What Is Usury In Real Estate? (Question)

What is usury in real estate?

  • Definition of “Usury”. SUZANNE PARISI Century 21 Crest Real Estate. An interest rate charged on a loan that exceeds the legal maximum interest rate within the state. It is illegal to do so. The maximum interest rate may depend on the type of lender and nature of the loan. Federal laws may also apply.


What is the law of usury?

Primary tabs. Usury is interest that a lender charges a borrower at a rate above the lawful ceiling on such charges; a contract upon the loan of money with an illegally high interest rate as a condition of the loan. Usury is also the act of making a loan at such an interest rate; making a loan at a usurious rate.

What is the penalty for usury?

Penalties. The lender on a usurious loan is subject to the following civil penalties: (1) forfeiture to the borrower of all interest on the loan, not just the usurious part; and (2) payment to the borrower of triple the amount of interest collected in the year before the borrower brings suit.

What is usury rate?

The term usury rate refers to a rate of interest that is considered to be excessive as compared to prevailing market interest rates. They are often associated with unsecured consumer loans, particularly those relating to subprime borrowers.

What is usury and why is it a problem?

Usury laws prohibit lenders from charging borrowers excessively high rates of interest on loans. These laws have ancient origins, as usury prohibitions have been part of every major religious tradition.

Are usury loans legal?

a. The Basic Rate: The California Constitution allows parties to contract for interest on a loan primarily for personal, family or household purposes at a rate not exceeding 10% per year.

Is the usury Act still applicable?

Answer: There are currently no ceilings set for the imposition of interest rates in view of Central Bank Circular No. 905, series of 1982, which suspended the effectivity of the Usury Law.

Is usury and interest the same?

Interest refers to the fee a lender charges when she allows your business to borrow money. Usury refers to interest that is higher than the maximum rate that the state allows lenders to charge.

Is usury a crime?

Usury can be a crime, or it can be a civil violation. In order to protect consumers, many states have usury laws that limit the interest lenders can charge.

How do you get around usury laws?

How to Avoid Usury Liability

  1. Give written notice to your borrower when applicable.
  2. Build usury savings clauses in your loan agreements.
  3. Be aware of your lending state’s regulations.
  4. Allow the borrower to calculate their principal and interest.
  5. Know what specific charges are considered “interest”

Is charging high interest illegal?

What Is Usury? Usury is the act of lending money at an interest rate that is considered unreasonably high or that is higher than the rate permitted by law. Over time it evolved to mean charging excess interest, but in some religions and parts of the world charging any interest is considered illegal.

Can you be charged interest on interest?

1 Answer. Yes it most cases it is legal. Plus depending on how you look at it, the last payment of 1000 can be principal paid and interest was paid in initial installments.

What interest rate is predatory lending?

Predatory lending is the practice of overcharging a borrower for rates and fees, average fee should be 1%, these lenders were charging borrowers over 5%. Consumers without challenged credit loans should be underwritten with prime lenders.

How did banks make money without usury?

Profits came from hiding interest rates in the exchange rates, which enabled the banks to avoid the church ban on usury. Bills of exchange made it much easier to transfer funds over long distances without the risk and cost of transporting coins.

Who invented interest on loans?

In the early 2nd millennium BC, since silver used in exchange for livestock or grain could not multiply of its own, the Laws of Eshnunna instituted a legal interest rate, specifically on deposits of dowry. Early Muslims called this riba, translated today as the charging of interest.

What is the highest interest rate allowed on a mortgage?

For licensees and registrants under the Mortgage Brokers, Lenders, and Servicers Licensing Act (MBLSLA), MCL 445.1651 et seq., and the Secondary Mortgage Loan Act (SMLA), MCL 493.51 et seq., the maximum annual rate of interest allowed to be charged on a mortgage loan is 25%, inclusive of finance charges (APR).


In some states, the interest rate charged on a loan may be higher than the state’s legal maximum interest rate limit. It is against the law to do so. The highest interest rate charged may be determined by the kind of lender and the nature of the loan being offered. It is possible that federal laws will apply as well.

Comments for Usury

‘I signed into a contract with a real estate management broker, and I’ve now discovered that the interest rate is far higher than the Usury Law,’ Derah Gordon explained. Shouldn’t he have been aware of this? 08:14:29 on May 11, 2018 Hello, Derah. We’d need to learn more about your situation and the state you’re in before we could make an informed opinion. We recommend that you consult with a real estate attorney to assist you in resolving this usury issue. Wishing you the best of luck! 10:45 a.m., May 18, 2018

Have a question or comment? We’re here to help.

When a bankrupt individual declares bankruptcy, they might be appointed by the court or his or her creditors to handle various tasks, including as selling his or her assets and managing the monies raised from the sale of those assets. The practice of having two contracts for the same transaction is considered illegal. It is possible to use one contract as a ruse to get the second contract through deception. Borrower makes a considerable down payment, with the remainder of the loan total paid in equal recurring payments over a short period of time.

