Usury as Question of Law When Facts Not in Dispute. —

What constitutes usury is a question of law to be determined by the court when the facts are not in dispute. Grant v. Morris & Sons, 81 N.C. 150 , 1879 N.C. LEXIS 156 (1879).

When Usury Is Question for Jury. —

Where, in an action upon a note, the defendant pleads the usury statute, and the evidence is sufficient to sustain a verdict that the excess of interest was a proper charge made for negotiating the loan, the question should be submitted to the jury. Swamp Loan & Trust Co. v. Yokley, 174 N.C. 573 , 94 S.E. 102, 1917 N.C. LEXIS 147 (1917).

If a transaction is of doubtful character it should be submitted to the jury for determination. Carolina Indus. Bank v. Merrimon, 260 N.C. 335 , 132 S.E.2d 692, 1963 N.C. LEXIS 704 (1963).

Where the plea of the usury under this section is made by the plaintiff in the action to enjoin the defendant from the sale of land securing a mortgage note, and there is a dispute as to whether the charge made was usurious, and as to the amount due under the mortgage, it is reversible error for the trial judge to assume the correctness of the plaintiff’s contentions as a fact, and take the case from the jury accordingly. Miller v. Dunn, 188 N.C. 379 , 124 S.E. 746 (1924).

The fact that a sum borrowed was made payable to the borrowers and an attorney with allegations and evidence that the attorney under instructions from the lender deducted a certain sum therefrom before the borrowers could obtain the money, together with the “item of expense” set out in the deed of trust securing the loan, is held sufficient to have been submitted to the jury on the question of usury. Jonas v. Home Mtg. Co., 205 N.C. 89 , 170 S.E. 127, 1933 N.C. LEXIS 465 (1933).

Where the plaintiff alleged usury and the defendant contended that the transaction was within the “commission for the sale of bonds” exception to the usury law, it was held that as the evidence was conflicting it was properly submitted to the jury, and was sufficient to support its verdict in plaintiff’s favor. Sherrill v. Hood, 208 N.C. 472 , 181 S.E. 330, 1935 N.C. LEXIS 55 (1935).

Effect of Consent Judgment. —

Where a controversy between the parties as to the amount of the debt has been settled by a consent judgment such judgment is conclusive and final as to any matter determined and cannot be impeached collaterally in another proceeding under this section. Rector v. Suncrest Lumber Co., 52 F.2d 946, 1931 U.S. App. LEXIS 3801 (4th Cir. 1931).

Failure to Instruct as to Double Recovery Is Prejudicial. —

The plaintiff in his action to recover for usurious rate of interest paid and received by the lender is entitled under this section to recover double the amount of the interest so paid and received, and an instruction to the jury that fails to give him this right is prejudicial to him and is reversible error. Bundy v. Commercial Credit Co., 200 N.C. 511 , 157 S.E. 860, 1931 N.C. LEXIS 374 (1931).

§ 24-2.1. Transactions governed by Chapter.

  1. For purposes of this Chapter, any extension of credit shall be deemed to have been made in this State, and therefore subject to the provisions of this Chapter if the lender offers or agrees in this State to lend to a borrower who is a resident of this State, or if such borrower accepts or makes the offer in this State to borrow, regardless of the situs of the contract as specified therein.
  2. Any solicitation or communication to lend, oral or written, originating outside of this State, but forwarded to and received in this State by a borrower who is a resident of this State, shall be deemed to be an offer or agreement to lend in this State.
  3. Any solicitation or communication to borrow, oral or written, originating within this State, from a borrower who is a resident of this State, but forwarded to, and received by a lender outside of this State, shall be deemed to be an acceptance or offer to borrow in this State.
  4. Any oral or written offer, acceptance, solicitation or communication to lend or borrow, made in this State to, or received in this State from, a borrower who is not a resident of this State shall be subject to the provisions of this Chapter, applicable federal law, law of the situs of the contract, or law of the residence of any such borrower as the parties may elect.
  5. Any person who acquires a right by contract or by assignment to receive payments under a loan made in this State to an individual or individuals who is a resident of this State at the time of the loan and who benefits from the laws of this State by having the loan secured by real property located in this State is deemed to have consented to the courts of this State having jurisdiction over such person for any claim under this Chapter and for any claim related to the loan instrument.
  6. The provisions of this section shall be severable and if any phrase, clause, sentence or provision is declared to be invalid, the validity of the remainder of this section shall not be affected thereby.
  7. It is the paramount public policy of North Carolina to protect North Carolina resident borrowers through the application of North Carolina interest laws. Any provision of this section which acts to interfere in the attainment of that public policy shall be of no effect.

History. 1979, c. 706, s. 3; 1983, c. 126, s. 11; 2007-351, s. 3.

Effect of Amendments.

Session Laws 2007-351, s. 3, effective August 16, 2007, added subsection (e) and designated the former first through fourth paragraphs and fifth and sixth paragraphs as present subsections (a) through (d) and (f) and (g), respectively.

CASE NOTES

Chapter Places Burden of Expertise on Lender. —

The usury statutes relieve the borrower of the necessity for expertise and vigilance regarding the legality of rates he must pay. That onus is placed instead on the lender, whose business it is to lend money for profit and who is thus in a better position than the borrower to know the law. Swindell v. Federal Nat'l Mtg. Assoc., 330 N.C. 153 , 409 S.E.2d 892, 1991 N.C. LEXIS 739 (1991).

“Usury Savings Clause”. —

A lender cannot charge usurious rates with impunity via a “usury savings clause,” by making that rate conditional upon its legality and relying upon the illegal rate’s automatic rescission when discovered and challenged by the borrower. Swindell v. Federal Nat'l Mtg. Assoc., 330 N.C. 153 , 409 S.E.2d 892, 1991 N.C. LEXIS 739 (1991).

§ 24-2.2. Interest on extensions of credit by banks and savings and loan associations; exceptions.

Notwithstanding any other provision of law, banks and savings and loan associations chartered in North Carolina by the State of North Carolina or the federal government shall each be entitled to charge on extensions of credit those interest rates allowed any lender under North Carolina law. Provided, that any extension of credit pursuant to this authority shall be governed by those restrictions or limitations contained in the authorizing statute. Provided further, the authority granted under this section shall not apply to rates provided in Article 15 of Chapter 53, the Consumer Finance Act, nor in Subchapter III of Chapter 54, concerning credit unions.

History. 1983, c. 126, s. 8.

§ 24-2.3. State opt-out from federal preemption.

  1. The provisions of section 501, of United States Public Law 96-221, as well as any modifications made to date, shall not apply to loans, mortgages, credit sales and advances made in this State.
  2. Effective July 1, 1995, sections 521-524 of United States Public Law 96-221, shall apply to loans, mortgages, credit sales, and advances made in this State on or after that date as if North Carolina had never opted out of sections 521-524 of United States Public Law 96-221.

History. 1983, c. 126, s. 1; 1995, c. 387, s. 1.

§ 24-2.4. Prepayment of a loan if there are no prepayment terms or if the prepayment terms are not in accordance with law.

A borrower may prepay a loan in whole or in part without penalty where the loan instrument does not explicitly state the borrower’s rights with respect to prepayment or where the provisions for prepayment are not in accordance with law.

History. 1985, c. 681, s. 1.

CASE NOTES

Prepayment Allowed Prior to Enactment of this Section. —

Considering the acts of the General Assembly, specifically G.S. 24-10 and G.S. 24-1.1 A, the law of North Carolina prior to the enactment of this section was that the mortgagor had the right of prepayment when the note was silent. Hatcher v. Rose, 329 N.C. 626 , 407 S.E.2d 172, 1991 N.C. LEXIS 521 (1991).

Prepayment was allowed on a promissory note executed before the enactment of this section, and for the purchase of real estate even though the note did not by specific language either prohibit or permit prepayment. Hatcher v. Rose, 329 N.C. 626 , 407 S.E.2d 172, 1991 N.C. LEXIS 521 (1991).

§ 24-2.5. Mortgage bankers and mortgage brokers.

A mortgage broker or a mortgage banker originating a loan in a table-funded loan transaction in which the mortgage broker or mortgage banker is identified as the original payee of the note shall be considered a lender for purposes of this Chapter.

History. 1999-332, s. 3.

Editor’s Note.

Session Laws 1999-332, s. 8, made this section effective October 1, 1999, and applicable to loans made or entered into, payments deferred, and loans modified, renewed, extended, or amended on or after that date.

§ 24-3. Time from which interest runs.

Interest is due and payable on instruments, as follows:

  1. All bonds, bills, notes, bills of exchange, liquidated and settled accounts shall bear interest from the time they become due, provided such liquidated and settled accounts be signed by the debtor, unless it is specially expressed that interest is not to accrue until a time mentioned in the said writings or securities.
  2. All bills, bonds, or notes payable on demand shall be held and deemed to be due when demandable by the creditor, and shall bear interest from the time they are demandable, unless otherwise expressed.
  3. All securities for the payment or delivery of specific articles shall bear interest as moneyed contracts; and the articles shall be rated by the jury at the time they become due.
  4. Bills of exchange drawn or indorsed in the State, and which have been protested, shall carry interest, not from the date thereof, but from the time of payment therein mentioned.

History. 1786, c. 248, P.R; 1828, c. 2; R.C., c. 13; Code, ss. 44, 45, 46, 47; Rev., s. 1952; C.S., s. 2307.

Cross References.

As to commercial paper, see G.S. 25-3-118(d), G.S. 25-3-122(4).

As to money due as owelty, see G.S. 46-11 .

CASE NOTES

Necessity of Demand. —

A person holding money belonging to another is not liable for interest thereon, except from the date of demand. Hyman v. Gray, 49 N.C. 155 , 1856 N.C. LEXIS 50 (1856); Neal v. Freeman, 85 N.C. 441 , 1881 N.C. LEXIS 292 (1881).

Interest from Commencement of Action in Absence of Demand. —

Where interest runs from the date of demand, and no demand has been made, interest will be allowed from the date of commencement of suit. Porter v. Grimsley, 98 N.C. 550 , 4 S.E. 529, 1887 N.C. LEXIS 323 (1887).

Coupons or Installments of Interest Bear Interest from Demand. —

Coupons or installments of interest bear interest from the time of a demand of payment made after their maturity. Burroughs v. Commissioners, 65 N.C. 234 , 1871 N.C. LEXIS 74 (1871).

Or from Maturity If Detached. —

Coupons, when detached from the bond to which they were annexed, bear interest from the time when they were due and payable. Burroughs v. Commissioners, 65 N.C. 234 , 1871 N.C. LEXIS 74 (1871).

A premium note for life insurance at six per cent interest draws that rate from its date unless otherwise specified. Owens v. North State Life Ins. Co., 173 N.C. 373 , 92 S.E. 168, 1917 N.C. LEXIS 306 (1917).

Order of County Treasurer for Payment of Money. —

Where A brought an action upon an order of a county treasurer, signed by the chairman of the board of county commissioners, it was held under this section that he was entitled to recover interest upon the amount of the order from the time of the demand of payment. Yellowly v. Commissioners, 73 N.C. 164 , 1875 N.C. LEXIS 40 (1875).

Bond Payable Without Interest. —

Where a note or bond is made payable without interest at a certain date, interest does not run thereon except from the time when it should have been paid. Dowd v. North Carolina R.R., 70 N.C. 468 , 1874 N.C. LEXIS 260 (1874).

Unliquidated Damages. —

Unliquidated damages as a general rule, and in the absence of special circumstances, do not bear interest until after their amount has been judicially ascertained. Tilghman v. Proctor, 125 U.S. 136, 8 S. Ct. 894, 31 L. Ed. 664, 1888 U.S. LEXIS 1921 (1888).

When interest is recoverable on amount of verdict, it will run from the date of the verdict, unless it can be legally determined before then. Ludford v. Combs, 195 N.C. 851 , 141 S.E. 541, 1928 N.C. LEXIS 222 (1928).

§ 24-4. Obligations due guardians to bear compound interest; rate of interest.

Guardians shall have power to lend any portion of the estate of their wards upon bond with sufficient security, to be repaid with interest annually, and all the bonds, notes or other obligations which he shall take as guardian shall bear compound interest, for which he must account, and he may assign the same to the ward on settlement with him. On loans made out of the estate of their wards, guardians may lend at any rate of interest not less than four percent per annum and not more than the maximum lawful rate. This section shall in no way limit or affect the powers of guardians to make other investments which are now or may hereafter be authorized or permitted by the laws, statutory or otherwise, of the State of North Carolina.

History. 1762, c. 69, P.R; 1816, c. 925, P.R; R.C., c. 54, s. 23; 1868-9, c. 201, s. 29; Code, s. 1592; Rev., s. 1953; C.S., s. 2308; 1943, c. 728; 1969, c. 1303, s. 4.

Legal Periodicals.

For comment on equity participation (a device to circumvent usury laws) in real estate finance, see 7 N.C. Cent. L.J. 387 (1976).

CASE NOTES

Security in Addition to That of Borrower Must Be Taken. —

The policy of this section is to require an investment by a guardian to be secured by the bond or note of some person in addition to the borrower. Watson v. Holton, 115 N.C. 36 , 20 S.E. 183, 1894 N.C. LEXIS 179 (1894).

Or Guardian Is Liable for Any Loss. —

Where guardian loaned the money of his ward to a trading firm composed of two partners, who both became insolvent at the same time, and from the same causes, no security having been taken besides the names of the two partners, it was held that the guardian was accountable for the money thus loaned, notwithstanding at the time of this loan the partners were considered as entirely solvent and their failure was sudden and unexpected. Boyett v. Hurst, 54 N.C. 166 , 54 N.C. 167 , 1854 N.C. LEXIS 39 (1854).

A guardian will be held liable for any loss resulting from a loan made without taking any security, however solvent the debtor may have been when the loan was made. Collins v. Gooch, 97 N.C. 186 , 1 S.E. 653, 1887 N.C. LEXIS 131 (1887); Bane v. Nicholson, 203 N.C. 104 , 164 S.E. 750, 1932 N.C. LEXIS 315 (1932).

A guardian’s primary duty is to invest the trust fund, and he will be chargeable with interest in the absence of proof that it remained in his hands unemployed without his fault. Wilson v. Lineberger, 88 N.C. 416 , 1883 N.C. LEXIS 99 (1883), modified, 90 N.C. 180 , 1884 N.C. LEXIS 191 (1884).

Calculation of Compound Interest. —

The rule for compounding interest on notes due guardians is “to make annual rests,” making the aggregate of principal and interest due at the end of a particular year a new principal, bearing interest thenceforward for another year. Ford v. Vandyke, 33 N.C. 227 , 1850 N.C. LEXIS 31 (1850); Little v. Anderson, 71 N.C. 190 , 1874 N.C. LEXIS 44 (1874).

Bonds Themselves May Be Transferred to Ward. —

The bonds, upon which the guardian has lent the ward’s money, may be transferred by him to the ward in settlement with him, and the guardian does not have to pay the ward in money. Cobb v. Fountain, 187 N.C. 335 , 121 S.E. 614, 1924 N.C. LEXIS 277 (1924).

§ 24-5. Interest on judgments.

  1. Actions on Contracts. —  In an action for breach of contract, except an action on a penal bond, the amount awarded on the contract bears interest from the date of breach. The fact finder in an action for breach of contract shall distinguish the principal from the interest in the award, and the judgment shall provide that the principal amount bears interest until the judgment is satisfied. If the parties have agreed in the contract that the contract rate shall apply after judgment, then interest on an award in a contract action shall be at the contract rate after judgment; otherwise it shall be at the legal rate. On awards in actions on contracts pursuant to which credit was extended for personal, family, household, or agricultural purposes, however, interest shall be at the lower of the legal rate or the contract rate. For purposes of this section, “after judgment” means after the date of entry of judgment under G.S. 1A-1 , Rule 58. (a1) Actions on Penal Bonds. — In an action on a penal bond, the amount of the judgment, except the costs, shall bear interest at the legal rate from the date of entry of judgment under G.S. 1A-1 , Rule 58, until the judgment is satisfied.
  2. Other Actions. —  In an action other than contract, any portion of a money judgment designated by the fact finder as compensatory damages bears interest from the date the action is commenced until the judgment is satisfied. Any other portion of a money judgment in an action other than contract, except the costs, bears interest from the date of entry of judgment under G.S. 1A-1 , Rule 58, until the judgment is satisfied. Interest on an award in an action other than contract shall be at the legal rate.

History. 1786, c. 253, P.R; 1789, c. 314, s. 4, P.R; 1807, c. 721, P.R; R.C., c. 31, s. 90; Code, s. 530; Rev., s. 1954; C.S., s. 2309; 1981, c. 327, s. 1; 1985, c. 214, s. 1; 1987, c. 758; 1999-384, s. 1; 2000-133, s. 8; 2003-59, s. 4.

Editor’s Note.

In 1995, the North Carolina Supreme Court held in Custom Molders, Inc. v. American Yard Products, Inc., 342 N.C. 133 , 463 S.E.2d 199 (1995), that an applications provision in the 1985 session law rewriting this section had the effect of continuing a sentence from the pre-1981 version of subsection (b) that allowed for postjudgment interest on noncontract awards generally, although the General Assembly failed to include the sentence in the 1985 revision. Session Laws 1999-384, s. 1, in part inserted the second sentence in subsection (b), similarly allowing postjudgment interest on noncontract awards.

This section, as amended by Session Laws 2003-59, s. 4, effective September 1, 2003, is applicable to all judgments entered, indexed, and docketed on or after that date.

Effect of Amendments.

Session Laws 2003-59, s. 4, effective September 1, 2003, and applicable to all judgments entered, indexed, and docketed on or after that date, in subsection (a), added the fifth sentence; in subsection (a1), substituted “entry of judgment under G.S. 1A-1 , Rule 58” for “docketing of judgment”; and in subsection (b), substituted “entry of judgment under G.S. 1A-1 , Rule 58” for “entry of judgment” in the second sentence.

Legal Periodicals.

For note, “Baxley v. Nationwide Mutual Insurance Company: A Key Loophole in the Financial Responsibility Act of 1953 Comes to Light,” see 72 N.C.L. Rev. 1809 (1994).

CASE NOTES

Analysis

I.In General

Editor’s Note. —

Many of the cases cited below were decided prior to the 1981, 1985, and 1987 amendments to this section.

Constitutionality. —

This section does not violate the equal protection clause of the U.S. Const., Amend. XIV or N.C. Const., Art. I, § 19. Powe v. Odell, 312 N.C. 410 , 322 S.E.2d 762, 1984 N.C. LEXIS 1808 (1984); Lowe v. Tarble, 313 N.C. 460 , 329 S.E.2d 648, 1985 N.C. LEXIS 1552 (1985).

This section does not violate N.C. Const., Art. I, § 19, the equal protection and due process clauses of U.S. Const., Amend. XIV, or the exclusive emoluments clause contained in N.C. Const., Art. I, § 32. Lowe v. Tarble, 312 N.C. 467 , 323 S.E.2d 19, 1984 N.C. LEXIS 1815 (1984); Harris v. Scotland Neck Rescue Squad, Inc., 75 N.C. App. 444, 331 S.E.2d 695, 1985 N.C. App. LEXIS 3711 , writ denied, 314 N.C. 329 , 333 S.E.2d 487, 1985 N.C. LEXIS 2256 (1985).

