Usury Laws and Remedies
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What Is Usury?
Usury is the act of charging of an excessive interest rate on a loan. Each state has its own usury laws that determine the maximum rate of interest allowed on a loan.
Usury laws are complicated and have many exceptions. If you are making a loan or defending against allegations of usury, you should consult with an experienced attorney.
What Makes a Transaction Usurious?
In general, for a transaction to be usurious:
- The transaction must be a loan.
- The interest must exceed the statutory maximum, usually between five and 20%, depending on the state.
- The loan and interest must be absolutely repayable by the borrower.
- The lender must willfully intend to enter into a usurious transaction.
To violate the usury laws, the lender does not need to knowingly charge a higher interest rate than the law allows. A lender need only intend to take the amount of interest he or she actually receives.
What Are the Exceptions to Usury?
There are many exceptions to usury. Some of these exceptions are:
- Bona fide credit sales where the buyer agrees to pay the amount due at a later date.
- Late charges.
- Transactions where the seller finances the purchase of property and charges a premium for providing the financing.
- Loans made by licensed pawnbrokers within the scope of the license.
- Payday loans made by licensed payday lenders.
- Real estate loans arranged by licensed real estate brokers, secured by a lien on real property.
- Loans made to carry out a joint venture between lender and borrower.
It is also important to note that for a transaction to be usurious, the lender must have an absolute right of repayment. If the lender risks losing all or part of the amount given, he or she may transact for a higher rate of return than usury laws permit.
What Are the Remedies for Usury?
A victim of usury may sue to recover the total interest paid. In many states, the borrower may also bring a claim to recover treble—or a multiple—of the amount of interest paid. The treble amount recoverable is based on total interest paid, not only the total interest paid over and above the legal limit.
A lender may not recover interest on a usurious loan. However, after the deadline to repay the principal has passed, the lender is entitled to a return of the principal. If the debtor fails to repay the principal by the deadline, the lender may recover interest on the principal from the date the principal became due, until judgment, at the legal rate.
Should I Contact an Attorney?
Because usury laws are complex and have many exceptions, if you deal in loans or business transactions, you should seek the advice of an experienced business lawyer.
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Last Modified: 06-05-2014 04:06 PM PDT
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