  • As an illustration, consider the case of a real estate salesperson.
  • One of three options is available to a property owner who has mineral rights to his or her property.
  • When a debtor fails to make payments on a loan secured by a deed of trust, the trustee is compelled to arrange for the sale of the real estate security for the benefit of the lending institution.
  • The exterior finishing finish of a structure that serves to protect it from the elements on the outside.

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What Are Usury Laws?

Generally speaking, usury laws are rules that control the amount of interest that can be charged on a loan. In order to combat the practice of charging excessively high interest rates on loans, anti-usury legislation imposes limitations on the highest amount of interest that can be charged. These regulations are in place to safeguard consumers. Usury laws are created by separate states in the United States, which means that each state is accountable for its own laws. However, despite the fact that this form of financial conduct may be covered by the Constitution’s commerce clause, Congress has not historically concentrated on usury.

Key Takeaways

  • Various types of loans, such as credit cards, personal loans, and payday loans, are subject to a cap on the amount of interest that can be charged under the law of usury. Rather than being controlled and enforced at the federal level, monopoly laws are primarily governed and enforced at the state level. Given that state regulations against usury differ, depending on where you reside, interest rates may be much higher in one state than in another
  • As a result, interest rates may be dramatically higher in one state than in another. According to a 1978 U.S. Supreme Court rule, certain banks may charge you the highest interest rate permitted by law in the state in which they are incorporated, rather than the state in which you reside.

How Usury Laws Are Circumvented

Credit card firms often have the advantage of being able to charge interest rates that are permitted by the state in which the company was formed rather than being required to adhere to the usury rules that apply in the states where borrowers reside, which is a significant advantage. Similarly, national chartered banks are permitted to charge the maximum interest rate permitted by the state in which the institution was established. Historically, lenders have benefitted from the additional flexibility afforded by states with permissive usury regulations, such as Delaware and South Dakota, by incorporating in those jurisdictions.

A little more than half of the domestic credit business undertaken in the United States is conducted by firms that were established in Delaware, albeit their operating offices may be located in other states.

Special Considerations

Following rulings by the Supreme Court of the United States and legislation that allowed financial institutions the ability to skirt the regulations, there is considerable controversy about the effectiveness of usury legislation. Because of the rulings in the case of Marquette National Bank v. First of Omaha Corp., credit businesses can charge clients who are located outside of their home states interest rates that are the same as those that can be charged in the states where the credit companies are headquartered.

Banks only had to create subsidiaries or fulfill other requirements for incorporation in the state in order to take advantage of the statute and so avoid the application of usury regulations in other parts of the country.

Several other states amended their usury laws in reaction to this behavior, allowing locally-based financial institutions to charge interest rates on par with those charged by out-of-state lenders.

Usury Laws & How They Apply to Interest Rates

Real estate has traditionally been the preferred investment for people seeking to accumulate long-term wealth for their families and future generations. By subscribing to our complete real estate investment guide, you will receive assistance in navigating this asset class. Is it ever a mystery to you how some lenders, such as credit card loans or hard money loans, are able to charge such exorbitant interest rates to their customers? Usury rules specify the maximum interest rate that can be charged to borrowers, which varies based on the type of loan that is being offered to the borrower.

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In order to avoid getting a predatory loan or becoming a loan shark, it is important to understand usury laws, why they are important, what types of credit are covered by usury laws, how they differ from state to state, and the penalties for violating usury laws before you borrow money or create private real estate loans.

What are usury laws?

Restrictions that specify the maximum amount of fees and interest that a creditor can charge a borrower are known as usury laws. These regulations vary depending on the amount of money a creditor is giving, the type of loan, and the state in which the credit is being granted, among other factors. Usury rules have been referenced in historical and religious books for thousands of years, reaching all the way back to the Babylonian period. Most of the time, these laws are defined and governed at the state level, however they can also be regulated at the federal level through the Federal Reserve Board.

What type of credit do usury laws apply to?

Specific guidance is provided by usury regulations about acceptable rate limitations depending on the following factors:

  • What is the loan’s total amount? The sort of creditor that is being considered
  • The sort of loan

Each state has the authority to choose which types of loans are subject to the usury rules and which are not. Examples of what they normally do and don’t apply to are included below, along with some explanations. Always refer to your state’s statutes to determine the particular limitations and restrictions that apply. There have been occasions in which the subject of interest rates under usury laws has been brought before a court of law. Because of a 1978 Supreme Court decision in Marquette National Bank of Minneapolis v.

This allows credit card companies and certain banks to charge interest rates that are far higher than those permitted by state usury statutes.

How do usury laws vary from state to state?

Aiming to keep creditors in check, usury laws restrict the amount of interest or fees that can be imposed in the hopes of better safeguarding borrowers from excessive or exploitative lending practices. As a result, because the rules change from state to state, with safeguards and limitations that fluctuate substantially from one jurisdiction to the next, navigating usury laws can be challenging. For example, Vermont’s usury law, Section 9 V.S.A. 41a, states that the finance charge on single-payment loans made by lenders regulated by Title 8 and federal savings and loan associations may not exceed 18 percent per annum, but a retail charge can be as high as 21 percent per annum, according to the Federal Trade Commission.