The legislature could reasonably have concluded that the classification scheme established by this section would best serve to further important and legitimate public purposes, including compensation of a plaintiff for the loss-of-use value of a damage award, the prevention of unjust enrichment to liability insurers who are required by law to maintain claim reserves on which interest is earned, and the promotion of settlement by these insurers, who, unlike self-insurers, have as their primary business the insuring, investigation, defense and settlement of claims. The Legislature could have reasonably concluded that the distinction between defendants with liability insurance and those without was a valid one, and that the public welfare would be best served by such a classification. Therefore, this section does not create a special emolument or privilege within the meaning of N.C. Const., Art. I, § 32. Lowe v. Tarble, 312 N.C. 467 , 323 S.E.2d 19, 1984 N.C. LEXIS 1815 (1984).

Legislative Intent. —

The probable intent of this section is threefold: (1) to compensate plaintiffs for loss of the use of their money; (2) to prevent unjust enrichment of the defendant by having money he should not have; and (3) to promote settlement. Brown v. Flowe, 349 N.C. 520 , 507 S.E.2d 894, 1998 N.C. LEXIS 845 (1998).

Section Changes Common Law. —

At common law a judgment did not carry interest when an execution of sci. fa. was issued upon it. In an action upon the judgment the plaintiff could recover interest by way of damages for the detention of the money. The statute was passed for the purpose of amending the law in this respect. Collais v. McLeod, 30 N.C. 221 (1848). The intent was that the principal should bear interest because it was just and right that it should, and that the technical rule of the common law should no longer stand in the way. McNeill v. Durham & C.R.R., 138 N.C. 1 , 50 S.E. 458, 1905 N.C. LEXIS 218 (1905).

This section is not exclusive in prescribing instances in which interest is recoverable, and in proper instances interest may be recovered upon transactions not coming within the statute. Anderson Cotton Mills v. Royal Mfg. Co., 221 N.C. 500 , 20 S.E.2d 818, 1942 N.C. LEXIS 496 (1942).

Application of Section. —

This section is obviously referring to claims which are defended by the liability insurer, because there is no logical reason to distinguish between claims against an uninsured defendant and an insured defendant defending a claim which falls short of the deductible amount of the insurance policy. R-Anell Homes, Inc. v. Alexander & Alexander, Inc., 62 N.C. App. 653, 303 S.E.2d 573, 1983 N.C. App. LEXIS 2975 (1983), limited, Carter v. West Am. Ins. Co., 190 N.C. App. 532, 661 S.E.2d 264, 2008 N.C. App. LEXIS 1021 (2008).

Superior court erred by ordering a city to pay postjudgment interest under G.S. 24-5(b) because the statute was not applicable as the functions in which the city engaged, the enforcement of state and municipal traffic laws and the management of the proceeds collected for violations of the laws, were governmental functions. Shavitz v. City of High Point, 177 N.C. App. 465, 630 S.E.2d 4, 2006 N.C. App. LEXIS 1080 (2006).

Purpose of 1981 Amendment. —

The legislature’s purpose in amending this section in 1981 to provide for prejudgment interest in tort actions when the claim is covered by liability insurance was to provide an incentive to insurance companies to expeditiously litigate actions they are involved in. Harwood v. Harrelson Ford, Inc., 78 N.C. App. 445, 337 S.E.2d 158, 1985 N.C. App. LEXIS 4291 (1985).

Applicability of 1981 Amendment. —

The Legislature’s intent was to make Session Laws 1981, c. 327, G.S. 1, which amended this section, inapplicable to pending litigation. Harwood v. Harrelson Ford, Inc., 78 N.C. App. 445, 337 S.E.2d 158, 1985 N.C. App. LEXIS 4291 (1985).

Plaintiffs who, on April 29, 1982, voluntarily dismissed actions filed on August 13, 1980, pursuant to G.S. 1A-1 , Rule 41(a), and subsequently commenced new actions on August 26, 1982, following the effective date of the amendment to this section by Session Laws 1981, c. 327, were entitled, upon the return of verdicts in their favor, to prejudgment interest from August 26, 1982. State v. Knox, 78 N.C. App. 493, 337 S.E.2d 154, 1985 N.C. App. LEXIS 4293 (1985).

Plaintiff whose action was instituted almost a year prior to the 1981 amendment to this section and was pending upon its ratification should not have been granted prejudgment interest. Harwood v. Harrelson Ford, Inc., 78 N.C. App. 445, 337 S.E.2d 158, 1985 N.C. App. LEXIS 4291 (1985).

Purpose of 1985 Amendment. —

When the legislature amended subsection (a) in 1985 to provide that the amount awarded on contract bears interest from date of breach it obviated the need for the rule that when the amount of damages in a breach of contract action is ascertained from contract itself, relevant evidence, or both, interest should be allowed from the date of breach. Metromont Materials Corp. v. R.B.R. & S.T., 120 N.C. App. 616, 463 S.E.2d 305, 1995 N.C. App. LEXIS 894 (1995).

Applicability of 1985 Amendment. —

The important date for determining whether the 1985 amendment to this section applies to any action is the date the action is commenced and not the date the contract was entered; therefore, the amendment, effective Oct. 1, 1985, and applicable to all claims except claims pending on that date, clearly applied to action for breach of contract instituted Aug. 21, 1986. Pickard Roofing Co. v. Barbour, 94 N.C. App. 688, 381 S.E.2d 341, 1989 N.C. App. LEXIS 632 (1989).

This section is not a part of the Financial Responsibility Act; therefore, its provisions need not be written into every automobile liability insurance policy. Sproles v. Greene, 329 N.C. 603 , 407 S.E.2d 497, 1991 N.C. LEXIS 524 (1991).

This section has no application to a judgment against the State Highway Commission. Yancey v. North Carolina State Hwy. & Pub. Works Comm'n, 222 N.C. 106 , 22 S.E.2d 256, 1942 N.C. LEXIS 40 (1942); North Carolina State Hwy. & Pub. Works Comm'n v. Privett, 246 N.C. 501 , 99 S.E.2d 61, 1957 N.C. LEXIS 481 (1957).

Interest on Costs. —

In this State, interest on costs is expressly disallowed by statute. City of Charlotte v. McNeely, 281 N.C. 684 , 190 S.E.2d 179, 1972 N.C. LEXIS 1161 (1972), limited, Town of Chapel Hill v. Fox, 120 N.C. App. 630, 463 S.E.2d 421, 1995 N.C. App. LEXIS 917 (1995).

Judgment Bears Interest Though Nothing Is Said. —

By virtue of this section a judgment bears interest from the time of its rendition until paid, though nothing is said therein about interest. McNeill v. Durham & C.R.R., 138 N.C. 1 , 50 S.E. 458, 1905 N.C. LEXIS 218 (1905).

This section was held directory so far as it provided that the judgment must itself state that it shall bear interest from the date of rendition until it is paid. It is perfectly clear that such a statement in the judgment is not essential to effectuate the intent of the Legislature, which is to allow interest on judgments. McNeill v. Durham & C.R.R., 138 N.C. 1 , 50 S.E. 458, 1905 N.C. LEXIS 218 (1905).

If Judgment Enables Officer to Compute Interest. —

It is best always that the court in its judgment should state fully the amount to be raised by the execution, both principal and interest; but the plaintiff will not forfeit his right to interest by the failure to do this, when enough appears on the face of the judgment to enable the officer to compute the amount justly due. All he is required to know is the amount of the principal, and then the statute makes that amount bear interest to the time of payment. McNeill v. Durham & C.R.R., 138 N.C. 1 , 50 S.E. 458, 1905 N.C. LEXIS 218 (1905).

No discretion is vested in the court to determine what shall be the rate of interest in a given case. Hardy-Latham v. Wellons, 415 F.2d 674, 1968 U.S. App. LEXIS 6672 (4th Cir. 1968).

Interest on Contracts and Torts Distinguished. —

Where a verdict is given in an action on contract in plaintiff’s favor for moneys due by the defendant to plaintiff’s intestate, interest is also given plaintiff on the amount of the recovery as a matter of law, when not incorporated in the verdict. When in tort the matter of interest is awarded or not according as the jury may find. Thomas v. Watkins, 193 N.C. 630 , 137 S.E. 818, 1927 N.C. LEXIS 420 (1927).

Tender of Payment. —

To constitute a valid tender of payment in North Carolina and thus stop the running of interest, the offer must include the full amount the creditor is entitled to receive plus all interest to the date of tender. Hardy-Latham v. Wellons, 415 F.2d 674, 1968 U.S. App. LEXIS 6672 (4th Cir. 1968).

Where case was erroneously nonsuited and the nonsuit was reversed on appeal, plaintiffs were entitled to interest from the first day of the term at which the nonsuit was erroneously entered. Jackson v. Gastonia, 247 N.C. 88 , 100 S.E.2d 241, 1957 N.C. LEXIS 543 (1957).

Plaintiffs held entitled to interest on entire amount of judgment. —

Where defendants tendered $20,000 to plaintiff pursuant to settlement agreement and plaintiff was entitled to rescind that agreement, trial court erred in awarding interest only on $31,749.97 of the $51,749.97 judgment; in refusing the check for $20,000 tendered by defendants, plaintiff was deprived of the $20,000 and was entitled to recover interest on that amount. Thompson-Arthur Paving Co. v. Lincoln Battleground Assocs., 95 N.C. App. 270, 382 S.E.2d 817, 1989 N.C. App. LEXIS 771 (1989).

Superior Court judge had no authority to entertain or allow motions for the payment of prejudgment interest or postjudgment interest on a judgment entered more than four years before the motion in the cause was made; said motions should have been dismissed. Roach v. Smith, 102 N.C. App. 482, 402 S.E.2d 173, 1991 N.C. App. LEXIS 443 (1991).

Prejudgment Interest in an Action for Breach of an Implied Warranty of Habitability. —

Because an implied warranty of habitability is a quasi-contract, the awarding of interest relative to such an action is governed by subsection (b) of this section, not subsection (a); thus, the trial court correctly awarded plaintiff homeowners prejudgment interest from the date the action was instituted, rather than from the date of breach. Medlin v. Fyco, Inc., 139 N.C. App. 534, 534 S.E.2d 622, 2000 N.C. App. LEXIS 995 (2000).

Postjudgment Interest on Treble Damages. —

This section provides for postjudgment interest on judgments for money damages generally, including a judgment for treble damages, until the judgment is paid. Custom Molders, Inc. v. American Yard Prods., Inc., 342 N.C. 133 , 463 S.E.2d 199, 1995 N.C. LEXIS 541 (1995).

Unconditional Payment Offers. —

An aggrieved party may, without prejudice to its right to recover prejudgment interest, decline unconditional payment offers. Members Interior Constr., Inc. v. Leader Constr. Co., 124 N.C. App. 121, 476 S.E.2d 399, 1996 N.C. App. LEXIS 1003 (1996).

Nothing in this section precludes the award of interest damages when those damages are recoverable under ordinary damage principles as a natural and foreseeable consequence of wrongdoing or damages within the contemplation of the parties as a probable result of their wrongdoing. Broussad v. Meineke Disct. Muffler Shops, Inc., 958 F. Supp. 1087, 1997 U.S. Dist. LEXIS 2759 (W.D.N.C. 1997), rev'd, 155 F.3d 331, 1998 U.S. App. LEXIS 20248 (4th Cir. 1998).

There is no indication that this section is designed to cap or otherwise diminish damages based on lost interest where those damages are recoverable under ordinary damage principles. Broussad v. Meineke Disct. Muffler Shops, Inc., 958 F. Supp. 1087, 1997 U.S. Dist. LEXIS 2759 (W.D.N.C. 1997), rev'd, 155 F.3d 331, 1998 U.S. App. LEXIS 20248 (4th Cir. 1998).

Interest Could Not be Awarded in Action Against County. —

When a county was required to refund “school impact fees” improperly imposed upon new residential construction, it was improper to require it to pay interest on the fees. Postjudgment interest could not be awarded against the State or its subdivisions unless authorized by statute or contract. Durham Land Owners Ass'n v. County of Durham, 177 N.C. App. 629, 630 S.E.2d 200, 2006 N.C. App. LEXIS 1187 (2006).

II.Contracts

Absent an agreement between parties, the legal rate under 24-1 is on money owed under a contract. Hardy-Latham v. Wellons, 415 F.2d 674, 1968 U.S. App. LEXIS 6672 (4th Cir. 1968).

Trend Is Toward Allowance of Interest. —

There has been a definite trend in North Carolina toward allowance of interest in almost all types of cases involving breach of contract. Harris & Harris Constr. Co. v. Crain & Denbo, Inc., 256 N.C. 110 , 123 S.E.2d 590, 1962 N.C. LEXIS 430 (1962); T.C. Allen Constr. Co. v. Stratford Corp., 384 F.2d 653, 1967 U.S. App. LEXIS 4878 (4th Cir. 1967); Rose v. Vulcan Materials Co., 282 N.C. 643 , 194 S.E.2d 521, 1973 N.C. LEXIS 1136 (1973).

Application Is to Liquidated Demands Only. —

The rule that all moneys due by contract, except those due on penal bonds, shall bear interest applies whenever a recovery is had for the breach of a contract and the amount is ascertained from the terms of the contract itself or from evidence relative to the inquiry and is due by one party to the contract to another; and it does not obtain as a matter of law where the interest sought does not come within the provisions of the statute and is by way of unliquidated damages, and there has been no adequate default on the part of the debtor in reference to withholding the principal sum or a part of it. Bond v. Pickett Cotton Mills, 166 N.C. 20 , 81 S.E. 936, 1914 N.C. LEXIS 341 (1914).

Application to Secured Creditors. —

Provisions of G.S. 24-5 did not directly apply to secured creditor’s action against creditors who auctioned off the debtors’ collateral because the statute was limited to actions for breach of contract. However, the secured creditor’s action was one for the tort of conversion, and the secured creditor had no action against the creditors for breach of the security agreement between the debtors and the secured creditor as the creditors were not parties to the agreement. Bartlett Milling Co., L.P. v. Walnut Grove Auction & Realty Co., 192 N.C. App. 74, 665 S.E.2d 478, 2008 N.C. App. LEXIS 1546 (2008).

Interest Is Imposed by Law in Nature of Damages. —

A debt draws interest from the date it becomes due, and when interest is not made payable on the face of the instrument, payment of interest will be imposed by law in the nature of damages for the retention of the principal of the debt. Security Nat'l Bank v. Travelers' Ins. Co., 209 N.C. 17 , 182 S.E. 702, 1935 N.C. LEXIS 6 (1935).

Under this section money due by contract, except money due on penal bonds, bears interest as a matter of law. Anderson Cotton Mills v. Royal Mfg. Co., 221 N.C. 500 , 20 S.E.2d 818, 1942 N.C. LEXIS 496 (1942).

When interest is not made payable on the face of the instrument, payment of interest will be imposed by law in the nature of damages for the retention of the principal of the debt. Craftique, Inc. v. Stevens & Co., 321 N.C. 564 , 364 S.E.2d 129, 1988 N.C. LEXIS 13 (1988).

Rate of Interest Controlled By Contract. —

Where contracts provided for a specific interest rate on past due accounts, that rate applied prejudgment and, because there was no agreement that such rate would apply postjudgment, the legal rate established by G.S. 24-1 applied. Barrett Kays & Assocs. v. Colonial Bldg. Co., 129 N.C. App. 525, 500 S.E.2d 108, 1998 N.C. App. LEXIS 650 (1998).

When Interest Is Added to Damages for Breach of Contract. —

Whenever a recovery is had for breach of contract and the amount of damages is ascertained from the terms of the contract itself or from evidence relevant to the inquiry, interest should be added. Harris & Harris Constr. Co. v. Crain & Denbo, Inc., 256 N.C. 110 , 123 S.E.2d 590, 1962 N.C. LEXIS 430 (1962); T.C. Allen Constr. Co. v. Stratford Corp., 384 F.2d 653, 1967 U.S. App. LEXIS 4878 (4th Cir. 1967); Rose v. Vulcan Materials Co., 282 N.C. 643 , 194 S.E.2d 521, 1973 N.C. LEXIS 1136 (1973).

From What Date Interest Allowed. —

Where a controversy was made to depend upon whether a written agreement of a certain date to subscribe to plaintiff’s enterprise in a sum certain was binding upon the defendant corporation, the affirmative answer of the jury to the issue carried with it interest on the subscription from the date it was due, as a matter of law. Chatham v. Mecklenburg Realty Co., 174 N.C. 671 , 94 S.E. 447, 1917 N.C. LEXIS 170 (1917).

Prejudgment Interest from Breach of Contract. —

In breach of contract actions, this section authorizes the award of prejudgment interest on damages from the date of the breach at the contract rate, or the legal rate if the parties have not agreed on an interest rate. Furr v. Fonville Morisey Realty, Inc., 130 N.C. App. 541, 503 S.E.2d 401, 1998 N.C. App. LEXIS 1003 (1998).

Trial court incorrectly ordered an employer to pay interest on an award to an employee only from the date of the judgment rather than the date of the breach of employment contract because there was no good faith exception to awarding interest from the date of the breach. Salvaggio v. New Breed Transfer Corp., 150 N.C. App. 688, 564 S.E.2d 641, 2002 N.C. App. LEXIS 645 (2002).

After a railroad breached a contract to relocate, at its own expense, a certain rail line to a phosphate plant, pursuant to G.S. 24-5(a) , the plant was entitled to prejudgment interest on the plant’s damages award accruing from the date of the contract breach. PCS Phosphate Co. v. Norfolk S. Corp., 2008 U.S. Dist. LEXIS 54199 (E.D.N.C. Jan. 28, 2008), aff'd, 559 F.3d 212, 2009 U.S. App. LEXIS 5024 (4th Cir. 2009).

Interest Allowed from Date of Breach. —

When the amount of damages in a breach of contract action is ascertained from the contract itself, or from relevant evidence, or from both, interest should be allowed from the date of the breach. General Metals, Inc. v. Truitt Mfg. Co., 259 N.C. 709 , 131 S.E.2d 360, 1963 N.C. LEXIS 611 (1963); T.C. Allen Constr. Co. v. Stratford Corp., 384 F.2d 653, 1967 U.S. App. LEXIS 4878 (4th Cir. 1967); Investment Properties of Asheville, Inc. v. Allen, 281 N.C. 174 , 188 S.E.2d 441, 1972 N.C. LEXIS 1101 (1972); Rose v. Vulcan Materials Co., 282 N.C. 643 , 194 S.E.2d 521, 1973 N.C. LEXIS 1136 (1973); Wilkes Computer Servs., Inc. v. Aetna Cas. & Sur. Co., 59 N.C. App. 26, 295 S.E.2d 776, 1982 N.C. App. LEXIS 2863 (1982).

Where the amount of damages can be ascertained from the contract, interest is allowed from the date of the breach. Interstate Equip. Co. v. Smith, 292 N.C. 592 , 234 S.E.2d 599 (1977); Noland Co. v. Poovey, 58 N.C. App. 800, 295 S.E.2d 238 (1982). In accord with second paragraph in the main volume. See Thomas M. McInnis & Assocs. v. Hall, 318 N.C. 421 , 349 S.E.2d 552, 1986 N.C. LEXIS 2676 (1986).

