The State of Missouri allows for prejudgment interest in breach of contract cases, as well as other types of claims. In breach of contract cases, prejudgment interest typically begins to accrue on the date of the breach or the date payment was due. The interest rate is set at nine percent unless the parties contractually agreed to a different rate. Under Missouri law, most contracts are subject to a maximum annual interest rate of ten percent, or the market rate. However, the legislature has carved out an exception to the interest rate cap for small-installment consumer loans. These loans are designed to provide borrowers with relatively small loan amounts and longer repayment options, but often have high interest rates.
In a recent court opinion by the Missouri Court of Appeals Western District, the court ruled on the enforceability of prejudgment interest in cases which occurred before August 28, 2021, the effective date of 2021 amendments to Missouri Revised Statute Chapter 408, including Section 408.553 regarding Lender Recovery Upon Default. In its amendments, the legislature appears to have intended to resolve confusion around the applicability of prejudgment interest statues and ensure prejudgment interest is provided for within the statute 408.553.
However, the Western District was still left with the problem of determining the applicability of the statute prior to its amendment. In the recent Mm Fin. v. Rose case, Judge Karen King Mitchell wrote the majority opinion on behalf of herself and Judge Gary D. Witt. No. WD84379, 2022 Mo. App. LEXIS 193 (Mo. App. W.D. Apr. 12, 2022). Presiding Judge Mark D. Pfeiffer drafted a separate opinion concurring in part and dissenting in part. In this case, MM Finance LLC appealed a trial court damages award, asserting that the trial court erred in failing to award the company prejudgment and post-judgment interest at the contracted annual rate of 360%. The Court of Appeals reversed and remanded for recalculation.
In this case, all three judges agreed that the applicable post-judgment interest rate was the one contracted for by the parties, here 360%. The court followed its own precedent from Ponca Finance Company v. Esser, 132 S.W.3d 930 (Mo. App. W.D. 2004). In Ponca, the court held that even an obscenely high contract rate was permitted as a post-judgment interest rate under the statutory exception for consumer installment lenders in place at the time, and noted that “if the legislature believes that this rate is excessive, then the legislature can change the law. Id. at 932.
However, with regard to prejudgment interest, the court found no applicable precedent to follow. The majority opinion held that MM Finance, LLC, a licensed consumer installment lender, is permitted under Chapter 408 to create contracts and receive interest at higher rates, and therefore, the underlying contract is authorized by the legislature and the contracted interest rate is enforceable, including with regard to prejudgment interest, absent an exception or limitation.
Judge Pfeiffer, in his dissent, argued that Statute 408.553 is the exception. The pre-2021 version of the statute stated:
Upon default, the lender shall be entitled to recover no more that the amount which the borrower would have been required to pay upon prepayment of the obligation on the date of final judgment together with interest thereafter at the simple interest equivalent of the rate provided for in the contract.
§ 408.553, RSMo 2016. Judge Pfeiffer argued that the phrase, with interest thereafter, along with the legislature’s 2021 changes to this section (making explicit that prejudgment interest was permitted), indicate that the pre-2021 version did not permit prejudgment interest.
The majority opinion held that while the pre-2021 version of Section 408.553 did not explicitly authorize prejudgment interest, Section 408.100 did by stating that “[o]n any loan subject to this section, any person, firm, or corporation may change, contract for[,] and receive interest on the unpaid principal balance at rates agreed to by the parties.” § 408.100, RSMo 2016. The majority further noted that they found the pre-2021 language of Section 408.553 to be plain and unambiguous, and therefore not subject to statutory interpretation. Judge Mitchell also cited a recent 2020 decision by the Western District, recognizing that “a later statutory enactment may not always be a reliable guide to the interpretation of the pre-amendment statute” and the purpose of a change in existing law can be to clarify rather than change the law. Spire Mo. Inc. v. Mo. Pub. Serv. Comm’n, 607 S.W.3d 759, 774 (Mo. App. W.D. 2020).
Ultimately, the court’s opinion confirms that prejudgment and post-judgment interest are both available to licensed consumer installment lenders under the pre-2021 statutes, even in cases of high interest rates.