What are the penalties for violating usury laws?

The severity of the penalty for breaking usury laws varies from state to state, although in most cases the punishment is harsh. Depending on the severity of the case, the penalty may require the bank or lender to refund all interest charged to the borrower, as well as additional fees that can be double or triple the original interest charge, as well as additional assessment fees, or it may require the bank or lender to serve jail time.

Why are usury laws important?

If you are a borrower, it is critical that you be aware of the applicable usury laws in your state and for the sort of loan you are seeking to ensure that you are appropriately protected and that your loan fits within the legal parameters. You should make sure that the loan complies with all applicable legislation in the state in which you resided at the time the loan was made. You should be aware of the usury regulations in your state and for the sort of loan you are making if you are a bank, creditor, or private real estate lender.

Despite the fact that usury regulations are not particularly fascinating to think about, understanding what they are and how they apply to you as a borrower or private lender is critical.

Word-of-the-Week: Usury

If you are a borrower, it is critical that you be aware of the applicable usury laws in your state and for the sort of loan you are seeking to ensure that you are appropriately protected and that your loan fits within the legal parameters. You should make sure that the loan complies with all applicable legislation in the state in which you resided at the time the loan was made. You should be aware of the usury regulations in your state and for the sort of loan you are making if you are a bank, creditor, or private real estate lender.

Despite the fact that usury regulations are not particularly fascinating to think about, understanding what they are and how they apply to you as a borrower or private lender is critical.

What is usury?

When a mortgage is established, the lender charges the borrower interest for the usage of the money throughout the length of time lent by the lender. The amount of interest that a private, non-exempt lender may charge is, on the other hand, governed by state legislation and the California Constitution. These laws are referred to as “usury laws” when taken as a whole. Today, the only remaining aim of anti-interest-rate legislation is to prevent loan-sharking by private lenders.

Loan-sharking is defined as the practice of charging interest at a rate that is higher than the maximum rate permitted by the applicable interest legislation. Usurious mortgages are those that charge interest over the market rate.

Usury exemptions spur competition

The first Californiausury rules were enacted in 1918 as a result of a consumer protection vote, and they established the maximum interest rate at 12 percent for all lenders, with no exceptions. The state of California passed legislation during the Great Depression that exempted some types of lenders from the state’s anti-interest rate rules. The exemptions were put in place with the goal of making the mortgage market more accessible. These exclusions from the anti-tort statutes are still in effect today, and more have been added.

Other sorts of lenders who are excluded from the provisions of the U.S.

  • Financial institutions such as savings and loan associations (S Ls), state and national banks, industrial mortgage businesses, credit unions and pawnbrokers, agricultural cooperatives, corporate insurance firms, and personal property brokers are among the many types of financial institutions.

Exemptions were beneficial in opening the market by raising the amount of money that was available. As a result of the increasing competition, interest rates were pushed lower in a short period of time.

Interest paid with goods and services

In essence, when a borrower pays interest on a mortgage, he or she is paying rent to the lender in exchange for the use of the lender’s money for a specified length of time. In the course of or at the conclusion of the loan period, the money lent is totally returned in full. In most cases, the amount of interest charged is a set or adjustable proportion of the amount of money lent, depending on the circumstances. Although interest is frequently paid in cash, the borrower may also pay interest by supplying the lender with personal property, products, or services in exchange for the money owed to the lender.

The value of any remuneration received by a lender in exchange for lending money, in whatever form it takes, is included in interest, with the exception of reimbursement or payment for mortgage origination fees incurred and services given by the lender.

Setting the interest rate

If the borrower intends to utilize the proceeds or mortgage for personal, family, or household purposes, the maximum annual interest rate is ten percent per annum, regardless of how much money is borrowed. A separate interest rate threshold applies to mortgages provided to support the improvement, construction, or acquisition of real estate when the loan is originating by a non-exempt private lender. The rate threshold is equal to the larger of two figures:

  • In any case, the relevant discount rate of the Federal Reserve Bank of San Francisco (FRBSF) + 5 percent is applied.

Usury law and real estate mortgages

There are two basic classifications of private mortgage transactions that can be distinguished based on the interest rates that private lenders can charge on real estate mortgages: first, there are transactions where the lender is the borrower and second, there are transactions where the lender is the lender.

  • Restrictive or non-brokered real estate mortgages, as well as broker-assisted real estate mortgages

Unlike traditional mortgages, brokerage real estate mortgages are free from interest rate limits and fall into one of two categories:

  • The mortgages produced by a licensed real estate broker acting as a principle for their own account as the private lender who finances the mortgage, or the mortgages arranged with private lenders by a licensed real estate broker working as an agent in the mortgage transaction in exchange for compensation

Limited real estate mortgages are any mortgages provided by private party lenders that are not made or handled through a mortgage broker or other intermediary. Private lenders include corporations, limited liability companies, partnerships, and individuals, to name a few types of entities. Unless they operate under an exempt classification, such as a personal property broker or a real estate broker, these businesses are subject to usury restrictions.