This section authorizes awards of interest on damages resulting from breach of contract from the date of the breach at the rate of interest provided in the contract, or at the legal rate if the parties have not agreed on their own rate. Craftique, Inc. v. Stevens & Co., 321 N.C. 564 , 364 S.E.2d 129, 1988 N.C. LEXIS 13 (1988).

This section authorizes interest on damages resulting from breach of contract from the date of the breach at the rate of interest provided in the contract or at the legal rate if no other rate is provided; the legal rate of interest on judgments in North Carolina is eight percent (8%) per year. Jacobs v. Central Transp., Inc., 891 F. Supp. 1120, 1995 U.S. Dist. LEXIS 14836 (E.D.N.C. 1995).

Trial court properly determined, as a matter of law, that sellers breached the contract and that the buyer was entitled to recover its $100,000 deposit of the purchase price of a boat, and it properly ordered the sellers to refund the buyer’s $ 100,000 deposit with interest at a rate of eight percent the sellers breached the parties’ contract, and the buyer was entitled, under G.S. 25-2-711(1) , to recover the amount of the purchase price it had already paid, i.e., $100,000, with interest. D.G. II, LLC v. Nix, 211 N.C. App. 332, 712 S.E.2d 335, 2011 N.C. App. LEXIS 735 (2011).

Interest Allowed Where Rate on Note Usurious. —

Where interest rate on note was usurious and penalty of forfeiture was barred by the statute of limitation, interest allowed was not the maximum legal rate but the legal or judgment rate, and ran from the date of maturity onward. Merritt v. Knox, 94 N.C. App. 340, 380 S.E.2d 160, 1989 N.C. App. LEXIS 473 (1989).

Where guarantor had guaranteed interest as well as principal owed by debtor, interest was properly chargeable from the date of debtor’s breach, rather than from the date of demand and notice to guarantor. Craftique, Inc. v. Stevens & Co., 321 N.C. 564 , 364 S.E.2d 129, 1988 N.C. LEXIS 13 (1988).

When Action Is for Breach of Contract. —

Although in construing this provision the rule in North Carolina has been that interest should be allowed from the date of breach, this rule is applicable only when the action is one for breach of contract. State ex rel. Edmisten v. Zim Chem. Co., 45 N.C. App. 604, 263 S.E.2d 849, 1980 N.C. App. LEXIS 2707 (1980).

Defendants failed to show why the “finance fee” provision of the subcontract should not be enforced pursuant to G.S. 24-11 ; there was no argument against an award of post-judgment interest pursuant to G.S. 24-5(a) . United States ex rel. SCCB, Inc. v. P. Browne & Assoc., 751 F. Supp. 2d 813, 2010 U.S. Dist. LEXIS 119192 (M.D.N.C. 2010).

Interest Provided from Date of Substantial Performance. —

In an action on a construction contract, wherein the defendant counterclaimed for damages for plaintiff’s failure to complete the work in a good and workmanlike manner, the judgment entered by the court on the jury verdict should have provided for interest thereon from August 1, 1964 (the date upon which the jury concluded that plaintiff had substantially performed its contract), even though there was a bona fide dispute as to the correct balance due between plaintiff and defendant. T.C. Allen Constr. Co. v. Stratford Corp., 384 F.2d 653, 1967 U.S. App. LEXIS 4878 (4th Cir. 1967).

After demand by a depositor or creditor of a bank for the payment of the amount due and refusal of the bank to make payment, the bank is liable for the amount of the claim plus interest. Hackney v. Hood, 203 N.C. 486 , 166 S.E. 323, 1932 N.C. LEXIS 15 (1932).

Assessments Against Policyholder in Mutual Insurance Company. —

Under this section interest should be allowed on assessments against a policyholder in a mutual insurance company under the policies in suit from the dates of the respective demands by the receiver. Miller v. Barnwell Bros., 137 F.2d 257, 1943 U.S. App. LEXIS 2792 (4th Cir. 1943).

Breach of Insurance Contract. —

For purpose of computing interest, breach of insurance contract occurred when defendant denied plaintiffs’ demand for payment. Aills v. Nationwide Mut. Ins. Co., 88 N.C. App. 595, 363 S.E.2d 880, 1988 N.C. App. LEXIS 106 (1988).

Facts Not Excusing Payment of Interest by Insurance Company. —

Where, under the terms of a policy of insurance, payment is to be made to the beneficiaries immediately upon receipt of due proof of death of insured, the failure of the insurer to make payment until more than a year after receipt of such due proof entitles the beneficiaries to interest on the amount from the date of insurer’s receipt of due proof, and payment of interest will not be excused because payment by insurer was delayed by reason of the fact that the trust agreement under which the policy was assigned was changed without notice to insurer by adding an individual trustee and that the corporate trustee became insolvent before payment and a substituted trustee was appointed and insurer did not have notice of such substitution until a much later date, insurer having had the use of the money during the period of delay. Security Nat'l Bank v. Travelers' Ins. Co., 209 N.C. 17 , 182 S.E. 702, 1935 N.C. LEXIS 6 (1935).

Purpose of Requiring Jury to Distinguish Principal and Interest. —

The evident design of this section is to allow the plaintiff interest on the principal sum recovered in a judgment from the time of its rendition; and the direction to the jury to distinguish between the principal and interest was intended to provide for those cases in which the whole sum is assessed in damages, so as to enable the clerk or the sheriff to compute the interest on the principal sum. But where the principal and interest are discriminated on the record, or it can be collected from an inspection of it what the principal sum was, it is equally within the spirit of the act that interest should be calculated on that. Deloach v. Worke, 10 N.C. 36 , 1824 N.C. LEXIS 13 (1824).

This section does not require that the issue be submitted to the jury before interest can be allowed in contract cases. The requirement is merely that the jury “distinguish the principal from the sum allowed as interest,” which obviously pertains only to those rare situations where evidence as to both principal and interest is submitted to the jury for their consideration. Dailey v. Integon Gen. Ins. Corp., 75 N.C. App. 387, 331 S.E.2d 148, 1985 N.C. App. LEXIS 3699 (1985).

In a case involving the amount due under an insurance policy, computing the interest due was a mere clerical matter, and it would have been an absurd, pointless waste of time to ask the jury to “distinguish” between principal and interest. Dailey v. Integon Gen. Ins. Corp., 75 N.C. App. 387, 331 S.E.2d 148, 1985 N.C. App. LEXIS 3699 (1985).

III.Other Actions

In Tort Actions Judgment for Damages Bears Interest. —

Although the allowance of interest in an action for damages for conversion of property is discretionary with the jury, yet, after the verdict, the judgment for the damages assessed bears interest by virtue of this section, and this is so, even though the verdict is for a certain sum “without interest.” Stephens v. Koonce, 103 N.C. 266 , 9 S.E. 315, 1889 N.C. LEXIS 104 (1889).

But interest is not allowable as a matter of law in case of tort. Its allowance as damages rests in the discretion of the jury. Lincoln v. Claflin, 74 U.S. 132, 19 L. Ed. 106, 1868 U.S. LEXIS 985 (1869).

It Is Discretionary with Jury to Include Interest in Verdict. —

In an action for damages for conversion, the verdict being for the value of the property at the time of the conversion, interest can only begin from the time of the judgment. However, the jury may allow interest on the amount of the damages from time of the conversion. Lance v. Butler, 135 N.C. 419 , 47 S.E. 488, 1904 N.C. LEXIS 48 (1904).

The rule in this State is that interest, as interest, is allowed only when expressly given by statute, or by the express or implied agreement of the parties. Devereux v. Burgwin, 33 N.C. 490 (1850); Lewis v. Rountree, 79 N.C. 122 (1878). The only statute upon the subject is that contained in this section, which provides that all sums of money due by contract of any kind whatsoever, excepting such as may be due on penal bonds, shall bear interest, etc., but there is no provision made for actions of trover or trespass de bonis asportatis. In such cases, in order to compel the wrongdoer to make full compensation to the injured party, the jury may, in their discretion, and as damages, allow interest upon the value of the property from the time of its conversion or seizure, and it has been usual for them to do so. But there is no rule which gives it as a matter of law and right. Patapsco v. Magee, 86 N.C. 350 , 1882 N.C. LEXIS 204 (1882).

Under law the jury has discretion to award prejudgment interest in tort cases involving property losses. Leggett v. Rose, 776 F. Supp. 229, 1991 U.S. Dist. LEXIS 19544 (E.D.N.C. 1991).

No Interest on Awards Under State Tort Claims Act Absent Express Statutory Authority. —

Because the State Tort Claims Act (G.S. 143-291 et seq.) is in derogation of sovereign immunity, and should, therefore, be strictly construed as written, there must be a specific statutory provision authorizing the accrual of interest on damage awards under the act. And although this section and G.S. 24-7 refer to post-judgment interest, the General Assembly nevertheless recently enacted G.S. 97-86.2 allowing interest on workers’ compensation claims to be assessed on awards at the legal rate. Thus, the same type of statutory enactment would be necessary before any interest could accrue to a tort claims award. Myers v. Department of Crime Control & Pub. Safety, 67 N.C. App. 553, 313 S.E.2d 276, 1984 N.C. App. LEXIS 3072 (1984).

Plaintiff was not entitled to pre- or post-judgment interest under this section for his claim against the State under the Tort Claims Act. McGee v. North Carolina Dep't of Revenue, 135 N.C. App. 319, 520 S.E.2d 84, 1999 N.C. App. LEXIS 1044 (1999).

Interest on Surety Bond. —

Where the surety bond of a clerk of the superior court is fixed as to amount in the sum of $5,000.00, to that extent a surety is responsible for the defalcation of his principal, including interest from the time of notice given it, except from judgment thereon, when a different principal applies and the surety is liable for interest on the judgment until it is paid. State ex rel. Lee v. Martin, 188 N.C. 119 , 123 S.E. 631, 1924 N.C. LEXIS 18 (1924).

The measure of the surety’s liability is that of the principal, provided such liability does not exceed the penal sum of the bond, and where a bank gives a bond to an agency of the State to protect such agency’s deposit, upon the insolvency of the bank with assets insufficient to pay depositors in full, the State agency may not hold the surety liable for interest from the time action on the bond is instituted, since in such circumstances the bank is not liable for interest, but the surety is liable for interest only from the date of judgment against it on the bond on the amount for which the bank is liable to the State agency as of that date. State v. United States Guarantee Co., 207 N.C. 725 , 178 S.E. 550, 1935 N.C. LEXIS 251 (1935).

Dividend Declared by Receiver. —

Where a receiver declares a dividend which he wrongfully withholds, interest should run from the time the dividend is declared. Armstrong v. American Exch. Nat'l Bank, 133 U.S. 433, 10 S. Ct. 450, 33 L. Ed. 747, 1890 U.S. LEXIS 1923 (1890).

Interest on Damages in Condemnation Proceedings. —

Interest is not allowed on a judgment rendered in the superior court for damages awarded by the jury to the owner for taking his lands in condemnation; for while the jury may award interest in their verdict, the owner may not complain when such has not been done, in the absence of a special request for instructions with relation to it, and the absence of evidence tending to show he is entitled to it. Raleigh, C. & S.R.R. v. Mecklenburg Mfg. Co., 166 N.C. 168 , 82 S.E. 5, 1914 N.C. LEXIS 363 (1914). See also Yancey v. North Carolina State Hwy. & Pub. Works Comm'n, 221 N.C. 185 , 19 S.E.2d 489, 1942 N.C. LEXIS 426 (1942).

Prejudgment Interest on Compensatory Damages Denied. —

Although an underlying wrongful death judgment awarded compensatory damages, apportionment of that judgment did not; therefore, prejudgment interest under G.S. 24-5(b) was properly denied since the contribution action under the Uniform Contribution Among Tortfeasors Act, G.S. 1B-1 et seq., was derivative and based upon the codification of equitable principles. Medical Mut. Ins. Co. v. Mauldin, 157 N.C. App. 136, 577 S.E.2d 680, 2003 N.C. App. LEXIS 376 (2003).

Interest on Eminent Domain Actions. —

Trial court erred in awarding 14% interest from the time of entry of judgment until its satisfaction, even though subsection (b) of this section might be construed as allowing interest at the legal rate until judgment is satisfied, because G.S. 40A-53 specifically provides for interest in eminent domain actions during this period at the rate of 6% per annum. Concrete Mach. Co. v. City of Hickory, 134 N.C. App. 91, 517 S.E.2d 155, 1999 N.C. App. LEXIS 677 (1999).

Interest on Value of Permanent Improvements on Land. —

Where it has been ascertained by the verdict of the jury, upon a trial free from error, that the plaintiff is entitled to recover of the defendant the value of permanent improvements he has put upon the defendant’s land under a parol agreement that the latter would convey a part of the lands in consideration thereof, void under the statute of frauds, to the extent that the improvements have enhanced the value of the land, interest is properly allowed in the judgment from the time of the defendant’s breach, on the amount ascertained to be due at that time; and objection that the jury may have included the interest in their verdict is untenable when it appears that nothing was said by counsel or court in respect to it, the presumption being to the contrary. Perry v. Norton, 182 N.C. 585 , 109 S.E. 641, 1921 N.C. LEXIS 278 (1921).

Compromise Judgment in Will Contest. —

Where, in a will contest, a compromise judgment was entered whereby legatees named in the will were to receive certain amounts in settlement of their legacies which were ordered to be paid by the administrator cum testamento annexo thereafter to be appointed, the judgment was not such a judgment as, under this section would draw interest from its date. Moore v. Pullen, 116 N.C. 284 , 21 S.E. 195, 1895 N.C. LEXIS 208 (1895).

In an independent civil action upon a prior 1974 judgment on a promissory note, plaintiff was entitled to judgment for the principal amount of the 1974 judgment plus the accrued interest and court costs as of the date of the court’s order. However, the legal rate of interest could only be applied to the $100,000.00 principal amount due in the prior judgment. NCNB Nat'l Bank v. Robinson, 80 N.C. App. 154, 341 S.E.2d 364, 1986 N.C. App. LEXIS 2147 (1986).

Where a plaintiff brought an action to prevent the 10-year statute of limitations from barring his recovery on a prior judgment, the action was in the nature of an independent action on the judgment, the only procedure in this State by which a judgment can be renewed. As it was a separate and distinct action, the plaintiff could request, in his complaint, interest at the legal rate of eight percent, and the trial court could award interest at that rate from the date the present action was instituted until the judgment is satisfied. Speros Constr. Co. v. Musselwhite, 103 N.C. App. 510, 405 S.E.2d 785, 1991 N.C. App. LEXIS 811 (1991).

Money Wrongfully Received Draws Interest. —

Where the theory upon which the plaintiff recovers is that the defendant has received the money wrongfully and that the law implies a promise to repay it, there is no reason why the amount should not draw interest. Barlow v. Norfleet, 72 N.C. 535 , 1875 N.C. LEXIS 284 (1875); Farmer v. Willard, 75 N.C. 401 , 1876 N.C. LEXIS 305 (1876); Hilton Lumber Co. v. Atlantic C.L.R.R., 141 N.C. 171 , 53 S.E. 823, 1906 N.C. LEXIS 85 (1906).

Interest for That Which Would Have Accrued on Amount of Funds Wrongfully Disbursed from Accounts. —

In a judgment removing the father as custodian of all accounts created under the North Carolina Uniform Transfers to Minors Act, G.S. 33A-1 et seq., an award of interest was proper because he should have been liable for the interest that would have accrued on the amount of the funds wrongfully disbursed from the accounts. If he had not improperly expended and invested the funds, the minor would have had the benefit of those funds growing in the custodial account, G.S. 24-5(b) . Belk v. Belk, 221 N.C. App. 1, 728 S.E.2d 356, 2012 N.C. App. LEXIS 718 (2012).

Brokerage Commissions. —

Real estate brokerages were entitled to prejudgment interest at the legal rate, where they were denied the use of their commissions by the lessor from the time they were due. Furr v. Fonville Morisey Realty, Inc., 130 N.C. App. 541, 503 S.E.2d 401, 1998 N.C. App. LEXIS 1003 (1998).

Real Estate Commission. —

Where a real estate broker is entitled to recover a reasonable amount for his services rendered in securing a tenant for a building, the sum fixed by the verdict will, as a matter of law, draw interest from the time the same was due and payable. Thomas v. Piedmont Realty & Dev. Co., 195 N.C. 591 , 143 S.E. 144, 1928 N.C. LEXIS 147 (1928).

Interest on Recovery for Quantum Meruit. —

It was not improper for the jury to award interest on a recovery for quantum meruit, but since the jury had to determine the reasonable value of services, it was important for it to make the designation between principal and interest. Environmental Landscape Design Specialist v. Shields, 75 N.C. App. 304, 330 S.E.2d 627, 1985 N.C. App. LEXIS 3616 (1985).

In an action to enjoin deceptive acts and practices in the sale of antifreeze, interest on the court’s judgment ordering defendant to make restoration payments to 33 customers was governed by this section, and should have been awarded only from the time of entry of the judgment. State ex rel. Edmisten v. Zim Chem. Co., 45 N.C. App. 604, 263 S.E.2d 849, 1980 N.C. App. LEXIS 2707 (1980).

Interest on Reduced Award. —

Trial court did not err in limiting interest allowed plaintiff to the interest on the amount of the jury award as reduced pursuant to G.S. 97-10.2 . Absher v. Vannoy-Lankford Plumbing Co., 78 N.C. App. 620, 337 S.E.2d 877, 1985 N.C. App. LEXIS 4319 (1985).

Interest Improper on Punitive Double Damages. —

Trial court should not have awarded prejudgment interest and post-judgment interest on both the compensatory and the G.S. 84-13 punitive double damage award in the state bar’s action against the attorney for reimbursement of funds paid to the two clients after the attorney breached the attorney’s fiduciary duty to them and converted their funds. G.S. 24-5(b) only allowed interest to be awarded for compensatory damages. N.C. State Bar v. Gilbert, 189 N.C. App. 320, 663 S.E.2d 1, 2008 N.C. App. LEXIS 541 (2008).

Interest on Judgment Proceeds Applied to Workers’ Compensation Lien. —

Workers’ compensation lien on judgment proceeds under the specific facts of case were neither derived from an action in contract nor from an amount “designated by the fact-finder as compensatory damages,” and the trial court’s award of interest would therefore be vacated. Hieb v. Lowery, 134 N.C. App. 1, 516 S.E.2d 621, 1999 N.C. App. LEXIS 659 , modified, 134 N.C. App. 21, 1999 N.C. App. LEXIS 907 (1999).

Under North Carolina law, interest runs from the date of the defendant’s breach, not the date of the plaintiff’s demand for a refund. Canady v. Crestar Mtg. Corp., 109 F.3d 969, 1997 U.S. App. LEXIS 6072 (4th Cir. 1997).

District court erred in holding that interest would not run until date that plaintiff’s demanded refund. Canady v. Crestar Mtg. Corp., 109 F.3d 969, 1997 U.S. App. LEXIS 6072 (4th Cir. 1997).

