State usury laws differ significantly from state to state. “Usury is the exacting, taking or receiving of a greater rate than is allowed by law, for the use or loan of money.” O’Connor v. Televideo System, Inc. 218 Ca3rd 709, 713 (1990). It is a fundamental policy of the State of California that any party engaging in a non-exempt loan transaction must comply with the state law that limits usury. What are the elements of usury under California Law?
A transaction is presumed not to be usurious. One of the elements of usury is that the lending party intends to engage in a usurious transaction. The elements of usury are:
- The transaction must be a loan or forbearance;
- The interest to be paid must exceed the maximum rate of interest allowed by California statute;
- The loan and interest must be absolutely repayable by the borrower; and
- The lender must have a willful intent to enter into a usurious transaction.
A transaction is usurious if there is a loan at greater than the legal rate of interest or an exaction at more than the legal rate for the forbearance of a debt or sum of money due. Ross v. Wheeler (1934) 140 Cal. App. 217, 223. California’s usury laws do not apply to real estate brokers if the loan is secured by real estate, whether or not they are acting as a real estate broker.
Typically, any party accused of usury claims that either the type of transaction is exempt or that its status as a lending party makes it subject to a class-wide exemption, such as the one for California and federal banks, savings and loan associations, and credit unions. (Cal. Const. art XV, §1). This is an example of the fact that there is no single source of usury law, but, rather, it is a synthesis of statutory and case law with the California State Constitution.
California courts take the usury limitations very seriously and are not afraid to subject violators to the maximum penalties allowed by California law. Lenders in violation of the usury law are barred from recovering any interest and may be subject to the loss of any interest previously paid by the borrower. Violators may also be subject to a civil penalty of $2,500 per violation, as well as treble and punitive damages. Willful violation of any of California’s finance lending laws is punishable by a fine of up to $10,000 and imprisonment for up to one year.
The attorneys at Glass & Goldberg in California provide high quality, cost-effective legal services, and advice for clients in all aspects of commercial compliance, business litigation, and transactional law. Call us at (818) 888-2220, send an email inquiry to email@example.com or visit us online at glassgoldberg.com to learn more about the firm and to sign up for future newsletters.