Private party lenders, who are not licensed and do not get assistance from mortgage brokers, are the most popular type of limited mortgage. They can create secured or unsecured mortgages.

Exceptions for private parties

Private party transactions involving the formation of debt that escape the application of interest rules can be divided into two categories:

  • The distinction between excluded debts and excluded debts is that excluded debts are obligations that do not entail a mortgage or forbearance on a mortgage that are broker-made or negotiated.

Seller carryback finance is the most well-known of the “non-mortgage” obligations that are exempt from the definition. Carryback notes, which are executed by the buyer in favor of the seller, are not considered loans of money by the seller. Credit sales, often known as installment notes, are what they are. A seller may choose to carry back a note if the interest rate is higher than the threshold rate for usury. Because the obligation is not a mortgage, the interest rate that exceeds the usury law level is enforceable.

Penalties for usury

The most typical punishment imposed on a non-exempt private lender who violates the anti-usury laws is the confiscation of all interest accrued on the mortgage loan in question. Consequently, the lender is only allowed to receive the principal amount that was advanced on the mortgage. All payments made by the borrower are applied exclusively to the reduction of the main balance, with no funds being used to pay interest. In addition, the lender may be required to pay an interest penalty and triple damages.

Treble damages are normally reserved for lenders who, in the opinion of the court, have taken undue advantage of an unsuspecting borrower.

Furthermore, a lender who sets a usurious interest rate while being unaware of the law of usury would not be subject to an extra penalty of triple damages.

History behind the word

Usury is a term that first appeared in print during the fourteenth century. Usury was originally defined as the practice of lending money at a high rate of interest. The word is derived from the Medieval Latin wordusuria, which means a payment for the use of money, as well as an interest payment.

Clarifying California’s Complex Usury Laws

It’s a frequent fallacy that you may charge any interest rate you choose as long as it’s in line with market conditions. The reality is that, in the vast majority of cases, a non-exempt lending company is only permitted to collect ten percent of a loan’s yearly interest, regardless of whether or not the borrower desires to pay a higher rate of interest. Borrowers and lenders alike must be aware of the possibility of usurious loans, as the consequences of defaulting on these loans may be extremely costly.

Understanding Usury

The term “usury” refers to the practice of charging interest at a rate that is higher than the maximum allowed by law. According to California judicial precedent, “interest” includes anything of value received by a lending entity from a borrower, regardless of the specific type of consideration received—this means that payments made in the form of fees, bonuses, commissions, and other similar charges may all be considered interest. A loan or forbearance in California is subject to the state’s usury legislation, which limits the amount of interest that may be charged.

Generally, non-exempt lenders can charge the greater of ten percent annual interest or five percent plus the discount rate of the Federal Reserve Bank of San Francisco on the twenty-fifth day of the month preceding the loan’s execution date, whichever is earlier.

For the sake of simplicity, the rule-of-thumb is that a non-exempt lender is barred from charging more than ten percent of the loan amount yearly, unless there is a relevant exception.

Consequences of Usurious Loan Claims

Because of the plethora of legal exclusions dispersed throughout many federal and state code sections, determining when a California-based loan is usurious can be difficult. When the interest rate on a loan is higher than the maximum amount allowed by law, the loan will often be termed usurious. In this case, the lender’s knowledge is irrelevant, which means that the plaintiff does not have to establish purpose, and the defendants’ ignorance of the law is not a valid defense. Consider the following scenario: A loan with a usurious interest rate is proposed and drafted by a borrower, and the loan’s related non-exempt lender is deemed accountable for collecting on the debt.

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However, it is possible that the lender and borrower will come to an agreement to modify a usurious loan or forbearance arrangement in order to bring it into compliance with the law.

If a loan is found to be usurious, the lender may be subject to severe civil penalties.

It is due to the existence of this legal structure that a usurious loan may have the potential to be converted into an interest-free loan, with the additional possibility of hefty damages and criminal prosecution.

Common Usury Exemptions

As previously stated, the California statute law is replete with exclusions from the payment of interest. An summary of some of the more regularly used exclusions is provided here in brevity.

Licensed Lending Entities

Licensed lending institutions engaged in the business of granting consumer and/or commercial loans, such as banks, savings and loan associations, credit unions, and finance corporations, are exempt from California’s usury regulations to the extent that they are not engaged in the business of lending.

Certain Real Estate Secured Loans

In California, if the terms and conditions of a loan are correctly executed during its origination and negotiation, it can be exempt from the state’s usury statute. Loans made or arranged by a real estate broker with a current California license and secured entirely or partially by a real property lien may qualify for this exemption.