Interest awarded in recovery of legal fees. —

In a law firm’s suit to recover legal fees due from a decedent’s estate, the trial court properly categorized the fees as costs, which were specifically excepted from the interest provisions of G.S. 24-5(b) . Moreover, taken together, G.S. 7A-307(c)(2) and G.S. 28A-23-4 clearly supported the concept underpinning the trial court’s ruling, which was that the superior court can tax as costs attorney fees incurred when the attorney is the representative of the estate administering its distribution. Nexsen Pruet, PLLC v. Martin, 212 N.C. App. 680, 713 S.E.2d 130, 2011 N.C. App. LEXIS 1169 (2011).

IV.Prejudgment Interest

Editor’s Note. —

Some of the cases under this analysis line below were decided under this section as amended by Session Laws 1981, c. 327, s. 1, which provided for the accrual of interest on money judgments for compensatory damages in actions other than contract from the filing of the claim for claims covered by liability insurance, and from the time of the verdict for claims not so covered. Subsequently, the amendment by Session Laws 1985, c. 214, s. 1 rewrote this section, deleting any reference to liability insurance.

As a general rule, North Carolina courts do not recognize the granting of prejudgment interest on unliquidated damages. Lazenby v. Godwin, 60 N.C. App. 504, 299 S.E.2d 288, 1983 N.C. App. LEXIS 2493 (1983).

Legislative Intent. —

Probable intent of the prejudgment interest statute, G.S. 24-5(b) , is threefold: (1) to compensate plaintiffs for loss of the use of their money, (2) to prevent unjust enrichment of the defendant by having money he should not have, and (3) to promote settlement. Phillips v. Warren, 152 N.C. App. 619, 568 S.E.2d 230, 2002 N.C. App. LEXIS 959 (2002).

Section Is Designed to Provide Incentive to Resolve Claims Quickly. —

This section, under which the prejudgment interest was awarded, was designed to provide an incentive for an insurance carrier to resolve claims quickly rather than delay resolution in order to maximize return of investment on lost reserves. Hartford Accident & Indem. Co. v. United States Fire Ins. Co., 710 F. Supp. 164, 1989 U.S. Dist. LEXIS 3897 (E.D.N.C. 1989), aff'd, 918 F.2d 955, 1990 U.S. App. LEXIS 25793 (4th Cir. 1990).

Applicability of Subsection (b). —

In determining the question of prejudgment interest, where there is no question of liability and no judgment entered as to this issue, subsection (b) of this section does not apply. Barnes v. Hardy, 98 N.C. App. 381, 390 S.E.2d 758, 1990 N.C. App. LEXIS 412 (1990), aff'd, 329 N.C. 690 , 407 S.E.2d 504, 1991 N.C. LEXIS 516 (1991).

No award of prejudgment interest, because subsection (b) is inapplicable, since a final judgment, including a judgment as to liability, had not been entered. Collins v. Beck, 116 N.C. App. 128, 446 S.E.2d 610, 1994 N.C. App. LEXIS 863 (1994), aff'd, 340 N.C. 255 , 456 S.E.2d 307, 1995 N.C. LEXIS 245 (1995).

In a data company’s action against a competitor that hired its former employee, prejudgment interest was warranted because the federal court was required to apply the law of the forum, which mandated prejudgment interest. Legacy Data Access, LLC v. Mediquant, Inc., 2017 U.S. Dist. LEXIS 198817 (W.D.N.C. Dec. 4, 2017).

Recovery of Interest Under Subsection (b). —

Subsection (b) of this section provides for the recovery of interest in instances where there has been both a judgment as to liability and a determination of appropriate compensatory damages. Barnes v. Hardy, 98 N.C. App. 381, 390 S.E.2d 758, 1990 N.C. App. LEXIS 412 (1990), aff'd, 329 N.C. 690 , 407 S.E.2d 504, 1991 N.C. LEXIS 516 (1991).

The Supreme Court of North Carolina has held that prejudgment interest up to the amount of a carrier’s liability limit is part of compensatory damages for which an underinsured motorist carrier is liable. Austin v. Midgett, 159 N.C. App. 416, 583 S.E.2d 405, 2003 N.C. App. LEXIS 1537 (2003).

Plain language of G.S. 24-5(b) provides that prejudgment interest continues to accrue until the judgment is satisfied. Whiteside Estates, Inc. v. Highlands Cove, L.L.C., 169 N.C. App. 209, 609 S.E.2d 804, 2005 N.C. App. LEXIS 542 (2005).

Court properly awarded a landowner prejudgment interest pursuant to G.S. 24-5 for the period between the entry of the first judgment in its favor, which determined that it was entitled to damages for the land disturbing activities caused by the developer, and the second judgment, which determined the amount of damages. Whiteside Estates, Inc. v. Highlands Cove, L.L.C., 169 N.C. App. 209, 609 S.E.2d 804, 2005 N.C. App. LEXIS 542 (2005).

In a wrongful death action based on the medical specialist’s malpractice, the trial court did not err in requiring the specialist to pay all pre-judgment interest and costs; even if the claim of error had been preserved for appeal, there was no error because the trial court properly determined costs and interest before entitling the specialist to set-off for the settlement amount involving the other treating doctor, as G.S. 24-5(b) required that the pre-judgment interest be awarded before the set-off was given for the settlement amount. Boykin v. Kim, 174 N.C. App. 278, 620 S.E.2d 707, 2005 N.C. App. LEXIS 2396 (2005).

Failure to include interest mandated by the statute constitutes a clerical mistake; the trial court was correct to look to the statute when deciding the attorney’s motion for interest, and the fact that the attorney mistakenly requested relief pursuant to another subsection of the statute was not determinative, as the trial court had the authority to correct its oversight regardless of the arguments the attorney made. Robertson v. Steris Corp., 237 N.C. App. 263, 765 S.E.2d 825, 2014 N.C. App. LEXIS 1179 (2014).

Trial court properly ruled that interest on the attorney’s quasi-contract claim for quantum meruit was controlled by the second subsection of the statute, and although the trial court did not expressly designate the award in quantum meruit as compensatory damages, that designation was clearly inferred in the order, and the interest awarded was affirmed. Robertson v. Steris Corp., 237 N.C. App. 263, 765 S.E.2d 825, 2014 N.C. App. LEXIS 1179 (2014).

In breach of contract actions, prejudgment interest may be granted. Lazenby v. Godwin, 60 N.C. App. 504, 299 S.E.2d 288, 1983 N.C. App. LEXIS 2493 (1983).

And prejudgment interest has also been granted under certain limited circumstances where the amount of a claim is obvious or easily ascertainable from the contract or insurance policy. Lazenby v. Godwin, 60 N.C. App. 504, 299 S.E.2d 288, 1983 N.C. App. LEXIS 2493 (1983).

Treble Damages. —

It is appropriate under G.S. 75-16 to treble only the verdict awarded by the jury and not prejudgment interest assessable pursuant to this section. Market Am., Inc. v. Rossi, 104 F. Supp. 2d 606, 2000 U.S. Dist. LEXIS 14903 (M.D.N.C. 2000).

Pursuant to this section, the court should calculate prejudgment interest on the jury’s verdict only, and not on the trebled damages awarded by the court. Market Am., Inc. v. Rossi, 104 F. Supp. 2d 606, 2000 U.S. Dist. LEXIS 14903 (M.D.N.C. 2000).

Plaintiff whose damages were trebled pursuant to G.S. 75-16 of the North Carolina Unfair and Deceptive Trade Practices Act was awarded prejudgment interest on the amount of compensatory damages, $106.25 million, and postjudgment interest on the trebled amount, $318.75 million. Volumetrics Med. Imaging, Inc. v. ATL Ultrasound, Inc., 2003 U.S. Dist. LEXIS 11831 (M.D.N.C. July 10, 2003).

In a case arising from the termination of an employee, pre-judgment interest should not have been awarded based on treble damages arising from a violation of G.S. 75-1.1 due to a breach of contract; rather, the pre-judgment interest should have been awarded on the actual damages for breach of contract. Johnson v. Colonial Life & Accident Ins. Co., 173 N.C. App. 365, 618 S.E.2d 867, 2005 N.C. App. LEXIS 2015 (2005).

Prejudgment interest, provided for by this section held a “cost” within meaning of insurance contract. United States Fire Ins. Co. v. Nationwide Mut. Ins. Co., 735 F. Supp. 1320, 1990 U.S. Dist. LEXIS 3976 (E.D.N.C. 1990) (decided prior to 1985 amendment) .

Prejudgment Interest Held Not a Cost Within Meaning of Policy. —

Where insurance policy provided that, in addition to the policy limits, insurance company would pay all defense costs they incurred, prejudgment interest was not a defense cost within the meaning of the policy. Sproles v. Greene, 329 N.C. 603 , 407 S.E.2d 497, 1991 N.C. LEXIS 524 (1991).

Liability of Insurer for Prejudgment Interest. —

Since insurer’s insurance contract with the insured provided it would pay “all costs taxed to the insured in a suit we defend” it was liable for prejudgment interest under its contract of insurance. However, prejudgment interest could not be awarded on the amount of the judgment in excess of the insurer’s liability limits; thus, insured’s liability was limited to interest on the amount of the judgment which represented its insurance coverage. United States Fire Ins. Co. v. Nationwide Mut. Ins. Co., 735 F. Supp. 1320, 1990 U.S. Dist. LEXIS 3976 (E.D.N.C. 1990) (decision prior to 1985 amendment) .

A liability carrier’s obligation to pay prejudgment interest in addition to its stated limits is governed solely by the language of the policy. Nationwide Mut. Ins. Co. v. Mabe, 115 N.C. App. 193, 444 S.E.2d 664, 1994 N.C. App. LEXIS 602 (1994), cert. dismissed, 339 N.C. 614 , 454 S.E.2d 255, 1995 N.C. LEXIS 65 (1995), aff'd, 342 N.C. 482 , 467 S.E.2d 34, 1996 N.C. LEXIS 21 (1996).

Insurance company was obligated to pay prejudgment interest as part of the total of any damages up to its liability limit; therefore, where the total judgments exceeded the policy’s limit of liability, the individual claimants were not entitled to any prejudgment interest. Nationwide Mut. Ins. Co. v. Mabe, 115 N.C. App. 193, 444 S.E.2d 664, 1994 N.C. App. LEXIS 602 (1994), cert. dismissed, 339 N.C. 614 , 454 S.E.2d 255, 1995 N.C. LEXIS 65 (1995), aff'd, 342 N.C. 482 , 467 S.E.2d 34, 1996 N.C. LEXIS 21 (1996).

There is no statutory provision mandating that insurance carriers pay prejudgment interest that exceeds the stated limit of liability under the terms of the insurance contract, and since this section is not part of the Financial Responsibility Act, it is not written into every insurance policy. Watlington v. North Carolina Farm Bureau Mut. Ins. Co., 116 N.C. App. 110, 446 S.E.2d 614, 1994 N.C. App. LEXIS 866 (1994).

Whether the insurance policy expressly provided that prejudgment interest was calculable as a part of damages and was therefore included under the liability limits of the policy, defendant insurance company was not obligated to pay prejudgment interest above the policy limit of liability. Watlington v. North Carolina Farm Bureau Mut. Ins. Co., 116 N.C. App. 110, 446 S.E.2d 614, 1994 N.C. App. LEXIS 866 (1994).

The language of a liability carrier’s policy controls the liability carrier’s obligation to pay prejudgment interest in addition to its stated limits. Nationwide Mut. Ins. Co. v. Mabe, 342 N.C. 482 , 467 S.E.2d 34, 1996 N.C. LEXIS 21 (1996).

Nothing prevents a liability insurer from defining “damages” to include prejudgment interest and then capping the amount of damages that can be paid. Nationwide Mut. Ins. Co. v. Mabe, 342 N.C. 482 , 467 S.E.2d 34, 1996 N.C. LEXIS 21 (1996).

Prejudgment Interest from Date of Filing Complaint. —

This section allows prejudgment interest to accrue from the time the action is instituted. As G.S. 1A-1 , Rule 3 provides that a civil action is commenced by filing a complaint with the court, prejudgment interest is allowed to accrue from the date of filing with the court; thus, the court did not err in allowing prejudgment interest for the period prior to the time defendants were served with a valid complaint. Harris v. Scotland Neck Rescue Squad, Inc., 75 N.C. App. 444, 331 S.E.2d 695, 1985 N.C. App. LEXIS 3711 , writ denied, 314 N.C. 329 , 333 S.E.2d 487, 1985 N.C. LEXIS 2256 (1985).

In a damage action arising out of an automobile collision, the defendants’ admission in their answer of the existence of liability insurance was binding upon the parties and the trial judge. Therefore, the court’s assessment of interest from the date the complaint was filed was not error. Dunn v. Herring, 75 N.C. App. 308, 330 S.E.2d 834, 1985 N.C. App. LEXIS 3615 , cert. denied, 314 N.C. 539 , 335 S.E.2d 16, 1985 N.C. LEXIS 2032 (1985).

Where insurance company orally offered to pay its policy limit, prejudgment interest, and the costs to plaintiffs, but it did not pay those sums into court until 13 days later, since this section specifically provides that a noncontractual judgment bears interest from the date the action is instituted until the judgment is satisfied, it is the date its policy limits were paid into court which controls with regard to the payment of post-judgment interest. Sproles v. Greene, 329 N.C. 603 , 407 S.E.2d 497, 1991 N.C. LEXIS 524 (1991).

The Court of Appeals has interpreted the plain language of this section to allow prejudgment interest to accrue from the time the action is instituted. Roberts v. Young, 120 N.C. App. 720, 464 S.E.2d 78, 1995 N.C. App. LEXIS 938 (1995).

Superior court’s prejudgment interest award was erroneous and violated G.S. 24-5(b) because the court awarded interest beginning with the date that the suit was originally filed: (1) under G.S. 24-5(b) , plaintiff was entitled to prejudgment interest only for the period of time that his suit was pending prior to a judgment being entered in his favor; (2) plaintiff had voluntarily dismissed his original complaint a year after he filed it, and he had not refiled his suit until a year after that; and (3) the case was not pending, for purposes of awarding prejudgment interest under G.S. 24-5(b) before plaintiff refiled it as permitted by N.C. R. Civ. P. 41. Brookshire v. N.C. DOT, DMV, 180 N.C. App. 670, 637 S.E.2d 902, 2006 N.C. App. LEXIS 2513 (2006).

Arbitration Proceedings. —

An award of prejudgment interest was not precluded merely because the parties agreed to liability prior to entry into arbitration, but left open the issue of the amount of liability. Palmer v. Duke Power Co., 129 N.C. App. 488, 499 S.E.2d 801, 1998 N.C. App. LEXIS 653 (1998).

Where neither the arbitration agreement nor the arbitration award provided for prejudgment interest, the trial court was obligated to confirm the award as written and, accordingly, even if the arbitrator’s failure to include prejudgment interest was a mistake of law or fact, such mistake could not be corrected by the trial court on a motion for modification or correction. Palmer v. Duke Power Co., 129 N.C. App. 488, 499 S.E.2d 801, 1998 N.C. App. LEXIS 653 (1998).

Trial court did not impermissibly modify arbitration award under G.S. 1-569.24 when it calculated prejudgment interest under G.S. 24-5(b) but merely enforced the award as written, since both the arbitration agreement as understood between the parties and the arbitration award as drafted by the arbitrator contemplated an award of prejudgment interest. Lovin v. Byrd, 178 N.C. App. 381, 631 S.E.2d 58, 2006 N.C. App. LEXIS 1395 (2006).

Trial court did not err in denying a passenger’s request for prejudgment interest on his underinsured motorist arbitration award because, inter alia, implicit in the passenger’s request for prejudgment interest existed a request to modify the arbitration award, and the circumstances of G.S. 1-569.24 were the only circumstances in which a trial court was permitted to modify an arbitration award; G.S. 1-569.25 and G.S. 24-5(b) did not expand the limited circumstances in which a trial court was required to modify an arbitration award. Blanton v. Isenhower, 196 N.C. App. 166, 674 S.E.2d 694, 2009 N.C. App. LEXIS 360 (2009).

Trial court erred under G.S. 24-5(b) in refusing to award to an accident victim prejudgment interest on the amount of an arbitration award because the underinsured motorists provision of the automobile insurance policy provided for payment of compensatory damages and the arbitration award deferred the issue of prejudgment interest to the trial court. Hamby v. Williams, 196 N.C. App. 733, 676 S.E.2d 478, 2009 N.C. App. LEXIS 519 (2009).

No Prejudgment Interest on Equitable Distribution. —

No provision in the Equitable Distribution Act or any other statute authorizes the payment of prejudgment interest on an equitable distribution; this section, which authorizes prejudgment interest in certain instances, is limited to sums due by contract and to sums designated by the jury or other fact finder as compensatory damages in certain non-contract cases. Appelbe v. Appelbe, 76 N.C. App. 391, 333 S.E.2d 312, 1985 N.C. App. LEXIS 3882 (1985).

Prejudgment Interest for Tort Involving Property Loss. —

It is true that this section provides for the award of interest in certain situations. It does not, however, even peripherally address the jury’s discretion under the common law to award prejudgment interest in a tort involving loss of property. Accordingly, it cannot be construed to displace the existing common law, when such abrogation has not been provided for in whole or in part. City Nat'l Bank v. American Commonwealth Fin. Corp., 608 F. Supp. 941, 1985 U.S. Dist. LEXIS 20847 (W.D.N.C. 1985), aff'd, City Nat'l Bank v. American Commonwealth Financial Corp., 801 F.2d 714, 1986 U.S. App. LEXIS 31225 (4th Cir. 1986).

The release of claims is not equivalent to the entry of a judgment as to liability for purposes of subsection (b) of this section. Barnes v. Hardy, 98 N.C. App. 381, 390 S.E.2d 758, 1990 N.C. App. LEXIS 412 (1990), aff'd, 329 N.C. 690 , 407 S.E.2d 504, 1991 N.C. LEXIS 516 (1991).

Although case was not governed by the 1985 amendment providing for interest, plaintiff was entitled to prejudgment interest calculated from the date of breach since the amount of the damages to which the plaintiff was entitled could be determined by examining evidence relevant to the contract. Steelcase, Inc. v. Lilly Co., 93 N.C. App. 697, 379 S.E.2d 40, 1989 N.C. App. LEXIS 374 (1989).

Prejudgment Interest on Limits of Policy and Excess. —

Where trial court granted prejudgment interest on only $5,000 that remained due on $30,000 judgment after subtracting $25,000 policy limits paid by the liability carrier after the filing date of the complaint but before the judgment, the trial court erred in failing to award prejudgment interest on the $25,000 paid by the liability carrier from the filing date until it was paid by the liability carrier. Regarding the remaining $5,000, prejudgment interest should have been taxed from the date of filing to the time of judgment as a cost, less any interest already paid. Beaver v. Hampton, 106 N.C. App. 172, 416 S.E.2d 8, 1992 N.C. App. LEXIS 444 (1992), aff'd in part, vacated in part, 333 N.C. 455 , 427 S.E.2d 317, 1993 N.C. LEXIS 95 (1993).

