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Ohio Supreme Court Rules that 365/360 Interest Computation Method is Enforceable
Posted in Real Estate

The Supreme Court of Ohio ruled in an opinion issued Nov. 21, 2012 that the 365/360 method of computing interest provided in a promissory note is not ambiguous and is enforceable. Under the 365/360 method, the amount of interest payable to a bank is computed by using a shorter 360-day year and not simply by using the “annual interest rate” provided in the note.

Borrowers have recently challenged this method in putative and actual class action litigation across the country. The plaintiff challengers to the banks’ calculations generally allege that the bank is charging more than the annual interest rate and therefore more than agreed between the plaintiff borrower and the bank. The argument rests on the contention that a promissory note is ambiguous where it states an “annual interest rate” and also uses the 365/360 method to calculate what is due. The provision in the Ohio case – JNT Properties, LLC v. KeyBank Nat’l Assoc. – set the annual interest rate at 8.93 percent but also provided:

The annual interest rate for this Note is computed on a 365/360 basis; that is, by applying the ratio of the annual interest rate over a year of 360 days, multiplied by the outstanding principal balance, multiplied by the actual number of days the principal balance is outstanding.

The Ohio Supreme Court specifically held that it was “clear that the term being defined [was] not the annual interest rate but rather the method of computing regular interest payments.”

The case also offers insights into class action litigation strategies, including the attempt by the plaintiff-putative class representative to dismiss the case in the trial court to prevent appellate review and ruling which, as it turned out, occurred and was adverse to that plaintiff and presumably others challenging the 365/360 method in other states.

To learn more about Richard Boydston and his practice, visit his profile.

  • Senior Partner

    Mr. Boydston practices in the areas of bankruptcy (including representation of creditors, debtors and of committees and bankruptcy litigation), receiverships, debtor/creditor relations, and commercial transactions and ...

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