A broker must be more involved than just providing escrow services on a loan in order to qualify for the exemption—exactly how much more involved depends on the facts of the loan transaction in which the exemption is sought.

Certain Real Property Loans

In some cases, real estate loans taken for the purpose of purchasing real estate, building a home or structure, or making renovations may be free from taxation if they are made or arranged by a real estate broker.

Seller Financed Loans

A seller “carry back” loan happens when a seller of California real estate pays the buyer’s purchase with a deed of trust secured note and then sells the property back to the seller. In these instances, the seller is taking on the role of the lending institution and facilitating the loan. In order to sell a house, it is common for a seller to offer to carry back all or a portion of the purchase price in order to expedite the process. This is especially true if the seller cannot obtain financing for the full amount of financing necessary to fund the ideal buying price.

Time Payment Agreements and Credit Cards

Unruh Act, as codified in the California Civil Code, governs the financing of consumer products under a retail installment sales contract, in which a seller finances the purchase of its consumer goods or services and the customer agrees to pay in installments over a period of time. An opinion of the California Supreme Court recently held that if the terms of a legitimate retail credit sale are afterwards mutually amended by the parties, then the resulting settlement is immune from the payment of usury.

Licensed Pawnbrokers—To an Extent

Pawnbrokers are described as any anyone who is “involved in the business of accepting items, including motor vehicles, in pledge as security for a loan,” according to the California Financial Code. The same legislative provision also stipulates that pawnbrokers can only charge interest at a rate of up to 2.5 percent each month.

Loans Extended to Certain California Businesses

The following conditions may apply to loans made to California-based corporate entities with at least $2 million in assets or for more than $300,000: a) the lender and borrower have had a prior personal or business relationship; or b) the lender and borrower can reasonably be assumed to have the ability to protect their own interests related to the transaction because of their experience, and the loan is for business purposes and is not guaranteed.

a) The lender and borrower have a previous personal or business relationship Because of California’s legal system, a seemingly basic loan can quickly devolve into a disastrous nightmare of criminal and civil penalties—regardless of whether the guilty party meant to break the law in the first place.

Making a proactive decision now can help you avoid costly penalties and time-consuming delays in the future.

Contact one of our knowledgeable attorneys who can guide you through the usury laws and exclusions in each of the 50 U.S.

Sending us a message is as simple as clicking here.

Guests on the webinar included Anthony Geraci, Esq., CEO of Geraci, as well as Melissa Martorella, Esq., Department Head of our Banking & Finance team and author of this post.

Usury Law in California

Usury is the practice of charging excessive interest on a loan, and depending on the jurisdiction, such activities may result in contractual fines or even criminal charges being filed. What constitutes “too much interest” has been a subject of long-running debate and litigation, and it has now been codified into law in the state of California. Even in the Bible, there is a prohibition against charging “too much” for loans, and while such prohibitions are not included in the Ten Commandments, it is worth noting that it was money lenders who were allegedly driven out of the Temple by Jesus.

  1. In the United States, one may sell their property for whatever price the market will bear, and in practically all economic transactions, free markets are the rule, rather than the exception; this is especially true for real estate transactions.
  2. Because of that specific transaction involving the lending of money, constraints have been put on it that are unprecedented in the realm of trade.
  3. To be sure, the debtor’s jail practice was a typical English custom that the United States Constitution forbade, which was one of the reasons why bankruptcy was expressly authorized in the United States Constitution to begin with.
  4. While professional lenders such as banks are not barred from charging high interest rates in California, people who may be lending money to a family member are.
  5. This article will describe the fundamentals of California’s anti-usury statutes, as well as the exceptions to these regulations that are frequently faced by company owners and consumers in the state.
  6. As previously noted, the usury laws are difficult and there are numerous exceptions to the basic norms as a result of the maneuverings of various institutions wanting to safeguard their own interests.
  7. Because there are exceptions to the rule and the consequences of breaking the law are serious, persons who make loans with interest charges should consult with an attorney for more information.


For example, if a $1,000 loan is due at the end of one year and there are no payments made throughout that year, the lender may charge interest of $100 (10 percent) on the balance due at the end of year.

Example: If half of the balance is paid, the ten percent payable on the remaining half must be lowered to ten percent of five hundred dollars or fifty dollars on the remaining balance if the first half is paid.

Exceptions to the Rule: Generally speaking, a loan intended for home remodeling or home acquisition is not considered to be a loan for personal, family, or household reasons in the context of usury laws.

If a loan is secured by real estate, the usury rules do not apply to any real estate broker who makes the loan.

The restrictions do not apply to the majority of lending institutions, including banks, credit unions, finance businesses, pawn brokers, and other similar organizations.

Temporary payment arrangements (for example, retail installment contracts and revolving accounts) are not commonly recognized as loans in the United States.

At current moment, there are no restrictions on the use of finance charges for the purchase of personal, family, and domestic products and services.

