## Facts

- Achee Holdings, LLC (Achee) obtained a 30-year, $280,000 adjustable-rate loan from Silver Hill Financial, LLC (Silver Hill), evidenced by a promissory note.
- The note designated the first 36 months as a “Lockout Period” and restricted payoff during that period unless Achee paid two contract charges tied to early payoff:
  - a “Lockout Fee,” defined as the interest that would have accrued on the unpaid principal balance at the note’s non-default rate from the prepayment date through the end of the Lockout Period; and
  - “Prepayment Consideration,” defined as 3% of the then-outstanding unpaid principal balance.
- During the Lockout Period, Achee decided to pay off the loan. At that time, the principal and interest then due totaled $282,969.19.
- Bayview Loan Servicing, LLC (Bayview), the loan servicer, provided a payoff quote requiring payment of $282,969.19 (current amount due), plus a $92,083.81 Lockout Fee, plus $13,993.32 in Prepayment Consideration.
- Achee refused to pay the Lockout Fee and sued Silver Hill and Bayview in federal district court under Texas law, alleging the Lockout Fee was disguised “interest” that made the transaction usurious under the Texas Finance Code.
- The district court dismissed the complaint under Federal Rule of Civil Procedure 12(b)(6). Achee appealed.

## Issues

1. Whether the Lockout Fee, triggered only if the borrower voluntarily prepays during the Lockout Period and calculated by reference to the note’s interest rate through the end of that period, constitutes “interest” under Texas usury law.

## Decision

- The Fifth Circuit affirmed the district court’s Rule 12(b)(6) dismissal.
- The court treated the Lockout Fee as a prepayment charge owed only if Achee elected to terminate the loan early during the Lockout Period, not as compensation for the ongoing use of money.
- Because the Lockout Fee was not “interest” for Texas usury purposes, Achee failed to plead the unlawful-exaction element required for a usury claim.

## Legal Principles

- A Texas usury claim requires: (1) a loan of money; (2) an absolute obligation to repay principal; and (3) an exaction from the borrower of compensation greater than allowed by law for the use of the money.
- Under the Texas Finance Code, “interest” means compensation for the use, forbearance, or detention of money, but it does not include other amounts that are permitted to be contracted for, charged, or received in addition to interest. Tex. Fin. Code § 301.002(a)(4).
- Unless otherwise provided by law, an interest rate greater than ten percent a year is usurious. Tex. Fin. Code § 302.001(b).
- Under Texas law, when a borrower has a contractual option to prepay, a charge imposed only upon the borrower’s voluntary prepayment is generally treated as a prepayment penalty or consideration for early termination rather than “interest” for usury purposes.
- On appeal from a Rule 12(b)(6) dismissal, the Fifth Circuit reviews de novo, accepts well-pleaded facts as true, and applies the plausibility pleading standard.

## Conclusion

The Fifth Circuit held that the Lockout Fee was a contractual prepayment charge due only if Achee chose to pay off the loan during the 36-month Lockout Period, not “interest” charged for the use of money. Because the fee did not count as interest under Texas law, Achee’s complaint did not state a plausible usury claim, and the dismissal was affirmed.


Achee Holdings, LLC v. Silver Hill Financial, LLC, 2009 U.S. App. LEXIS 19231 (2009)