Failure to Return Overpayment as Breach of Implied Contract. —

A breach of implied contract occurred each time during 1981 and 1982 that defendants overpaid plaintiff for oil and the latter failed to immediately return the overpayment, and the amount of the overpayments having been ascertained from the evidence, interest thereon immediately attached. But it attached only to the overcharges, the only money of defendants that plaintiff had the use of; it did not attach to the statutory penalty that was added to the overcharges pursuant to Chapter 75. Sampson-Bladen Oil Co. v. Walters, 86 N.C. App. 173, 356 S.E.2d 805, 1987 N.C. App. LEXIS 2681 (1987).

Prejudgment Interest on Bid Deposit “Detained” Pending Litigation. —

The executor was entitled under this section to prejudgment interest on, among other things, defendant’s bid deposit as compensation for the court’s “detention” of the deposit pending further litigation and resales arising from defendant’s default. Parker v. Lippard, 87 N.C. App. 43, 359 S.E.2d 492, 1987 N.C. App. LEXIS 2964 (1987).

Interest on Purchase Price. —

Although the contract for purchase and sale of property did not provide for the payment of any interest by defendant, because the parties contemplated defendant’s performance and not defendant’s breach of the contract, upon breach thereof the trial court properly ordered defendant to pay plaintiffs interest on the purchase price at the judgment rate to the date of closing. Deans v. Layton, 89 N.C. App. 358, 366 S.E.2d 560, 1988 N.C. App. LEXIS 189 (1988).

Default on Bid at Judicial Sale. —

Clerk’s order confirming the judicial sale constituted a legally binding acceptance of defendant’s bid and therefore created a specific contract of purchase. The executor tendered deed to the auctioned property and demanded payment. Defendant’s refusal to comply with that demand constituted a breach of defendant’s contract to purchase the estate property. Since the executor’s damages on that date were ascertainable based on defendant’s confirmed bid, defendant could have tendered the correct amount and stopped both the running of interest and the executor’s resale expenditures. Thus, as the executor’s claim was ascertainable on that date, the accrual of interest on that claim commenced on that date. Parker v. Lippard, 87 N.C. App. 43, 359 S.E.2d 492, 1987 N.C. App. LEXIS 2964 (1987).

Executor Entitled to Prejudgment Interest on Judicial Sale. —

An executor, after a series of resales arising from defendant’s failure to comply with his bid at a judicial sale under G.S. 1-339.30 , was entitled to prejudgment interest on defendant’s full $125,000.00 bid. Parker v. Lippard, 87 N.C. App. 487, 361 S.E.2d 395, 1987 N.C. App. LEXIS 3214 (1987).

Housing Authority Not Liable for Prejudgment Interest on Entire Verdict. —

The court held that there was no reason to subject defendant to liability for prejudgment interest on the entire amount of the verdict, when defendant, the housing authority, was only insured for less than half that amount. To do so would run counter to the policy reasons surrounding the enactment of subsection (b). Petty v. Housing Auth., 90 N.C. App. 559, 369 S.E.2d 612, 1988 N.C. App. LEXIS 618 (1988).

Interest Held to Begin When Defendant Refused to Pay Final Bill. —

In action by subcontractor to recover payment for work performed on a construction project, the award of interest from the date defendant refused to pay the final bill was properly granted. Moore v. Bobby Dixon Assocs., 91 N.C. App. 64, 370 S.E.2d 445, 1988 N.C. App. LEXIS 715 , cert. denied, 323 N.C. 476 , 373 S.E.2d 864, 1988 N.C. LEXIS 650 (1988).

In personal injury case, the trial court erred in awarding prejudgment interest to that portion of the award which was not covered by defendant’s liability insurance. Wagner v. Barbee, 82 N.C. App. 640, 347 S.E.2d 844, 1986 N.C. App. LEXIS 2602 (1986).

It is within the province of the trial court to set the date of breach for purposes of imposing prejudgment interest. Sockwell & Assocs. v. Sykes Enters., Inc., 127 N.C. App. 139, 487 S.E.2d 795, 1997 N.C. App. LEXIS 779 (1997).

Interest may be awarded on child support accruing on the date the complaint is filed. Taylor v. Taylor, 128 N.C. App. 180, 493 S.E.2d 819, 1997 N.C. App. LEXIS 1284 (1997).

The trial court properly ordered that prejudgment interest attach to the amount recovered under an insurance policy, even though the damages were unliquidated and undetermined until the verdict was rendered. Nothing in this section supports the proposition that a party obligated by contract to pay money to another can use the other party’s money at no cost merely because the exact amount due has not already been established. Dailey v. Integon Gen. Ins. Corp., 75 N.C. App. 387, 331 S.E.2d 148, 1985 N.C. App. LEXIS 3699 (1985).

Prejudgment Interest on Net Amount of Offset Award. —

In an arbitrated dispute between insurers where each party was awarded in its claim against the other, the district court did not err in offsetting the awards and in awarding prejudgment interest on only the net amount of the award, despite the claims by the insurer receiving the interest award that such an award of interest was a de facto award to which the other insurer was not entitled due to its dilatoriness in seeking to have the arbitration award confirmed and in opposing the confirmation; the de facto award merely placed the parties in the same position they would have occupied had they both immediately complied with the arbitration award. National Risk Underwriters, Inc. v. Occidental Fire & Cas. Co., 931 F.2d 1015, 1991 U.S. App. LEXIS 7582 (4th Cir. 1991).

Action on Uninsured Motorist Coverage. —

Although plaintiff’s uninsured motorist coverage was provided by insurance contract, the right to recover thereon was grounded in tort. Therefore, plaintiff insured’s action to recover under the policy met the first requirement for an award of prejudgment interest under this section, i.e., it was an action “other than contract.” Further, the uninsured motorist coverage under which the insured sought damages was liability insurance. Thus, by the uninsured motorist coverage contained in the motor vehicle liability insurance policy, the insurer assumed, up to its policy limits, the liability of the uninsured motorist for damages which the insured was legally entitled to recover from the uninsured motorist. Therefore, the insured was entitled to an award of interest from the date the action was instituted. Ensley v. Nationwide Mut. Ins. Co., 80 N.C. App. 512, 342 S.E.2d 567, 1986 N.C. App. LEXIS 2192 , cert. denied, 318 N.C. 414 , 349 S.E.2d 594, 1986 N.C. LEXIS 2597 (1986).

Action Against Underinsured Motorist Carrier. —

Underinsured motorist carrier was obligated to pay prejudgment interest, up to its policy limits, on the compensatory damages award of the jury in the underlying tort action by its insured against the tort-feasor. Baxley v. Nationwide Mut. Ins. Co., 334 N.C. 1 , 430 S.E.2d 895, 1993 N.C. LEXIS 283 (1993).

It was not error for superior court to allow prejudgment interest against subcontractor and the surety on the subcontractor’s bond in an action to recover by the contractor for work it was required to do after the subcontractor defaulted. Noland Co. v. Poovey, 58 N.C. App. 800, 295 S.E.2d 238, 1982 N.C. App. LEXIS 2836 (1982).

Award of Interest Held Inappropriate Where Specific Performance Ordered. —

Trial court erred in its order to award plaintiff ’s interest at the legal rate, on the earnest money deposit, from November 1, 1986 until delivery of a good and sufficient deed; an award of interest is inappropriate where the court has ordered specific performance and not monetary relief. Gordon v. Howard, 94 N.C. App. 149, 379 S.E.2d 674, 1989 N.C. App. LEXIS 438 (1989).

Shared Liability for Prejudgment Interest. —

Primary carrier and umbrella carrier were both liable for the payment of the awarded prejudgment interest on a pro rata basis based on their respective shares of the settlement amount since primary carrier could have limited its liability for prejudgment interest by tendering the amount of its policy prior to trial and umbrella carrier should have taken an active role in defending the underlying action in light of plaintiff ’s request for damages in excess of the limits under primary carrier’s liability policy. Hartford Accident & Indem. Co. v. United States Fire Ins. Co., 710 F. Supp. 164, 1989 U.S. Dist. LEXIS 3897 (E.D.N.C. 1989), aff'd, 918 F.2d 955, 1990 U.S. App. LEXIS 25793 (4th Cir. 1990).

Prejudgment interest is not authorized when only enforcing a statutory lien, absent a contract between the parties. W.H. Dail Plumbing, Inc. v. Roger Baker & Assocs., 78 N.C. App. 664, 338 S.E.2d 135, 1986 N.C. App. LEXIS 1965 (1986).

Proof of Insurance Coverage. —

The court did not err by allowing prejudgment interest where plaintiff presented no evidence that defendant carried liability insurance covering claim, since this section does not require plaintiff to present such evidence. Indeed, the law prohibits plaintiff from introducing such evidence at trial. In light of the statutory requirement of financial responsibility, G.S. 20-309 et seq., which is generally met through liability insurance, defendant has the burden of showing the absence of such insurance. Harris v. Scotland Neck Rescue Squad, Inc., 75 N.C. App. 444, 331 S.E.2d 695, 1985 N.C. App. LEXIS 3711 , writ denied, 314 N.C. 329 , 333 S.E.2d 487, 1985 N.C. LEXIS 2256 (1985).

Prejudgment Interest Not a Cost. —

Unless a policy of insurance provides to the contrary, prejudgment interest constitutes a portion of a plaintiff’s damage award and not a cost. Ledford v. Nationwide Mut. Ins. Co., 118 N.C. App. 44, 453 S.E.2d 866, 1995 N.C. App. LEXIS 81 (1995).

Calculation of Prejudgment Interest. —

The correct method of reducing a claim against a non-settling tortfeasor when prejudgment interest applies is to convert the settlement amount to judgment-time dollars, using the same legal rate of interest that is used in calculating prejudgment interest on the compensatory damages verdict, then subtracting the adjusted settlement figure from the adjusted compensatory damages figure. Brown v. Flowe, 349 N.C. 520 , 507 S.E.2d 894, 1998 N.C. LEXIS 845 (1998).

Prejudgment interest was properly calculated in a wrongful death case because interest was applied to the entire compensatory damages award and any credits to which a contractor might have been entitled were then deducted. Estate of Coppick v. Hobbs Marina Props., LLC, 240 N.C. App. 324, 772 S.E.2d 1, 2015 N.C. App. LEXIS 278 (2015).

Prejudgment interest provided for by this section held a “cost” within meaning of insurance contract, which insurer was obligated to pay. Lowe v. Tarble, 313 N.C. 460 , 329 S.E.2d 648, 1985 N.C. LEXIS 1552 (1985).

Where primary carrier filed a request for declaratory judgment to determine the party’s rights and obligations to pay $620,689.66 in prejudgment interest awarded in a State court action involving an insured of the primary carrier and umbrella carrier, the award of prejudgment interest in this case was an element of damages and not a cost; the purpose of the award of prejudgment interest is to compensate a worthy plaintiff for the loss of the use of money that he or she has incurred due to the wrongful acts of another party. Hartford Accident & Indem. Co. v. United States Fire Ins. Co., 710 F. Supp. 164, 1989 U.S. Dist. LEXIS 3897 (E.D.N.C. 1989), aff'd, 918 F.2d 955, 1990 U.S. App. LEXIS 25793 (4th Cir. 1990).

Prejudgment Interest on Payments Withheld by Clerk of Court. —

In a suit for the breach of a lease, the lessor was entitled under G.S. 24-5 to prejudgment interest on payments withheld by the clerk of court under G.S. 42-34 ; the payments did not include interest and were not a final settlement, and the lessor was deprived of the use of its money while it was retained by the clerk. N.C. Indus. Capital, LLC v. Clayton, 185 N.C. App. 356, 649 S.E.2d 14, 2007 N.C. App. LEXIS 1825 (2007).

Prejudgment Interest Properly Calculated After Discontinuance. —

Prejudgment interest was properly calculated under G.S. 24-5 on an operator’s judgment for damages arising out of a motor vehicle accident as: (1) due to a lapse in the alias or pluries summons, the operator’s action was discontinued under G.S. 1A-1 , N.C. R. Civ. P. 4; (2) the trial court lacked discretion in determining the commencement date of the action; (3) the action commenced on 9 June 2006, when the summons was reissued; and (4) the prejudgment interest was based on the period from 9 June 2006 to the date the judgment was entered. Bryson v. Cort, 193 N.C. App. 532, 668 S.E.2d 84, 2008 N.C. App. LEXIS 1981 (2008).

Principal and Interest Not Distinguished. —

The trial court did not err in awarding prejudgment interest when the jury did not distinguish between principal and interest, as the requirement that the jury distinguish between principal and interest pertains only to those rare situations where evidence as to both principal and interest is submitted to the jury for their consideration. Taha v. Thompson, 120 N.C. App. 697, 463 S.E.2d 553, 1995 N.C. App. LEXIS 920 (1995).

V.Decisions Under Prior Law

Decisions Under Prior Law. —

The legislature intended the words “from the time of the verdict” to mean the verdict upon which judgment in favor of plaintiff was rendered. Phelps v. Duke Power Co., 324 N.C. 72 , 376 S.E.2d 238, 1989 N.C. LEXIS 19 (1989) (decided under prior law) .

Former G.S. 24-5 was obviously meant to change the common law rule so that tort damages reduced to judgment would bear interest from the time the action was commenced provided the damages ordered to be paid were covered by liability insurance, and the legislature did not intend to change the rule regarding the accrual of interest on tort claims not covered by liability insurance. Phelps v. Duke Power Co., 324 N.C. 72 , 376 S.E.2d 238, 1989 N.C. LEXIS 19 (1989).

When plaintiff recovers judgment, it is the trial court’s duty, on its own motion, to inquire of the defendant regarding the existence of any liability insurance which could cover the damages awarded, and it is the defendant’s duty to respond fully and accurately to the trial court’s inquiry. Phelps v. Duke Power Co., 324 N.C. 72 , 376 S.E.2d 238, 1989 N.C. LEXIS 19 (1989) (decided under prior law) .

OPINIONS OF ATTORNEY GENERAL

Not Applicable When Appearance Bond Forfeited. — See opinion of Attorney General to Mr. Roy R. Holdford, Jr., 41 N.C. Op. Att'y Gen. 809 (1972).

Interest May Not Be Assessed on Costs. — See opinion of Attorney General to Honorable Charles M. Johnson, Clerk of Superior Court Montgomery County, 51 N.C. Op. Att'y Gen. 82 (1982).

§ 24-6. Clerk to ascertain interest upon default judgment on bond, covenant, bill, note or signed account.

When a suit is instituted on a single bond, a covenant for the payment of money, bill of exchange, promissory note, or a signed account, and the defendant does not plead to issue thereon, upon judgment, the clerk of the court shall ascertain the interest due by law, without a writ of inquiry, and the amount shall be included in the final judgment of the court as damages, which judgment shall be rendered therein in the manner prescribed by § 24-5.

History. 1797, c. 475, P.R; R.C., c. 31, s. 91; Code, s. 531; Rev., s. 1956; C.S., s. 2310.

CASE NOTES

This section dispenses with a jury and directs the clerk to compute the interest preparatory to a final judgment by default in suits “instituted on a single bond, a covenant for the payment of money, bill of exchange, promissory note, or a signed account,” contemplating the rendition of such judgment upon written instruments which themselves specify the precise sum to be paid, and need only an estimate of accrued interest. Rogers v. Moore, 86 N.C. 85 , 1882 N.C. LEXIS 151 (1882).

Courts’ Power to Correct Mistake in Calculation. —

A judgment by default upon a speciality, for the want of a plea, entered by the clerk in court, upon his calculation of interest, was held to be an office judgment, and it was also held that the court possessed the power to correct a mistake in the clerk’s calculation of interest at any time upon motion. Griffin v. Hinson, 51 N.C. 154 , 1858 N.C. LEXIS 136 (1858).

§ 24-7. Interest from verdict to judgment added as costs.

Except with respect to compensatory damages in actions other than contract as provided in G.S. 24-5 , when the judgment is for the recovery of money, interest from the time of the verdict or report until judgment is finally entered shall be computed by the clerk and added to the costs of the party entitled thereto.

History. Code, s. 529; Rev., s. 1955; C.S., s. 2311; 1981, c. 327, s. 2.

Legal Periodicals.

For survey of 1981 administrative law, see 60 N.C.L. Rev. 1165 (1982).

CASE NOTES

No discretion is vested in the court to determine what shall be the rate of interest in a given case. Hardy-Latham v. Wellons, 415 F.2d 674, 1968 U.S. App. LEXIS 6672 (4th Cir. 1968).

No Interest on Awards Under State Tort Claims Act Absent Express Statutory Authority. —

Because the State Tort Claims Act (G.S. 143-291 et seq.) is in derogation of sovereign immunity, and should, therefore, be strictly construed as written, there must be a specific statutory provision authorizing the accrual of interest on damage awards under the act. And although G.S. 24-5 and this section refer to post-judgment interest, the General Assembly nevertheless recently enacted G.S. 97-86.2 allowing interest on workers’ compensation claims to be assessed on awards at the legal rate. Thus, the same type of statutory enactment would be necessary before any interest could accrue to a tort claims award. Myers v. Department of Crime Control & Pub. Safety, 67 N.C. App. 553, 313 S.E.2d 276, 1984 N.C. App. LEXIS 3072 (1984).

Prejudgment interest provided for by G.S. 24-5 held a “cost” within meaning of insurance contract, which insurer was obligated to pay. Lowe v. Tarble, 313 N.C. 460 , 329 S.E.2d 648, 1985 N.C. LEXIS 1552 (1985).

§ 24-8. Loans not in excess of $300,000; what interest, fees and charges permitted.

  1. If the principal amount of a loan is less than three hundred thousand dollars ($300,000), no lender shall charge or receive from any borrower or require in connection with any loan any borrower, directly or indirectly, to pay, deliver, transfer, or convey or otherwise confer upon or for the benefit of the lender or any other person, firm, or corporation any sum of money, thing of value, or other consideration other than that which is pledged as security or collateral to secure the repayment of the full principal of the loan, together with fees and interest provided for in this Chapter or Chapter 53 of the General Statutes.
  2. Repealed by Session Laws 2003-401, s. 2, effective October 1, 2003, and applicable to contracts entered into or renewed on or after that date.
  3. The provisions of this section shall not prevent a borrower from selling, transferring, or conveying property other than security or collateral to any person, firm, or corporation for a fair consideration so long as such transaction is not made a condition or requirement for any loan.
  4. Notwithstanding any contrary provision of State law, any lender may collect money from the borrower for the payment of (i) bona fide loan-related goods, products, and services provided or to be provided by third parties, (ii) taxes, filing fees, recording fees, and other charges and fees paid or to be paid to public officials, and (iii) fees payable to the federal government, any state or local government or any federal, state, or local governmental agency in connection with a loan made pursuant to a loan program sponsored by or offered through the federal government, any state or local government or any federal, state or local government agency, including loan guarantee and tax credit programs. No third party shall charge or receive (i) any unreasonable compensation for loan-related goods, products, and services, or (ii) any compensation for which no loan-related goods and products are provided or for which no or only nominal loan-related services are performed. Loan-related goods, products, and services include fees for tax payment services, fees for flood certification, fees for pest-infestation determinations, mortgage brokers’ fees, appraisal fees, inspection fees, environmental assessment fees, fees for credit report services, assessments, costs of upkeep, surveys, attorneys’ fees, notary fees, escrow charges, and insurance premiums (including, for example, fire, title, life, accident and health, disability, unemployment, flood, and mortgage insurance).
  5. Notwithstanding any contrary provision of State law, any lender may receive the proceeds from any insurance policies where loss occurs under the terms of such policies.
  6. This section shall not be applicable to any corporation licensed as a “Small Business Investment Company” under the provisions of the United States Code Annotated, Title 15, section 66, et seq., nor shall it be applicable to the sale or purchase of convertible debentures, nor to the sale or purchase of any debt security with accompanying warrants, nor to the sale or purchase of other securities through an organized securities exchange.