However, if you miss even one payment by a single day, many credit card companies will charge you their “normal” interest rates, which may be in excess of eighteen percent compounded daily and therefore in excess of 22 percent annually…all of which is totally legal.

Finance charges are typically restricted only to the extent that they are specified by the parties.

The penalties imposed on those who violate usury laws vary from criminal prosecution in extreme circumstances involving organized crime to seizure of all interest (not just the usurious portion) in the Note.

The Basicsas well asBinding Contractsand should further acquire legal counsel as to the acceptable rate of interest that the law would allow.

But notice that the genuinely huge lenders are free from the usury regulations. As one client put it, “They restrict us little folks and allow the ones that genuinely need constraints imposed on them charge whatever they want. That’s crazy.” Perhaps…but it is also the law. Learn it.

Exceptions to the Usury Law

There are a variety of situations in which the usury legislation does not apply. These are referred to as exceptions to the anti-usury statute. A large number of these exclusions are included in the list provided below.

Commercial, Agricultural, Investment and Business Loans

The lender cannot assert a defense of usury against a borrower if the loan was issued largely for the purpose of commercial, agricultural, investment, or business purposes. Interest rates for loans provided largely for commercial, agricultural, investment, or business purposes may be higher than those permitted by Washington State’s usury legislation. See RCW 19.52.080 for further information.

Credit Card and Other Retail Installment Debts

Of course, credit card and other retail installment debt may, and regularly does, surpass the maximum rate of interest that may be imposed according to RCW 19.52.020, and this is something to be concerned about (1). This is due to the fact that Washington State’s usury legislation does not normally apply to debts incurred in connection with “retail installment transactions,” as defined in RCW 63.14.010. (8). Retail installment contracts, retail charge agreements, lender credit cards (such as Nordstrom or Macy’s), and financial institution credit cards are all examples of retail installment transactions (such as VISA or MasterCard).

Note: If credit card issuers adhere to RCW 63.14.167, which governs lender credit card agreements, they are exempt from the requirements of the general usury law (seeRCW 19.52.115, which redirects you toRCW 63.14.165).

It is a well-known clause that is frequently adhered to by credit card issuers and their customers.

Consumer Leasing

Automobiles and furniture are examples of personal goods that may be leased to consumers. For personal property up to $25,000 in value (as defined in RCW 63.10.020(4)), when a consumer lease has lasted more than 4 months, the consumer may not assert or defend against claims of usury on the item. See RCW 19.52.150 and RCW 63.10.060 for further information.

Most Favored Lender Status

A national banking association, such as Wells Fargo Bank, N.A. or Bank of America, N.A., may charge interest on a consumer debt (including but not limited to retail installment or credit card debt) at the highest rate available on any given day for any other institution in the United States or U.S. Territories, notwithstanding Washington State’s usury law (see12 U.S.C. 85). A further provision in the state of Washington’s banking law (RCW 30.04.025) provides that any depository financial institution (as defined by RCW 30.22.040(12)) authorized to do business and accept deposits in the state of Washington under either state or federal law has the same “most favored lender” authority and status as national banking associations.

Most First Lien Residential Mortgage Loans

In the case of most first lien mortgage loans, federal law normally takes precedence over (preempts) Washington State’s usury legislation (preemption). In contrast, a private lender who engages in a single transaction, such as a house seller who enters into a first lien purchase money loan or a land installment contract of sale with his or her buyer, is normally subject to Washington State’s usury legislation.

Federal law (12 U.S.C. 1735f – 7A) specifically preempts state usury laws in the case of any loan, mortgage, credit sale, or advance secured by a first lien on any of the following:

  • Real estate in the residential sector
  • Stock that has been assigned to a dwelling unit in a cooperative housing development A manufactured residence for domestic use

Furthermore, state usury laws do not apply if the loan, mortgage, credit sale, or advance (even if it is a junior lien mortgage) meets the following criteria:

  • Insured by any federal government agency
  • Provided by any lender that is regulated by a federal government agency
  • Provided, insured, guaranteed, supplemented, or assisted in any way by the Secretary of Housing and Urban Development (HUD) or another federal government agency (e.g., an FHA or VA loan)
  • Insured by any federal government agency
  • Provided by any lender that is regulated by a federal government agency A mortgage that is eligible for purchase by the Federal National Mortgage Association (“Fannie Mae”), the Government National Mortgage Association (“Ginnie Mae”), or the Federal Home Loan Mortgage Corporation (“Freddie Mac”)
  • Provided by any “creditor” who makes or invests in residential real estate of more than $1,000,000 per year, who regularly extends consumer credit that is payable by agreement in more than four installments where payment of a finance charge is or may be required, or who provides a mortgage that is eligible for purchase by the
  • An open-end credit plan utilizing a credit card has two types of creditors: the card issuer and anybody who accepts the credit card and gives a discount in exchange for a finance charge. A “creditor” is defined as someone who originates two or more “high interest mortgages” in a 12-month period, or anyone who originates one or more such mortgages through a mortgage broker.
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The term “high-interest mortgage” refers to a consumer credit transaction in which the consumer’s principal residence serves as collateral, and in which the annual percentage rate (APR) at closing exceeds, by more than 10%, the yield on Treasury Department securities with comparable maturities on the 15th day of the month immediately preceding the month in which the loan application is received by the creditor.

The mortgage is termed “high-interest” if the total points and fees paid by the consumer at or before closing equals or exceeds 8 percent of the entire loan amount or $400, whichever is larger.

Second MortgagesHome Equity Loans by Licensed Consumer Loan Companies

Generally speaking, a consumer lending firm regulated under the Washington Consumer Loan Act (RCW Chapter 31.04) may originate second mortgages and subordinate lien home equity loans on residential real estate at interest rates that are higher than those permitted by Washington State’s usury statute.

“Small Loans” Regulated Under Washington State Law

According to RCW Chapter 31.45, a check casher or check seller who has obtained a “small loan endorsement” from the DFI pursuant to RCW 31.45.030 may make a “small loan” up to $700 (most commonly a “payday loan”) at interest rates that are significantly higher than the maximum rate of interest allowed under Washington State’s usury law is permitted to charge. The lender is responsible for making all required disclosures and complying with all other provisions of RCW 31.45.

Lease-Purchases on Personal Property

A lease-purchase of personal property made pursuant to RCW Chapter 63.19 is excluded from the state’s usury statute in Washington. See RCW 19.52.010(2) for further information (b).

Certain Financing of Mobile Homes

The state of Washington’s usury legislation does not apply to the financing of a mobile home that has been converted into “real property,” as defined in RCW 84.04.090, and whose financing is guaranteed by the Federal Housing Administration (e.g., FHA or VA). See RCW 19.52.160 for further information. Take note that a mobile home that has been permanently fixed in place on land owned or leased by the owner of the mobile home and placed on a permanent foundation (posts or blocks) with fixed pipe connections to sewage, water, or other utilities is considered real property under the Uniform Commercial Code.

Loans from a Tax-Qualified Retirement Plan

The state of Washington’s usury legislation does not apply to any loan made from a tax-qualified retirement plan to a person who is then a member or a beneficiary under the plan that is permissible under relevant federal law and regulations. See RCW 19.52.170 for further information.

Certain Interest Charged by Broker-Dealers

Unless the underlying loans made by the broker-dealer are subject to Federal Reserve Board regulations, a broker-dealer who is registered under the Securities Act of Washington (RCW 21.20) and the federal Securities and Exchange Act of 1934 is not subject to the maximum rate of interest set forth inRCW 19.52.020(1). See RCW 19.52.110 for further information.

Interest, Penalties and Costs on Delinquent Property Taxes

The interest, fines, and charges associated with overdue property taxes are exempt from the state’s usury legislation in Washington. See RCW 19.52.140 for further information.

Deferred Payment of Purchase Price

The state of Washington’s usury legislation does not apply to sales contracts for products or services in which the purchase price is delayed until the contract is completed. See RCW 19.52.120 for further information.

Statutory Interest on Judgments

According to RCW 4.56.110, statutory interest on judgments entered and enforced in Washington State courts may accrue interest in the following ways:

  • Written contracts are subject to the rate specified in the contract
  • Unpaid child support is subject to a 12 percent annual interest rate. For Intentional or Negligent Conduct, the rate for 26-week Treasury bills for the first auction quotation in the month preceding the entry of judgment is 2 percent higher than the rate for 26-week Treasury bills for the first auction quote in the month preceding the entry of judgment.

Other than that, judgments in Washington State courts contain interest from the day of judgment at the rate set out in Washington State’s usury laws from the date of judgment forward. See RCW 19.52.020 for further information.

Real Estate Principles: Chapter 58: Usury & the private lender Flashcards

When you have finished reading this chapter, you will be able to:determine which lending arrangements are subject to or exempt from usury restrictions on interest rates;identify extensions of credit on property sales that are not subject to usury restrictions;discern when the usury threshold rate applies; andexplain the penalties imposed on a non-exempt private lender who violates usury laws Exempt debt, triple damages, excluded debt, usury, and limited real estate loans are some of the key terms.

  1. More information on this topic may be found in Chapter 43 of the book Real Estate Finance.
  2. The amount of interest that a private, non-exempt lender may charge is, on the other hand, governed by state legislation and the California Constitution.
  3. ‘ Today, the only objective left for usury regulations is to prohibit private lenders from engaging in loan-sharking practices.
  4. Usurious mortgages are those that charge interest over the market rate.
  5. The earliest California usury rules, which were enacted in 1918 as a result of a consumer protection vote, established the maximum interest rate for all lenders at 12 percent, with no exceptions.
  6. The exemptions were put in place with the goal of making the mortgage market more accessible.
  7. A good example is the 1979 exemption from usury rules granted to mortgages originated or handled by real estate agents in the state of California.

Exemptions were beneficial in opening the market by raising the amount of money that was available. As a result of the increasing competition, interest rates were pushed lower as a result of the increased competitiveness.


The real estate broker exemption to the usury rule is the fourth exception to the usury legislation. This happens when a loan is secured by real estate, and the broker either provided the loan or “arranged” the loan for the borrower. It is not necessary for the broker to have served as the transaction’s broker. Furthermore, simply because they are operating as a broker does not imply that they have “arranged” the loan.

The broker must act in more than a minimal capacity to be found to have “arranged” the loan.

As an example, in Gibbo v. Berger (California Rptr. 3d 829 (2004), the court determined that a broker’s role as escrow agent on a transaction (which included preparing the loan documents using preprinted forms, obtaining a title insurance policy, and disbursing funds) was insufficient to exempt the lender from usury limits. Gibboc, a case decided by the California Appellate Court, determined that “the word ‘arranged by’ must allude to some behavior by a real estate broker, acting as a third party intermediary rather than as a party to the loan, that results in a loan being secured or procured.” In Jones v.

  • 609, the Court provided examples of conduct that amounts to “arranging” the loan, including “structuring the loan as the agent for the lender (Chapman v.
  • 606); setting the interest rate and points to be paid, setting the In the case of Bock v.
  • (California Court of Appeal, Third District, Case No.
  • A commission was not collected by the broker in Bock, who instead just arranged for the buyer/plaintiff to borrow $1.2 million at a rate of 15 percent instead of collecting a commission.
  • (“CCL”), of which he was the sole shareholder, and the loan was secured by the real estate that was sold in the transaction.
  • The former buyer/plaintiff filed a lawsuit against the seller for violating usury laws.

The Court also held that the broker “arranged” for the loan notwithstanding that he did so through a company wholly owned by him.

As determined by the Court, the broker “organized” a loan “for another” within the meaning of the statute—that is, he made arrangements for the buyer (“another”) to get a loan from CCL. However, even though CCL was owned only by the broker, according to the Court, the firm was still considered to be an independent legal entity. In contrast to Gibbo, which clearly found that the broker could not be a party to the loan, this ruling may be in conflict with the law. Yet, theBockCourt decided that the broker was not a party to the loan, because the party was technically the corporation; however, this appears to sidestepGibbo, and another Court may come down in a different manner under the same facts.

Despite the fact that he did not get a commission as a broker, he was operating with the expectation of receiving remuneration in the form of interest on the loan because he was a stakeholder in CCL.

In a range of commercial and real estate matters, ANAND LAW represents clients in State and Federal Courts (including Bankruptcy Courts) throughout the United States.

The cities and areas served by ANAND LAW include: Los Angeles, Pasadena, Arcadia, Burbank, La Canada Flintridge, Covina, West Covina, Downey, Santa Monica, Glendale, Eagle Rock, Hollywood, Atwater Village, Echo Park, Glassell Park, Loz Feliz, Silverlake, Highland Park, Boyle Heights, Hancock Park, Cheviot Hills, Koreatown, Miracle Mile, Mid City, Venice, Van Nuys, Encino, Studio

A Basic Primer on Usury Law in Texas

Definitions of Usury Usurious interest is defined as interest that exceeds the maximum level permitted by law in the respective jurisdiction. Tex. Fin. Code Ann. 301.002(a) provides that (17). In finance, interest is defined as remuneration for the use, forbearance, or retention of funds. The word does not include temporal price differential, regardless of how it is expressed in terms of dollars or other currencies. In addition to interest, the term excludes compensation or other amounts that are determined or stated by this code or other applicable law not to constitute interest, or that are permitted to be contracted for, charged, or received as a supplement to interest in connection with an extension of credit.” id.at (a) id.at (4).

id.at (a) id.at (16).

Butler v.

Co., 741 S.W.2d 169, 176 (Tex.

App.—San Antonio 1987, no writ).

Holt Mach.

App.—San Antonio 1987), opinion corrected on de Rates of Usury Texas has a usury rate of ten (10) percent per year, unless otherwise allowed by state or federal law.


302.001 (Texas Financial Code).

In all cases, with the exception of those specified by Subchapter B, a person is permitted to contract for, charge, or receive an interest rate or an amount that does not exceed the applicable interest rate limit established by this chapter.

It is permissible for the parties to a written agreement to agree on an interest rate…

To put it another way, the weekly limit may be charged on the majority of loans, and the weekly ceiling is almost always far higher than the ten percent (10) percent default usury rate, making the default rate rarely relevant.

The Texas Credit Letter, which is issued weekly by the Texas Office of Consumer Credit Commissioner, headquartered at 2601 N.

According to the Texas Credit Letter dated April 16, 2019, the weekly rate cap was 18.00 percent.

What exactly qualifies as “interest”?




The labels that are placed on certain charges are not controlling.


A charge, on the other hand, that obligates the lender to make a loan at a later period does not fall within the scope of this term.

DM Development Co.

SherwoodRoberts, