I, the payee, landed $5,000 to the borrower for a 90 day term and the latter promised to pay $500 interest per month for 3 months (total 1500) and pay back the $5,000 principal at the end of 90 day term as documented in the promissory note/personal guarantee. Does this constitute usury in California? If this is an illegal contract (i believe the court does not enforce illegal contracts), what do I do?
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Consumer Law, Warranties Promissory Note - Usury?
- Thread Starter Ralph
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army judge
Super Moderator
Yes, OP, those terms appear to be usurious. Your state has some exceptions, but those generally involve real estate transactions.
A person lending money at outrageous rates of interest can be sued civilly and prosecuted criminally. Usury in California can lead to a felony conviction.
The originator of a usurious loan in California is subject to severe civil penalties. These include:
forfeiture to the borrower of all interest on the loan, not just the usurious part; and
payment to the borrower of triple the amount of interest collected in the year before the borrower brings suit (subject to the courts discretion).
A lender who willfully receives interest in violation of the usury laws is guilty of loan sharking, a felony punishable by imprisonment for up to five years. It is, however, rare to have conviction of loan sharking.
The statute of limitations for recovering interest paid on a usurious loan is two yearsand only the amount of interest paid within that two year period is recoverable. Exceptions include:
cases where the statute does not begin to run until after the borrower repays the loan;
if the lender sues to enforce a usurious loan contract, the borrower may assert a usury cross-complaint for all the interest paid on the loan as an offset without regard to the statute of limitations.
The statute of limitations for recovering treble damages on a usurious loan is one year, regardless of whether the loan has been satisfied or whether the lender is attempting to enforce a usurious loan.
California usury laws are not easily understood. The relevant legislative provisions are scattered throughout various sections of the California Constitution, Civil Code, Financial Code, Corporations Code and Insurance Code. Federal statutes and regulations are also pertinent. Criminal penalties are provided in the Civil Code rather than the Penal Code.
The basic usury laws in California are in the state Constitution at Article 15. For consumer loans, the parties may contract for interest on a loan primarily for personal, family or household purposes at a rate not exceeding ten percent per year. A loan to be used primarily for the purchase, construction or improvement of real property is not regarded as a loan for personal, family or household purposes.
For all other loans, the allowable rate is the higher of (a) ten percent; or (b) five percent over the amount charged by the Federal Reserve Bank of San Francisco on advances to member banks on the twenty-fifth day of the month before origination of the loan. As of October 1, 2009 the applicable Federal Reserve Bank rate was 0.50 percent, meaning that any non-exempt loan bearing interest at greater than ten percent would be usurious.
Caveat: Maximum interest rates refer to the simple interest rate on the unpaid balance.
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A person lending money at outrageous rates of interest can be sued civilly and prosecuted criminally. Usury in California can lead to a felony conviction.
The originator of a usurious loan in California is subject to severe civil penalties. These include:
forfeiture to the borrower of all interest on the loan, not just the usurious part; and
payment to the borrower of triple the amount of interest collected in the year before the borrower brings suit (subject to the courts discretion).
A lender who willfully receives interest in violation of the usury laws is guilty of loan sharking, a felony punishable by imprisonment for up to five years. It is, however, rare to have conviction of loan sharking.
The statute of limitations for recovering interest paid on a usurious loan is two yearsand only the amount of interest paid within that two year period is recoverable. Exceptions include:
cases where the statute does not begin to run until after the borrower repays the loan;
if the lender sues to enforce a usurious loan contract, the borrower may assert a usury cross-complaint for all the interest paid on the loan as an offset without regard to the statute of limitations.
The statute of limitations for recovering treble damages on a usurious loan is one year, regardless of whether the loan has been satisfied or whether the lender is attempting to enforce a usurious loan.
California usury laws are not easily understood. The relevant legislative provisions are scattered throughout various sections of the California Constitution, Civil Code, Financial Code, Corporations Code and Insurance Code. Federal statutes and regulations are also pertinent. Criminal penalties are provided in the Civil Code rather than the Penal Code.
The basic usury laws in California are in the state Constitution at Article 15. For consumer loans, the parties may contract for interest on a loan primarily for personal, family or household purposes at a rate not exceeding ten percent per year. A loan to be used primarily for the purchase, construction or improvement of real property is not regarded as a loan for personal, family or household purposes.
For all other loans, the allowable rate is the higher of (a) ten percent; or (b) five percent over the amount charged by the Federal Reserve Bank of San Francisco on advances to member banks on the twenty-fifth day of the month before origination of the loan. As of October 1, 2009 the applicable Federal Reserve Bank rate was 0.50 percent, meaning that any non-exempt loan bearing interest at greater than ten percent would be usurious.
Caveat: Maximum interest rates refer to the simple interest rate on the unpaid balance.
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army judge
Super Moderator
Send the borrower a demand letter requesting him to pay you the principal borrowed, $5,000.
Give him a deadline to pay, say 30 days, and inform him if he fails to ay, you'll bring suit in small claims.
But, that is a bigger hurdle for you.
You'll likely prevail in small claims. That won't get you money, only a judgment. The you'll have to try and enforce (collect) the judgment. In all likelihood, you'll never see the $5,000. If you do, it'll take months,aybe even years of very hard work.
But, you can try.
The lesson here is, don't lend money. If this borrower was a good risk, a bank would have lent him the money.
Sent from my iPad3 using Tapatalk HD
Give him a deadline to pay, say 30 days, and inform him if he fails to ay, you'll bring suit in small claims.
But, that is a bigger hurdle for you.
You'll likely prevail in small claims. That won't get you money, only a judgment. The you'll have to try and enforce (collect) the judgment. In all likelihood, you'll never see the $5,000. If you do, it'll take months,aybe even years of very hard work.
But, you can try.
The lesson here is, don't lend money. If this borrower was a good risk, a bank would have lent him the money.
Sent from my iPad3 using Tapatalk HD
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