History. 1961, c. 1142; 1969, c. 127; c. 1303, s. 5; 1993, c. 226, s. 12; 1999-332, s. 4; 2000-140, s. 40(c); 2003-401, s. 2.

Legal Periodicals.

For comment on usury law in North Carolina, see 47 N.C.L. Rev. 761 (1969).

For comment on equity participation (a device to circumvent usury laws) in real estate finance, see 7 N.C. Cent. L.J. 387 (1976).

Effect of Amendments.

Session Laws 2003-401, s. 2, effective October 1, 2003, and applicable to contracts entered into or renewed on or after that date, repealed subsection (b).

CASE NOTES

It is the making date which controls the ultimate determination whether the loan was usurious under this section. Rosenthal's Bootery, Inc. v. Shavitz, 48 N.C. App. 170, 268 S.E.2d 250, 1980 N.C. App. LEXIS 3207 (1980).

Section Applicable to Loan Secured by North Carolina Realty. —

Where a loan is secured by real estate located in North Carolina, the loan is subject to the laws of North Carolina relating to interest and usury. Appalachian S., Inc. v. Construction Mtg. Corp., 11 N.C. App. 651, 182 S.E.2d 15, 1971 N.C. App. LEXIS 1605 , cert. denied, 279 N.C. 396 , 183 S.E.2d 244, 1971 N.C. LEXIS 827 (1971).

What Constitutes Loan. —

Definitions require that there be a delivery of money on the one hand and an understanding to repay on the other for a loan to have been made. Kessing v. National Mtg. Corp., 278 N.C. 523 , 180 S.E.2d 823, 1971 N.C. LEXIS 1010 (1971).

What Constitutes Bona Fide Fee. —

The court’s inquiry concerning whether a fee charged by a lender is bona fide for purposes of G.S. 24-8(d) focuses on whether services were actually provided or whether the fee included charges for unstated services. Capparelli v. Amerifirst Home Improvement Fin. Co., 535 F. Supp. 2d 554, 2008 U.S. Dist. LEXIS 11315 (E.D.N.C. 2008).

In a case in which homeowners alleged that a lender charged improper fees for a title search, an appraisal, and document preparation because the closing agent that performed the services was not legally authorized, the fees were held to be bona fide within the meaning of G.S. 24-8(d) since the services were actually performed and the lender was not required to ensure whether the closing agent needed or had a license. Capparelli v. Amerifirst Home Improvement Fin. Co., 535 F. Supp. 2d 554, 2008 U.S. Dist. LEXIS 11315 (E.D.N.C. 2008).

North Carolina courts do not hesitate to look beneath the forms of transactions alleged to be usurious in order to determine whether or not such transactions are in truth and reality usurious. Kessing v. National Mtg. Corp., 278 N.C. 523 , 180 S.E.2d 823, 1971 N.C. LEXIS 1010 (1971).

Where a transaction is in reality a loan of money, whatever may be its form, and the lender charges for the use of his money a sum in excess of interest at the legal rate, by whatever name the charge may be called, the transaction will be held to be usurious. The law considers the substance and not the mere form or outward appearance of the transaction in order to determine what it in reality is. If this were not so, the usury laws of the State would easily be evaded by lenders of money who would exact from borrowers with impunity compensation for money loaned in excess of interest at the legal rate. Kessing v. National Mtg. Corp., 278 N.C. 523 , 180 S.E.2d 823, 1971 N.C. LEXIS 1010 (1971).

What Plaintiff Must Show in Action for Usury. —

In an action for usury plaintiff must show (1) that there was a loan, (2) that there was an understanding that the money lent would be returned, (3) that for the loan a greater rate of interest than allowed by law was paid, and (4) that there was corrupt intent to take more than the legal rate for the use of the money. Kessing v. National Mtg. Corp., 278 N.C. 523 , 180 S.E.2d 823 (1971); Appalachian S., Inc. v. Construction Mtg. Corp., 11 N.C. App. 651, 182 S.E.2d 15, cert. denied, 279 N.C. 396 , 183 S.E.2d 244 (1971). In accord with the main volume. Bagri v. Desai, 83 N.C. App. 150, 349 S.E.2d 309, 1986 N.C. App. LEXIS 2671 (1986).

The court may declare a transaction usurious as a matter of law where there is no dispute as to the facts. Kessing v. National Mtg. Corp., 278 N.C. 523 , 180 S.E.2d 823, 1971 N.C. LEXIS 1010 (1971); Appalachian S., Inc. v. Construction Mtg. Corp., 11 N.C. App. 651, 182 S.E.2d 15, 1971 N.C. App. LEXIS 1605 , cert. denied, 279 N.C. 396 , 183 S.E.2d 244, 1971 N.C. LEXIS 827 (1971).

The corrupt intent required to constitute usury is simply the intentional charging of more for money lent than the law allows. Kessing v. National Mtg. Corp., 278 N.C. 523 , 180 S.E.2d 823 (1971); Appalachian S., Inc. v. Construction Mtg. Corp., 11 N.C. App. 651, 182 S.E.2d 15, cert. denied, 279 N.C. 396 , 183 S.E.2d 244 (1971). In accord with first paragraph in the main volume. See Bagri v. Desai, 83 N.C. App. 150, 349 S.E.2d 309, 1986 N.C. App. LEXIS 2671 (1986).

Where the lender intentionally charges the borrower a greater rate of interest than the law allows and his purpose is clearly revealed on the face of the instrument, a corrupt intent to violate the usury law on the part of the lender is shown. Kessing v. National Mtg. Corp., 278 N.C. 523 , 180 S.E.2d 823, 1971 N.C. LEXIS 1010 (1971); Appalachian S., Inc. v. Construction Mtg. Corp., 11 N.C. App. 651, 182 S.E.2d 15, 1971 N.C. App. LEXIS 1605 , cert. denied, 279 N.C. 396 , 183 S.E.2d 244, 1971 N.C. LEXIS 827 (1971).

The limitation imposed by this section concerns a thing of value other than that which is pledged as security or collateral to secure the repayment of the full principal of the loan, together with fees and interest. Thus, where defendant’s endorsement and guaranty agreements served as security for loan, and no additional sum or thing of value was involved other than securing for plaintiff that the loan would be repaid in full, this section was not violated. Northwestern Bank v. Barber, 79 N.C. App. 425, 339 S.E.2d 452, 1986 N.C. App. LEXIS 2059 (1986).

A 25% interest in a partnership (which owned the realty conveyed to it by plaintiff) was a “thing of value.” Kessing v. National Mtg. Corp., 278 N.C. 523 , 180 S.E.2d 823, 1971 N.C. LEXIS 1010 (1971).

And this made the partnership agreement unlawful. Kessing v. National Mtg. Corp., 278 N.C. 523 , 180 S.E.2d 823, 1971 N.C. LEXIS 1010 (1971).

Hence, the loan was usurious under this section. Kessing v. National Mtg. Corp., 278 N.C. 523 , 180 S.E.2d 823, 1971 N.C. LEXIS 1010 (1971).

Transaction Violating Statute Unenforceable. —

Where the defendant’s counterclaims relate to the limited partnership and the trial court correctly adjudged that the loan transaction considered as a whole violated this section, it followed, therefore, that the limited partnership agreement and the conveyances made to the partnership contrary to this section were void and the courts will not lend their aid to the enforcement of a contract which is unlawful and violates its positive legislation. Kessing v. National Mtg. Corp., 278 N.C. 523 , 180 S.E.2d 823, 1971 N.C. LEXIS 1010 (1971).

Transaction Held Usurious. —

Plaintiff’s requiring, in connection with lending defendant $50,000.00 to buy a motel, that defendant also pay him one-sixth of the motel’s profits and one-sixth of any gain on the sale of the motel was clearly prohibited by this section. Bagri v. Desai, 83 N.C. App. 150, 349 S.E.2d 309, 1986 N.C. App. LEXIS 2671 (1986).

§ 24-9. Loans exempt from rate and fee limitations.

  1. As used in this section, the following definitions apply:
    1. “Bank” means a bank, savings and loan association, savings bank, or credit union chartered under the laws of North Carolina or the United States. However, the term “bank” does not include any subsidiary or affiliate of a bank, savings and loan association, savings bank, or credit union chartered under the laws of North Carolina or the United States that is not itself a bank, savings and loan association, savings bank, or credit union chartered under the laws of North Carolina or the United States.
    2. “Equity line of credit” means a loan, other than an exempt loan, that satisfies all of the following conditions:
      1. The lender is a bank.
      2. The loan is a revolving line of credit, open-end loan, revolving credit plan, or revolving credit card plan, and the loan is secured by a mortgage or deed of trust on real property.
      3. At any time within a specified period not to exceed 30 years the borrower may request and the lender is obligated to provide credit advances up to the agreed aggregate credit limit. As used in this sub-subdivision, “lender is obligated” means that the lender is contractually bound to provide credit advances. However, the equity line of credit and the lender’s obligation to make credit advances shall be subject to the provisions of section 226.5b(f) of Title 12 of the Code of Federal Regulations and the official commentaries and rulings issued pursuant thereto, as the same may be amended from time to time, without regard to whether that section of the Code of Federal Regulations would otherwise apply to the loan.
      4. Any repayments of principal by the borrower within the specified time will reduce the amount of advances counted against the aggregate credit limit.
      5. The initial loan amount is ten thousand dollars ($10,000) or more. On January 1, 2008, and on January 1 every five years thereafter, the minimum initial loan amount sufficient to qualify a loan closed on or after that date as an equity line of credit under this section shall be increased by one thousand dollars ($1,000). For example, a loan closed on or after January 1, 2008, but prior to January 1, 2013, shall not be considered an equity line of credit unless the initial loan amount is eleven thousand dollars ($11,000) or more, and a loan closed on or after January 1, 2013, but prior to January 1, 2018, shall not be considered an equity line of credit unless the initial loan amount is twelve thousand dollars ($12,000) or more.An equity line of credit shall cease being an equity line of credit subject to the provisions of this section from and after the date the loan amount is reduced below the equity line of credit’s initial loan amount unless (i) the loan amount was reduced for one or more of the reasons or pursuant to one or more of the methods specified in section 226.5b(f)(2) or section 226.5b(f)(3)(vi) of Title 12 of the Code of Federal Regulations and the official commentaries and rulings issued pursuant thereto, as the same may be amended from time to time, without regard to whether that section of the Code of Federal Regulations would otherwise apply to the loan, or (ii) the loan amount was reduced at the request of the borrower because the borrower was engaged in the refinancing of a loan secured by a superior lien on the same real property and the reduction in the loan amount of the equity line of credit is no greater than the difference between the loan amount secured by the refinancing mortgage and the outstanding principle balance of the loan being refinanced.
    3. “Exempt loan” means a loan in which:
      1. The loan amount is three hundred thousand dollars ($300,000) or more; or
      2. The borrower is a person other than a natural person; or
      3. The loan is obtained by a natural person primarily for a purpose other than a personal, family, or household purpose. Whether a loan is obtained primarily for a purpose other than a personal, family, or household purpose shall be guided by the standards established by the federal Truth In Lending Act (Title 1 of Public Law 90-321; 82 Stat. 146; 15 U.S.C. § 160, et seq.) and all regulations and rulings issued pursuant to that Act, as the same may be amended from time to time.
    4. “Loan” means an advance of money or an extension of credit that is made to or on behalf of a borrower, the principal amount of which the borrower has an obligation to pay the lender. The term includes revolving lines of credit, open-end loans, revolving credit plans, and revolving credit card plans in addition to closed-end loans.
    5. “Loan amount” means the principal amount of a loan or, in the case of a revolving line of credit, open-end loan, revolving credit plan, or revolving credit card plan, the initial maximum credit limit.
  2. Notwithstanding any other provision of this Chapter or any other provision of State law, any borrower in an exempt loan transaction may agree to pay, and any lender, including a bank, may charge and collect from the borrower, interest at any rate and fees and other charges in any amount that the borrower agrees to pay. A claim or defense of usury is prohibited in an exempt loan transaction.
  3. The provisions of G.S. 24-1.2 A, 24-11, and 24-11.1 shall not apply to equity lines of credit offered by banks. Except as provided in this subsection and notwithstanding any other provision of this Chapter or any other provision of State law, any bank may charge and collect from any borrower interest at any rate and fees and other charges in any amount that the borrower agrees to pay in connection with an equity line of credit. However, an equity line of credit made by a bank shall be subject to the following, to the extent otherwise applicable:
    1. The provisions of G.S. 24-1.1 E (relating to restrictions and limitations on high-cost home loans).
    2. The provisions of G.S. 24-10.2 (relating to consumer protections in certain home loans).
    3. Notwithstanding the limitation against prepayment penalties contained in G.S. 45-82.4 , a bank may charge and collect prepayment fees or penalties following the borrower’s voluntary exercise of a right or option to repay all or any portion of the outstanding balance of a variable interest rate equity line of credit at a fixed interest rate over a specified period of time, subject to the following limitations:
      1. Prepayment fees or penalties may be charged only with respect to the prepayment of that portion of the outstanding balance the borrower voluntarily agrees to repay at a fixed interest rate over a specified time;
      2. No prepayment fees or penalties may be charged for prepayments made more than 30 months after the borrower voluntarily exercises the right or option to repay that portion of the outstanding balance of the equity line of credit at a fixed interest rate over a specified period of time; and
      3. The prepayment fees or penalties charged with respect to that portion of the outstanding balance to be repaid at a fixed rate over a specified period of time may not exceed, in the aggregate, more than two percent (2%) of the amount prepaid.Otherwise, no prepayment fees or penalties may be charged or collected by the bank with respect to an equity line of credit.
  4. The provisions of G.S. 24-11 and G.S. 24-11 .1 shall not apply to revolving credit card plans offered by banks. Notwithstanding any other provision of this Chapter or any other provision of State law, any bank may charge and collect from any borrower interest at any rate, as well as fees and other charges in any amount that the borrower agrees to pay in connection with a revolving credit card plan. This subsection (d) shall not apply to a revolving credit card plan that is secured by a mortgage or deed of trust on real property.

History. 1963, c. 753, s. 1; 1965, c. 335; 1969, c. 896; 1979, c. 138, s. 5; 1995, c. 351, s. 13; 2003-401, s. 1; 2011-312, s. 1.

Effect of Amendments.

Session Laws 2003-401, s. 1, effective October 1, 2003, and applicable to contracts entered into or renewed on or after that date, rewrote the section.

Session Laws 2011-312, s. 1, effective October 1, 2011, updated the section reference in subdivision (c)(3).

Legal Periodicals.

For comment on usury law in North Carolina, see 47 N.C.L. Rev. 761 (1969).

CASE NOTES

North Carolina’s usury statute, G.S. 24-10.1 , did not apply to business loans between corporations, and there was no basis for a bankruptcy trustee’s contention to treat the loan transaction at issue as an individual transaction where the loan was clearly made to a limited liability company. Whitaker v. Mortg. Miracles, Inc., 298 B.R. 62, 2002 Bankr. LEXIS 1774 (Bankr. W.D.N.C. 2002).

A surety for a corporate debt answered “in behalf” of the corporation, within the plain meaning of this section, and was, under the plain meaning of this section, precluded from raising the defense of usury. Colonial Acceptance Corp. v. Northeastern Printcrafters, Inc., 75 N.C. App. 177, 330 S.E.2d 76, 1985 N.C. App. LEXIS 3585 (1985).

Default Rate. —

Holder of a mortgage on the debtor’s property was allowed, pursuant to 11 U.S.C.S. § 502 and state law, to recover interest at the default rate of 11.13% from the date of the payment default because the debtor had not established that the default interest rate provided for in the loan agreement was outside the bounds of established parameters. In re Harvest Oaks Drive Assocs., LLC, 2011 Bankr. LEXIS 146 (Bankr. E.D.N.C. Jan. 14, 2011).

§ 24-9.1. Certain repayments to consumers by public utilities not subject to claim or defense of usury.

Notwithstanding any other provision of this Chapter or any other provision of law, any public utility, as defined by G.S. 62-3 , shall pay to its customers such rate of interest as may be required by order of the North Carolina Utilities Commission in transactions wherein the utility is refunding to its customers funds advanced by or overcollected from the customers. As to such transactions, the claim or defense of usury by such public utility and its successors or anyone else in its behalf is prohibited.

History. 1981, c. 461, s. 3.

§ 24-9.2. [Repealed]

Repealed by Session Laws 1995, c. 351, s. 14.

§ 24-9.3. Economic development loans.

Fees or other funds paid by borrowers for contribution to loss reserve accounts administered and controlled by nonprofit corporations that are part of State-funded programs that provide loans to promote economic development shall not be considered interest under this Chapter and shall not be subject to claims or defenses of usury.

History. 1995, c. 252, s. 1.

§ 24-10. Maximum fees on loans secured by real property.

  1. No lender on loans made under G.S. 24-1.1 shall charge or receive from any borrower or any agent for a borrower, any fees or discounts unless otherwise allowed where the principal amount is less than three hundred thousand dollars ($300,000) and is secured by real property, which fees or discounts in the aggregate shall exceed two percent (2%) if a construction loan on other than a one or two family dwelling, and one percent (1%) on any other type of loan; provided, however, if a single lender makes both the construction loan and a permanent loan utilizing one note, the lender may collect the fees as if they were two separate loans. Except as provided herein or otherwise allowed, no party shall pay for the benefit of the lender any other fees or discounts.
  2. Any loan made under G.S. 24-1.1 in an original principal amount of one hundred thousand dollars ($100,000.00) or less may be prepaid in part or in full, after 30 days notice to the lender, with a maximum prepayment fee of two percent (2%) of the outstanding balance at any time within three years after the first payment of principal and thereafter there shall be no prepayment fee, provided that there shall be no prepayment fee charged or received in connection with any repayment of a construction loan; and except as herein provided, any lender and any borrower may agree on any terms as to prepayment of a loan.
  3. “Construction loan” means a loan which is obtained for the purpose of financing fully, or in part, the cost of constructing buildings or other improvements upon real property and the proceeds of which, under the terms of a written contract between a lender and a borrower, are to be disbursed periodically as the construction work progresses. A construction loan shall be payable in full not later than 18 months in case of a loan made under the provisions of G.S. 24-1.1(a)(1) or 36 months in case of any other construction loan made after the execution of the note by the borrower. A construction loan may include advances for the purchase price of the property upon which the improvements are to be constructed.
    1. Any lender may charge to any person, firm or corporation that assumes a loan, secured by real property, the following fee:
      1. Where the mortgage or deed of trust contains a due on sale clause, a fee not to exceed four hundred dollars ($400.00); provided, however, that if the original obligor is not released from liability on the obligation, the fee shall not exceed one hundred twenty-five dollars ($125.00).
      2. Where the mortgage or deed of trust does not contain a due on sale clause, a fee not to exceed one hundred twenty-five dollars ($125.00).The fees authorized by this subsection may be paid in whole or in part by any party but the total shall not exceed the maximum fees set forth herein.
    2. For purposes of this subsection, the term “due on sale clause” means a contract provision that authorizes a lender to declare immediately due and payable all sums secured by the lender’s security instrument if all or any part of the secured property, or an interest therein, is sold or transferred without the lender’s prior written consent or contrary to the requirements of the mortgage or the deed of trust.  For purposes of this subsection, no lender shall exercise its rights under the due on sale clause if prohibited by federal law as of the date of execution of the contract containing the clause.
  4. , (f) Repealed by Session Laws 1985, c. 755, s. 2. (g) Notwithstanding the limitations contained in subsection (a) of this section, a lender described in G.S. 24-1.1 A(a)(2) may charge or receive from any borrower, or any agent for a borrower, fees or discounts which in the aggregate do not exceed two percent (2%) on loans made under G.S. 24-1.1 when the loans are secured by a second or junior lien on real property. The fees or discounts are fully earned when the loan is made and are not a prepayment penalty under this Chapter or any other law of this State.

    (h) A bank, savings and loan association, savings bank, or credit union, or any subsidiary or affiliate thereof organized under the laws of this State or the United States, may charge a party to a loan secured by real property a reasonable fee as may be agreed upon by the parties for an appraisal performed by an employee of the bank, savings and loan association, savings bank, or credit union, or any subsidiary or affiliate thereof. Upon the request of the borrower, the lender shall provide at no additional charge to the borrower a copy of any appraisal for which the lender has collected a fee under this subsection. Provision of the copy of an appraisal shall not be construed to create or imply any warranty which does not otherwise exist by the lender as to the accuracy of the appraisal.

History. 1967, c. 852, s. 1; 1969, c. 40; c. 1303, s. 6; 1971, c. 1168; 1979, c. 684; c. 849, s. 1; c. 969; 1981, c. 933; 1983, c. 541, s. 1; 1985, c. 154, s. 2; c. 755, s. 2; 1991, c. 506, s. 5; 2018-142, s. 6(a), (b).

Effect of Amendments.

Session Laws 2018-142, s. 6(a), (b), effective December 15, 2018, in subsection (c), substituted “the” for “such” twice in subsection (c) and once in subsection (g); substituted “progresses. A construction” for “progresses; and such” following “construction work”; and substituted “G.S. 24-1.1(a)(1)” for “G.S. 24-1.1(1)” following “provisions of”; in subsection (g), deleted “or G.S. 24-1.2(2)” following “under G.S. 24-1.1 ”; and made minor stylistic changes.

Legal Periodicals.

For comment on usury law in North Carolina, see 47 N.C.L. Rev. 761 (1969).

For article, “Transferring North Carolina Real Estate Part I: How the Present System Functions,” see 49 N.C.L. Rev. 413 (1971).

For note on the operation of a due-on-sale clause in a deed of trust to allow a lender to exact higher interest rates from the grantee of a mortgagor, see 13 Wake Forest L. Rev. 490 (1977).

CASE NOTES

Purpose. —

The wisdom of the statute, and others like it, is manifest. First the statute preserves freedom of contract, a principle long recognized and jealously guarded in North Carolina. Secondly, the statute recognizes the borrowers and lenders are best able in a free market place to determine for themselves what prepayment terms are acceptable, “reasonable,” “proportionate,” and “fair.” The statute recognizes that prepayment provisions are part an parcel of the overall loan terms and, as such, are better left to the agreement of the parties. West Raleigh Group v. Massachusetts Mut. Life Ins. Co., 809 F. Supp. 384, 1992 U.S. Dist. LEXIS 19941 (E.D.N.C. 1992).

Section Does Not Cover Interest Rates. —

Scope of this section plainly does not extend to, nor does it even address, the issue of interest rates. In re Foreclosure of Deed of Trust Executed By Bonder, 306 N.C. 451 , 293 S.E.2d 798, 1982 N.C. LEXIS 1488 (1982).

Higher Interest upon Transfer of Property Not Covered by Section. —

This section has no bearing upon the ability of a due-on-sale clause to generate higher interest when the original borrower later transfers the property securing the loan. In re Foreclosure of Deed of Trust Executed By Bonder, 306 N.C. 451 , 293 S.E.2d 798, 1982 N.C. LEXIS 1488 (1982).

Amount of Lawful Prepayment Premiums Limited. —

Loan pre-payment provisions are valid and enforceable; amount of lawful prepayment premiums are limited. In re Carr Mill Mall Ltd. Partnership, 201 B.R. 415, 1996 Bankr. LEXIS 1311 (Bankr. M.D.N.C. 1996).

Section Held Applicable. —

Note executed in connection with a $2.8 million real estate loan was clearly in excess of $100,000 and was not alleged to be a “construction loan”; there could be no serious argument that the partner did not agree upon the contested prepayment provisions, since those provisions were expressly a part of the Note. Accordingly, subsection (b) of this section was applicable to the note and that the enforceability of the prepayment terms of the note was governed by it. West Raleigh Group v. Massachusetts Mut. Life Ins. Co., 809 F. Supp. 384, 1992 U.S. Dist. LEXIS 19941 (E.D.N.C. 1992).

Prepayment Prior to Enactment of G.S. 24-2.4 . —

Considering the acts of the General Assembly, specifically this section and G.S. 24-1.1 A, the law of North Carolina prior to the enactment of G.S. 24-2.4 was that the mortgagor had the right of prepayment when the note was silent. Hatcher v. Rose, 329 N.C. 626 , 407 S.E.2d 172, 1991 N.C. LEXIS 521 (1991).

Statute of Limitations. —

Homeowner’s claim brought for allegedly illegal interest rates and fees on her second mortgage was dismissed as the statute of limitations had expired because the homeowner should have discovered any violation on the day of the closing. Faircloth v. Nat'l Home Loan Corp., 313 F. Supp. 2d 544, 2003 U.S. Dist. LEXIS 4206 (M.D.N.C. 2003), aff'd, 87 Fed. Appx. 314, 2004 U.S. App. LEXIS 1039 (4th Cir. 2004).

Statute of limitations for usury claim was two years; where all details of borrowers’ loan, including the interest rate, fees, and expenses, were disclosed before the closing in loan documents to the borrowers, who had the capacity and the opportunity to discover their claim but failed to do so, the statute of limitations for the borrowers’ usury claim began to run on the date of the closing of their loan. Shepard v. Ocwen Fed. Bank, FSB, 172 N.C. App. 475, 617 S.E.2d 61, 2005 N.C. App. LEXIS 1810 (2005), aff'd, 361 N.C. 137 , 638 S.E.2d 197, 2006 N.C. LEXIS 1327 (2006).

Plaintiffs’ claims against a trust company and its trustee under G.S. 24-10 failed where the statute of limitations for the action began to accrue when plaintiffs closed on their property and as that was more than four years prior to the filing of the action, the statute of limitations in G.S. 1-52(2) -(3) had expired. Skinner v. Preferred Credit, 172 N.C. App. 407, 616 S.E.2d 676, 2005 N.C. App. LEXIS 1806 (2005), aff'd, 361 N.C. 114 , 638 S.E.2d 203, 2006 N.C. LEXIS 1328 (2006).

§ 24-10.1. Late fees.

  1. Subject to the limitations contained in subsection (b) of this section, any lender may charge a party to a loan or extension of credit governed by G.S. 24-1.1 or G.S. 24-1.1 A a late payment charge as agreed upon by the parties in the loan contract.
  2. All of the following limitations apply to a late payment charge:
    1. A late payment charge shall not exceed any of the following:
      1. The amount disclosed with particularity to the borrower pursuant to the federal Consumer Credit Protection Act, Chapter 41 of Title 15 of the United States Code, (Truth in Lending Act) and the regulations adopted under it, if that act applies to the transaction.
      2. For a loan or extension of credit that meets all of the following conditions, the greater of thirty-five dollars ($35.00) or four percent (4%) of the amount of the payment past due:
        1. The loan or extension of credit is made by a bank or savings institution organized under the law of North Carolina or of the United States.
        2. The loan or extension of credit is not secured by real property.
        3. The loan or extension of credit is governed by G.S. 24-1.1 .
        4. The loan or extension of credit has an original principal balance greater than or equal to one thousand five hundred dollars ($1,500).
      3. For any other type of loan or extension of credit governed by G.S. 24-1.1 or G.S. 24-1.1A, four percent (4%) of the amount of the payment past due.
    2. Repealed by Session Laws 2019-10, s. 2, effective April 1, 2019, and applicable to contracts entered into, renewed, or modified on or after that date.
    3. A late payment charge shall not be charged unless one of the following is true:
      1. The payment is 30 days past due or more for a loan on which interest on each installment is paid in advance.
      2. The payment is 15 days past due or more for any other loan.
    4. A late payment charge shall not be charged more than once with respect to a single late payment. If a late payment charge is deducted from a payment made on the contract and the deduction results in a subsequent default on a subsequent payment, no late payment charge shall be imposed for the default. If a late payment charge has been once imposed with respect to a particular late payment, no late payment charge shall be imposed with respect to any future payment that would have been timely and sufficient but for the previous default. However, when a borrower fails to make an installment payment, and the terms of the loan agreement provide that subsequent payments shall first be applied to the past due balance, and the borrower resumes making installment payments but has not paid all past due installments, then the lender may enforce the contract according to its terms, imposing a separate late payment charge for each installment that becomes due until the default is cured.
    5. A late payment charge shall not be charged on any loan that by its terms calls for repayment of the entire balance in a single payment and not for installments of interest or principal and interest.
    6. A late payment charge shall not be charged unless the lender notifies the borrower within 45 days following the date the payment was due that a late payment charge has been imposed for a particular late payment which late payment must be paid unless the borrower can show that the installment was paid in full and on time. No late payment charge shall be collected from any borrower if the borrower informs the lender that non-payment of an installment is in dispute and presents proof of payment within 45 days of receipt of the lender’s notice of the late charge.
  3. The provisions of this subsection apply only to home loans made by lenders described in G.S. 24-1.1 A(a)(2). Notwithstanding that the note or other loan document sets forth a late payment charge in excess of that permitted in this section, the loan is not unlawful if all of the following are true:
    1. No late fee in excess of those permitted in this section has been assessed or collected by the lender.
    2. One of the following is true:
      1. If the loan is executed on or after July 14, 1993, the lender provides written notice to the borrower within 90 days of the date of execution of the loan documents that the late payment charge with respect to the loan shall be four percent (4%) or less.
      2. If the loan was executed prior to July 14, 1993, the lender provides written notice to the borrower within six months of that date that the late payment charge with respect to the loan shall be four percent (4%) or less.

History. 1985, c. 755, s. 1; 1987, c. 447; 1993, c. 339, s. 1; 2017-102, s. 8; 2019-10, s. 2.

Editor’s Note.

Session Laws 2019-10, s. 3, made the amendment to this section by Session Laws 2019-10, s. 2, effective April 1, 2019, and applicable to contracts entered into, renewed, or modified on or after that date.

Effect of Amendments.

Session Laws 2017-102, s. 8, effective July 12, 2017, substituted “G.S. 24-1.1 or G.S. 24-1.1 A” for “G.S. 24-1.1, 24-1.2, or 24-1.1A” in subsection (a).

Session Laws 2019-10, s. 2, effective April 1, 2019, deleted “the provision of” before “G.S. 24-1.1 or G.S. 24-1.1 ” in subsection (a); in subsection (b), rewrote the introductory paragraph and subdivisions (1) and (3), deleted subdivision (2), and inserted “A late payment charge shall not be charged” in subdivisions (4)-(6); in subsection (c), substituted “is not unlawful if all of the following are true” for “shall not be deemed to be unlawful if” in the introductory paragraph and inserted “One of the following is true” in subdivision (2); and made minor stylistic changes. For effective date and applicability, see editor’s note.

Legal Periodicals.

For survey on usury law, see 70 N.C.L. Rev. 1983 (1992).

CASE NOTES

Penalty fees for late payments are “interest” and are compensation for the detention of money owed another, and all such compensation must be forfeited when its rate is usurious, as defined by the laws of this State. Swindell v. Federal Nat'l Mtg. Assoc., 330 N.C. 153 , 409 S.E.2d 892, 1991 N.C. LEXIS 739 (1991).

Change for Lender’s Forbearance in Collecting Charge Is Interest. —

Just as a charge for a creditor’s forbearance in the collection of a debt is interest, so a charge for a lender’s forbearance in collecting a payment due is interest. Swindell v. Federal Nat'l Mtg. Assoc., 330 N.C. 153 , 409 S.E.2d 892, 1991 N.C. LEXIS 739 (1991).

Penalty Provisions of G.S. 24-2 Applicable. —

The General Assembly, which specified a maximum legal rate for late payment fees in this section, considered such fees “interest” and intended to induce observance of that law through the penalty provisions of G.S. 24-2 . Swindell v. Federal Nat'l Mtg. Assoc., 330 N.C. 153 , 409 S.E.2d 892, 1991 N.C. LEXIS 739 (1991).

North Carolina’s usury statute, G.S. 24-10.1 , did not apply to business loans between corporations, and there was no basis for a bankruptcy trustee’s contention to treat the loan transaction at issue as an individual transaction where the loan was clearly made to a limited liability company. Whitaker v. Mortg. Miracles, Inc., 298 B.R. 62, 2002 Bankr. LEXIS 1774 (Bankr. W.D.N.C. 2002).

Violator Not Required to Forfeit Interest Due on Loan Itself. —

The statutory penalty for usury requires a defendant which has charged late payments in excess of the legal maximum rate permitted by former G.S. 24-10(e) (see now this section) to forfeit all late payment charges to which it might otherwise have been entitled under the terms of the loan, but defendant is not required to forfeit the interest due on the loan itself. Swindell v. Federal Nat'l Mtg. Assoc., 330 N.C. 153 , 409 S.E.2d 892, 1991 N.C. LEXIS 739 (1991).

§ 24-10.2. Consumer protections in certain home loans.

  1. For purposes of this section, the term “consumer home loan” means a loan, including an open-end credit plan but excluding a reverse mortgage transaction, in which (i) the borrower is a natural person, (ii) the debt is incurred by the borrower primarily for personal, family, or household purposes, and (iii) the loan is secured by a mortgage or deed of trust upon real estate upon which there is located or there is to be located a structure or structures designed principally for occupancy of from one to four families which is or will be occupied by the borrower as the borrower’s principal dwelling.
  2. Notwithstanding the provisions of G.S. 58-57-35(b), it shall be unlawful for any lender in a consumer home loan to finance, directly or indirectly, any credit life, disability, or unemployment insurance, or any other life or health insurance premiums; provided, that insurance premiums calculated and paid on a monthly basis shall not be considered financed by the lender.
  3. No lender may knowingly or intentionally engage in the unfair act or practice of “flipping” a consumer home loan. “Flipping” a consumer loan is the making of a consumer home loan to a borrower which refinances an existing consumer home loan when the new loan does not have reasonable, tangible net benefit to the borrower considering all of the circumstances, including the terms of both the new and refinanced loans, the cost of the new loan, and the borrower’s circumstances. This provision shall apply regardless of whether the interest rate, points, fees, and charges paid or payable by the borrower in connection with the refinancing exceed those thresholds specified in G.S. 24-1.1 E(a)(6).
  4. No lender shall recommend or encourage default on an existing loan or other debt prior to and in connection with the closing or planned closing of a consumer home loan that refinances all or any portion of such existing loan or debt.
  5. The making of a consumer home loan which violates the provisions of this section is hereby declared usurious in violation of the provisions of this Chapter and unlawful as an unfair or deceptive act or practice in or affecting commerce in violation of the provisions of G.S. 75-1.1 . The Attorney General, the Commissioner of Banks, or any party to a consumer home loan may enforce the provisions of this section. Any person seeking damages or penalties under the provisions of this section may recover damages under either this Chapter or Chapter 75, but not both.
  6. In any suit instituted by a borrower who alleges that the defendant violated this section, the presiding judge may, in the judge’s discretion, allow reasonable attorneys’ fees to the attorney representing the prevailing party, such attorneys’ fees to be taxed as a part of the court costs and payable by the losing party, upon a finding by the presiding judge that:
    1. The party charged with the violation has willfully engaged in the act or practice, and there was unwarranted refusal by such party to fully resolve the matter which constitutes the basis of such suit; or
    2. The party instituting the action knew, or should have known, that the action was frivolous and malicious.
  7. This section establishes specific consumer protections in consumer home loans in addition to other consumer protections that may be otherwise available by law.
  8. A mortgage broker who brokers a consumer home loan that violates the provisions of this section shall be jointly and severally liable with the lender.

History. 1999-332, s. 5; 2003-401, s. 4; 2007-352, s. 5.

Effect of Amendments.

Session Laws 2003-401, s. 4, effective October 1, 2003, and applicable to contracts entered into or renewed on or after that date, substituted “means a loan, including an open-end credit plan but excluding a reverse mortgage transaction” for “shall mean a loan” in subsection (a).

Session Laws 2007-352, s. 5, effective January 1, 2008, added subsection (h).

§ 24-11. Certain revolving credit charges.

  1. On the extension of credit under an open-end credit or similar plan (including revolving credit card plans, and revolving charge accounts, but excluding any loan made directly by a lender under a check loan, check credit or other such plan) under which no service charge shall be imposed upon the consumer or debtor if the account is paid in full within 25 days from the billing date, but upon which there may be imposed an annual charge not to exceed twenty-four dollars ($24.00), there may be charged and collected interest, finance charges or other fees at a rate in the aggregate not to exceed one and one-half percent (1 1/2%) per month computed on the unpaid portion of the balance of the previous month less payments or credit within the billing cycle or the average daily balance outstanding during the current billing period.

    (a1) If the lender chooses not to impose an annual charge under this section, the lender may impose a service charge not to exceed two dollars ($2.00) per month on the balance of any account which is not paid in full within 25 days from the billing date.

    (a2) No person, firm or corporation may charge a discount or fee in excess of six percent (6%) of the principal amount of the accounts acquired from or through any vendors or others providing services who participate in such plan.

  2. On revolving credit loans (including check loans, check credit or other revolving credit plans whereby a bank, banking institution or other lending agency makes direct loans to a borrower), if agreed to in writing by the borrower, such lender may collect interest and service charges by application of a monthly periodic rate computed on the average daily balance outstanding during the billing period, such rate not to exceed one and one-half percent (11/2%).
  3. Any extension of credit under an open-end or similar plan under which there is charged a monthly periodic rate greater than one and one-quarter percent (1 1/4%) may not be secured by real or personal property or any other thing of value, provided, that this subsection shall not apply to consumer credit sales regulated by Chapter 25A, the Retail Installment Sales Act; provided further, that in any action initiated for the possession of property in which a security interest has been taken, a judgment for the possession thereof shall be restricted to commercial units (as defined in G.S. 25-2-105(6) ) for which the cash price was one hundred dollars ($100.00) or more.
  4. The term “billing date” shall mean any date selected by the creditor and the bill for the balance of the account must be mailed to the customer at least 14 days prior to the date specified in the statement as being the date by which payment of the new balance must be made in order to avoid the imposition of any finance charge.

    (d1) A lender may charge a party to a loan or extension of credit governed by this section a late payment charge not to exceed five dollars ($5.00) on accounts having an outstanding balance of less than one hundred dollars ($100.00) and ten dollars ($10.00) on accounts having an outstanding balance of one hundred dollars ($100.00) or more, for any payment past due for 30 days or more; provided, in no case shall the late charge exceed the outstanding principal balance. If a late payment charge has been once imposed with respect to a late payment, no late charge shall be imposed with respect to any future payment which would have been timely and sufficient but for the previous default.

  5. An annual or service charge pursuant to this section upon an existing credit card account upon which the charge has not previously been imposed may not be imposed unless the lender has given the cardholder at least 30 days notice of the proposed charge, and has advised the cardholder of his right not to accept the new charge. This notice shall be bold and conspicuous, and shall be on the face of the periodic billing statement or on a separate statement which is clearly noted on the face of the periodic billing statement provided to the cardholder. If the cardholder does not accept the new charge upon an existing credit card account, the lender may require that the cardholder make no further use of the account beyond the 30-day period in order to avoid paying the annual charge, but the cardholder shall be entitled to pay off any remaining balance according to the terms of the credit agreement. Nothing in this subsection shall limit the lender from decreasing any rates or fees to the cardholder forthwith. Should any cardholder within 12 months of the initial imposition of an annual charge rescind his credit card contract and surrender all cards issued under the contract to the lender, he shall be entitled to a prorated refund of the annual fee previously charged, credited to the cardholder’s credit card account.

History. 1967, c. 852, s. 1.1; 1969, c. 1303, s. 7; 1977, c. 148, s. 1; cc. 917, 1108; 1979, 2nd Sess., c. 1330, s. 3; 1981, c. 844, s. 1; 1983, c. 126, ss. 5, 10; 1991, c. 506, s. 6; c. 761, s. 45; 1995, c. 387, s. 2; 2009-570, s. 27.

Effect of Amendments.

Session Laws 2009-570, s. 27, effective August 28, 2009, substituted “judgment” for “judgement” in subsection (c).

Legal Periodicals.

For comment on usury law in North Carolina, see 47 N.C.L. Rev. 761 (1969).

For survey of 1976 case law on insurance, see 55 N.C.L. Rev. 1052 (1977).

For article calling for a comprehensive federal consumer credit code, see 58 N.C.L. Rev. 1 (1979).

CASE NOTES

Section Applicable to Transactions Between Merchants. —

The application of this section is not limited to “consumer credit sales”; it extends to transactions between merchants as well as transactions involving a consumer. State Whsle. Supply, Inc. v. Allen, 30 N.C. App. 272, 227 S.E.2d 120, 1976 N.C. App. LEXIS 2239 (1976).

Open Insurance Account. —

G.S. 24-11 and G.S. 58-56.1 (now G.S. 58-35-10 ) authorize an insurance agent who extends customer credit on an open account to impose a finance charge on his own customers in an amount not to exceed an aggregate annual rate of 18 percent. Hyde Ins. Agency, Inc. v. Noland, 30 N.C. App. 503, 227 S.E.2d 169, 1976 N.C. App. LEXIS 2293 (1976).

Imposition of Finance Charges on Open Insurance Account Without Prior Express Agreement. —

It was the intention of the legislature to authorize the imposition of finance charges on an open insurance account, even though there had not been any prior express agreement between the parties regarding such charges, but such charges could not be imposed unless the debtor was given proper notice that the creditor intended to impose such finance charges. Hyde Ins. Agency, Inc. v. Noland, 30 N.C. App. 503, 227 S.E.2d 169, 1976 N.C. App. LEXIS 2293 (1976).

Excess Interest Rate Rendered Security Interest Invalid. —

Creditor took a security interest in a debtor’s motorcycle in violation of G.S. 24-11(c) because the 19.742% per annum interest rate charged by the creditor on the revolving line of credit exceeded 1.25% per month and the debtor was allowed to recover attorney’s fees. Worley v. GE Moneybank, 2008 Bankr. LEXIS 1893 (Bankr. E.D.N.C. June 16, 2008).

Waiver of Right to Assess Interest Charges. —

Because nothing in the record suggested that defendant was ever made aware that plaintiff sought to assess interest against defendant at a rate authorized by this statute relating to the principal amount evidenced in the February 19, 2007, invoice, and because the February 19, 2007, invoice did not mention that any interest would be owed on the unpaid balance remaining from the December 4, 2006, invoice or suggest that interest was being assessed against any new charges reflected on the February 19, 2007, invoice, plaintiff waived the right to assess interest charges on the principal amount reflected in the February 19, 2007, invoice. Farlow v. Brookbank, 230 N.C. App. 179, 749 S.E.2d 493, 2013 N.C. App. LEXIS 1152 (2013).

How Amount Due May Be Handled After Relationships Ended. —

This section means that the extension of credit at the outset of a relationship as outlined in the statute may not be secured by real or personal property, etc., and does not mean that once the relationship is terminated, the amount due and owing to the creditor may not be handled in a fashion agreeable to both the creditor and the debtor. Anderson v. Pamlico Chem. Co., 470 F. Supp. 12, 1977 U.S. Dist. LEXIS 12800 (E.D.N.C. 1977).

A transaction whereby seller would forebear collection of the amount due from buyer on an open-end credit plan and reduce its interest rate on the balance outstanding and the buyer would execute a promissory note to the seller and give the seller a deed of trust on a farm to secure the note was not an extension of credit within the meaning of this section, but rather constituted a novation of the old agreement. Anderson v. Pamlico Chem. Co., 470 F. Supp. 12, 1977 U.S. Dist. LEXIS 12800 (E.D.N.C. 1977).

Subcontract Finance Fee Provision Enforced. —

Defendants failed to show why the “finance fee” provision of the subcontract should not be enforced pursuant to G.S. 24-11 ; there was no argument against an award of post-judgment interest pursuant to G.S. 24-5(a) . United States ex rel. SCCB, Inc. v. P. Browne & Assoc., 751 F. Supp. 2d 813, 2010 U.S. Dist. LEXIS 119192 (M.D.N.C. 2010).

Notification Held Sufficient. —

Plaintiff oil company was entitled to interest on the amount due at the rate of 1.5% per month, pursuant to this section, where each of the sales tickets and invoices that it delivered to defendants partners for payment contained a notice of the balance due and the service charges incurred. Harrell Oil Co. v. Case, 142 N.C. App. 485, 543 S.E.2d 522, 2001 N.C. App. LEXIS 135 (2001).

Notification Held Insufficient. —

Trial court correctly rejected plaintiff’s request for the assessment of interest against defendant at a rate authorized by this statute, rather than at the legal rate, because plaintiff did not notify defendant at any time prior to the transmission of the December 4, 2006, invoice that she intended to assess interest on the principal amount reflected in that invoice; and the effect of the December 4, 2006, invoice was to impermissibly seek to charge interest on amounts relating to services provided and expenses incurred prior to plaintiff’s initial notice. Farlow v. Brookbank, 230 N.C. App. 179, 749 S.E.2d 493, 2013 N.C. App. LEXIS 1152 (2013).

Although plaintiff had the right to assess interest against the additional principal amount reflected in the February 19, 2007, invoice in the event that the notice requirements of this statute had been complied with, and although plaintiff had given notice that she intended to charge interest at a rate higher than the legal rate in the December 4, 2006, invoice, a notice such as that provided in the December 4, 2006, invoice would not be deemed valid in perpetuity. Farlow v. Brookbank, 230 N.C. App. 179, 749 S.E.2d 493, 2013 N.C. App. LEXIS 1152 (2013).

§ 24-11.1. Disclosure requirements for credit cards.

  1. This section applies to any application, solicitation of an application, offer of credit, or communication extending credit that is:
    1. For an open-end credit plan accessed through a credit card or a revolving credit loan accessed through a credit card;
    2. Printed;
    3. Mailed or otherwise delivered to a person at any address within this State;
    4. Not delivered pursuant to an existing credit agreement; and
    5. Not printed in a newspaper, magazine, or periodical generally circulated outside as well as inside the State.
  2. Disclosures. —  The following disclosures shall be clearly and conspicuously made in or with all documents described in subsection (a) of this section:
    1. The annual percentage rate or, if the rate may vary, a statement that it may vary, the circumstances under which the rate may increase, any limitations on the increase, and the effects of the increase on the other terms of the agreement.
    2. The date or occasion upon which the finance charge begins to accrue on a transaction and the duration of any grace period.
    3. Whether an annual fee is charged and the amount of the fee.
    4. Any delinquency charge, late charge, or collection charge which may be assessed for the late payment of any installment, including the terms and conditions for the imposition of such charge.
  3. Federal Requirements. —  The form and content of the disclosures described in subsection (b) may be consistent with similar disclosures required by the federal Truth-in-Lending Act, 15 U.S.C. § 1601 et seq., and Regulation Z, 12 C.R.F. 226. Any amendment to the Act or Regulation that addresses credit card disclosures shall to the extent it covers applications, solicitations, and other communications covered by this section, replace the disclosure requirements of this section for creditors subject to the Act.
  4. Penalty. —  A violation of this section shall constitute a violation of G.S. 75-1.1 except that the creditor shall not be liable for any fine, civil penalty, treble damages, or attorney’s fee where the creditor shows by a preponderance of the evidence that the violation was not intentional and resulted from a bona fide error, notwithstanding the maintenance of procedures reasonably adapted to avoid any such error.
  5. Severability. —  If any part of this section is found unconstitutional or is preempted by federal law with regard to a creditor because the creditor is located outside of the State, that part does not apply to creditors located within the State.
  6. Nothing in this section shall be construed to authorize any fee, charge, surcharge or penalty not otherwise authorized by law.

History. 1987, c. 735, s. 1.

Editor’s Note.

The reference in subsection (c) above to 12 C.R.F. 226 is probably intended to be 12 C.F.R. 226.

Legal Periodicals.

For article, “Racism in the Credit Card Industry,” see 95 N.C.L. Rev. 1071 (2017).

§ 24-11.2. Disclosure requirements for charge cards.

  1. Applications and Other Communications. —  This section applies to any application, solicitation of an application, offer of credit, or communication extending credit that is:
    1. For credit accessed through a charge card;
    2. Printed;
    3. Mailed or otherwise delivered to a person at any address within this State;
    4. Not delivered pursuant to an existing credit agreement; and
    5. Not printed in a newspaper, magazine, or periodical generally circulated outside as well as inside the State.

      For purposes of this section, the term “charge card” means any card, plate or other device pursuant to which the charge card issuer extends credit which is not subject to a finance charge and where the charge cardholder cannot automatically access credit that is repayable in installments.

  2. Disclosures. —  The following disclosures shall be clearly and conspicuously made in or with all documents described in subsection (a) of this section:
    1. The annual fee and other charges, if any, applicable to the issuance or use of the charge card.
    2. That charges incurred by the use of the charge card are due and payable upon receipt of a periodic statement of charges.
    3. Any delinquency charge, late charge, or collection charge which may be assessed for late payment, including the terms and conditions for the imposition of such charge.
  3. Federal Requirements. —  The form and content of the disclosures described in subsection (b) may be consistent with similar disclosures required by the federal Truth-in-Lending Act, 15 U.S.C. § 1601 et seq., and Regulation Z, 12 C.F.R. 226. Any amendment to the Act or Regulation that addresses credit card disclosures shall, to the extent it covers applications, solicitations, and other communications covered by this section, replace the disclosure requirements of this section for creditors subject to the Act.
  4. Penalty. —  A violation of this section shall constitute a violation of G.S. 75-1.1 except that the creditor shall not be liable for any fine, civil penalty, treble damages, or attorney’s fee where the creditor shows by a preponderance of the evidence that the violation was not intentional and resulted from a bona fide error, notwithstanding the maintenance of procedures reasonably adapted to avoid any such error.
  5. Severability. —  If any part of this section is found unconstitutional or is preempted by federal law with regard to a creditor because the creditor is located outside the State, that part does not apply to creditors located within the State.
  6. Nothing in this section shall be construed to authorize any fee, charge, surcharge or penalty not otherwise authorized by law.

History. 1987, c. 735, s. 1.

Article 2. Loans Secured by Secondary or Junior Mortgages.

§ 24-12. Applicability of Article.

This Article shall apply only to loans of money:

  1. Secured in whole or in part by a security instrument on real property, other than a first security instrument on real property; and
  2. The principal amount of the loan does not exceed twenty-five thousand dollars ($25,000);
  3. The loan is repayable in no less than six nor more than 181 successive monthly payments, which payments shall be substantially equal in amount.

History. 1971, c. 1229, s. 2; 1979, 2nd Sess., c. 1157, ss. 2, 3.

§ 24-13. Principal amount defined.

The aggregate of the amount or value actually received at the time of the loan, plus the charges allowed by G.S. 24-14(b) (c) and (f); plus the sum of all existing indebtedness of the borrower paid on his behalf by the lender, shall be deemed the principal amount of the loan.

History. 1971, c. 1229, s. 2; 1979, 2nd Sess., c. 1157, s. 4; 1985, c. 154, s. 3.

§ 24-14. Limitations on charges and interest.

  1. No person, copartnership, association, trust, corporation or other legal entity making loans under this Article may charge, take or receive, directly or indirectly, simple interest in excess of one and one-half percent (1 1/2%) per month or an annual rate equivalent to the Federal Discount Rate plus five percent (5%), whichever is the greater, computed on the actual or average daily unpaid balance of the principal amount of the loan for the time actually outstanding. However, interest may not be compounded.
  2. In addition to the interest permitted in subsection (a), the lender may include in the loan his actual expenses which are paid to third parties in connection with the loan. Such expenses shall be limited to those for: title examination, title insurance, appraisals, surveys, and recording fees or releasing fees to trustees or public officials, and only such insurance charges as permitted in subsection (c).
  3. Evidence of hazard insurance may be required by the lender of the borrower. Credit life, credit accident and health, and credit unemployment insurance, or any of them, may be offered but not required; provided (i) that the borrower has indicated a desire to purchase such insurance by signing a statement to that effect, (ii) that the borrower is advised that he may acquire this insurance from any insurance carrier, (iii) that the borrower is aware that this insurance may be rescinded within 30 days after receipt of the policy or certificate, and (iv) that the borrower directs the lender to purchase the above insurance from the proceeds of his loan.The rates for the herein described insurance shall not exceed the standard rates approved by the Commissioner of Insurance for such insurance. Proof of all insurance issued in connection with loans subject to this Article shall be furnished to the borrower within 10 days from the date of application therefor by said borrower.
  4. No application fee or other charge shall be allowed in the event the loan is not consummated.
  5. The borrower shall further have the right to anticipate payment of his debt in whole or in part at any time, without payment of interest penalty, or any other fee or charge for such prepayment.
  6. In addition to the interest permitted by subsection (a), the lender may include in the principal balance fees or discounts not exceeding two percent (2%) of the principal amount of the loan less the amount of any existing loan by that lender to be refinanced, modified or extended. The fees and discounts are fully earned when the loan is made and are not a prepayment penalty.

History. 1971, c. 1229, s. 2; 1973, c. 1150; 1977, c. 698, ss. 1, 2; 1979, 2nd Sess., c. 1157, ss. 5, 6; 1981, c. 464, s. 4; 1985, c. 154, s. 4; 1993, c. 226, s. 13.

CASE NOTES

Statute of Limitations. —

Homeowner’s claim brought for allegedly illegal interest rates and fees on her second mortgage was dismissed as the statute of limitations had expired because the homeowner should have discovered any violation on the day of the closing. Faircloth v. Nat'l Home Loan Corp., 313 F. Supp. 2d 544, 2003 U.S. Dist. LEXIS 4206 (M.D.N.C. 2003), aff'd, 87 Fed. Appx. 314, 2004 U.S. App. LEXIS 1039 (4th Cir. 2004).

Because borrowers failed to file suit on their claim based on a usurious loan origination fee within two years of the date the loan in question was closed, their claim was time barred; the loan origination fee was not added to loan amount, but was deducted from the proceeds received by the borrowers at closing, so the loan closing date was the relevant date for statute of limitations purposes. Shepard v. Ocwen Fed. Bank, FSB, 361 N.C. 137 , 638 S.E.2d 197, 2006 N.C. LEXIS 1327 (2006).

§ 24-15. [Repealed]

Repealed by Session Laws 1979, 2nd Session, c. 1157, s. 7.

§ 24-16. Itemized closing statements.

Any person, copartnership, association, trust, corporation, or any other legal entity making on its own behalf, or as agent, broker or in other representative capacity on behalf of any other person, copartnership, association, trust, corporation or any other legal entity, a loan or real property financing transaction within the regulatory authority of this Article, at the time of the closing shall furnish the debtor or borrower or grantor in the mortgage, deed of trust or any other security instrument, in addition to the disclosures required by federal law known as “Truth in Lending,” a complete and itemized closing statement which shall show all disbursements of the loan proceeds and which shall total the principal amount of the loan or security transaction, and the said closing statement shall be signed by the lending agency or a representative of the lending agency, or a responsible officer in its behalf and a completed and signed additional copy retained in the files of the lending agency involved and available at all reasonable times to the borrower, the borrower’s successor in interest to the security real property, or the authorized agent of the borrower or the borrower’s successor, until such time as the security instrument shall be satisfied in full. Such closing statement shall contain the following language printed in a conspicuous manner:

“This loan is one regulated by the provisions of Chapter 24, Article 2 of the General Statutes of North Carolina entitled ‘Loans Secured by Secondary or Junior Mortgages.’ ”

History. 1971, c. 1229, s. 2.

§ 24-16.1. Loans exempt from §§ 24-12 to 24-17.

G.S. 24-12 to 24-17 shall not apply to loans made by banks, insurance companies, or their duly designated agents compensated directly by the lender, duly licensed credit unions, production credit associations authorized by the Farm Credit Act of 1933, or savings and loan associations authorized to do business in this State, or to loans made by any other lender licensed by, and under the supervision of, the Commissioner of Banks and the State Banking Commission, under the provisions of Chapter 53 of the General Statutes, or the Commissioner of Insurance, under the provisions of Chapter 58 of the General Statutes. Provided, any lender approved as a mortgagee by the Federal Housing Administration shall be entitled to make loans under this Article.

G.S. 24-12 to 24-17 shall not apply to a loan made under Article 1 of this Chapter.

History. 1971, c. 1229, s. 2; 1983, c. 126, s. 9; 1985, c. 154, s. 5.

§ 24-17. Misdemeanors.

A wilful or knowing violation of G.S. 24-12 through G.S. 24-16 is hereby made a Class 1 misdemeanor.

History. 1971, c. 1229, s. 2; 1993, c. 539, s. 400; 1994, Ex. Sess., c. 24, s. 14(c).