What Became of Consumer Usury?

I just got an email from one of my credit card issuers urging me to hurry and buy stuff because I’ll only have to pay 5.99% interest, but if I wait, I’ll have to pay the regular rate of 30.49%. I should probably pay more attention to such things, but I can’t remember the last time I carried a balance on a credit card. I only pay attention to paying the monthly statement in full before the due date. I remember when there were laws that capped the rate of interest on credit cards. I don’t remember the cap, seems like it was generally around 12.5%. These were state consumer protection laws, so they varied a bit from one state to another. There weren’t limits on commercial debt, it being assumed that businesspeople were financially savvy and if they were greedy enough to charge, and stupid enough to pay, 30% interest on a loan, they should be free to do so. Consumers, on the other hand, needed protection from such greed. Who decided they didn’t? Isn’t it pretty obvious they still do?

At some point, banks discovered that South Dakota didn’t have such a law, and they began rushing to get charters there so they could issue their cards from that state and charge whatever interest they wanted. Ultimately, the other states saw how much banking business they were losing out on, and they did away with their laws.

There’s a concept under the law called “usury”. Basically, usury is charging exorbitant and unconscionable interest on debt. It’s sort of kind of supposed to not be legal. Kansas has long had a usury law. K.S.A. 16-201 sets interest on debt at 10%. However, it goes on to say that this is “when no other rate of interest is agreed upon”. If you want a credit card, you’ll agree to 30% interest. In the law we call this an “adhesion” contract. It’s a term for when one party agrees to a contract because they have no choice. Somehow or other, the governments, state and federal, decided that consumers shouldn’t be protected from having to agree to 30% interest because they have no choice. Well, okay, there is a choice. They could choose to try to get by in today’s economy without a credit card.

Some would argue that if a person can’t pay off their credit card every month, they shouldn’t have one. It’s not really a bad argument. Nevertheless, call me old-fashioned, but I’d call 30.49% unconscionable, even if one has a choice to avoid it by simply not getting a credit card. After I began writing this, I came across an article reporting that Bernie Sanders is proposing federal legislation called “The Loan Shark Prevention Act” to limit credit card interest to 15%. The article was dated May 16, 2019. Apparently, the bill went over like a lead balloon. I don’t remember ever hearing about it in the mainstream media. In case nobody has ever noticed, I stand in the conservative camp, which generally would put me at odds with Bernie. I think in this case he was onto something I could definitely get behind. I sure can’t get behind his push to forgive student loans, though.

I have an idea! Instead of forgiving student loans, how about limiting the interest they have to pay on their credit cards to something reasonable like, no more than 5% above prime or even Bernie’s 15%? Think of the difference that would make in their lives. Come to think of it, in all the news reporting about how tough it is on these “kids” to have to actually repay their studen loans, nobody has reported anything about how much credit card debt they are also carrying and the interest rate they’re paying on that. Cut their credit card interest by 20% and maybe they’d be able to pay those student loans and not even have to give up Taylor Swift concerts, let alone give up buying a decent starter home.

Net Royalty Acres Anyone?

When you’re talking about a “royalty” interest you’re talking about something that’s created by a piece of paper called a lease. When you’re talking about a “mineral” interest you’re talking about something that’s created by nature under the land. When you’re talking about land you’re generally talking about acres. So, what are you talking about when you’re talking about “royalty acres” or “net royalty acres” or “mineral acres” or “net mineral acres”? I’ve heard all those terms used, and I’ve seen numbers associated with them, inconsistently. One of those numbers is the number “8” or, inversely, “1/8”. I have a problem with automatically using an “8” when talking about royalty acres or mineral acres, because it assumes a lease with a 1/8 royalty. Not all leases have a 1/8 royalty; it might be 3/16 or 5/32 or even 1/4.

What I learned (which I don’t claim was right) was that “royalty acres” was the product of multiplying the number of acres (of mineral interest) by the royalty specified in the lease. If you own 80 acres and the royalty is 1/8, you have 10 royalty acres; or if the royalty is 3/16, you have 15 royalty acres. But if you only own a 1/2 interest in the 80 acres of minerals you have 40 mineral acres, and you have either 5 net royalty acres or 7.5 net royalty acres depending on whether the royalty is 1/8 or 3/16. The landman, however, is calling it 5 net mineral acres. The landowner asks what that means and is told it’s 1/8 of 40 acres. But, the landowner responds, I thought you said the royalty is 3/16!

I recognize that a lot of people have been accustomed for a lot of years to think in terms of 1/8 when thinking about oil and gas leases and “mineral acres” or “net mineral acres”. When putting a value on a mineral interest, one could argue that royalty interest is irrelevant, as there may not even be a lease. On the other hand, if there is a lease and you’re thinking of selling your mineral interest, would you think it’s more valuable if it’s generating a 3/16 royalty than if it’s generating a 1/8 royalty? But, you might argue, if there’s a lease then you’re selling your royalty interest and, of course, you’d want more for a 1/8 royalty than a 3/16 royalty. And here, if you practice law, is where you roll your eyes around because you know about all the litigation that’s been spawned because of documents entitled “Royalty Deed” that were actually a mineral deed but messed up because they were thinking about that 1/8 and so the grantor conveyed “my entire 1/8” interest.

It’s getting worse each passing year because the “new” kids working in the division order departments of the crude buyers don’t have a clue about net mineral acres or net royalty acres and will tell a landowner who calls up with a question about their division order that the decimal number on it is their net revenue interest (NRI). So then they call the lawyer who drew up their dad’s will but has never seen an oil and gas lease and god only knows what they’ll be told.

I’d favor banning the use of “net mineral acres” and “net royalty acres”. When I see either of those terms in a lease that’s been presented to a landowner client, I have to call the landman or lessee’s lawyer to verify what he/she intends to mean by it. Then I’ll probably draw up something to add to it in order to avoid confusion in the future.

DST Recant

Okay, much as I hate DST, I must admit I also hate the 5:00 darkness that comes with CST. Exiting into darkness from the office at quitting time makes it feel like the day has ended and there’s nothing left but eat something and go to bed. Of course, millennials and younger wouldn’t even notice the darkness as they exited the office with thoughts of meeting up at their crowd’s favorite watering hole for buffalo wings, inebriation and karaoke. I sort of remember being that way at their age. I wonder if I should tell them what they have to look forward to when they pass the age 65 mark? Nah! They probably wouldn’t believe me.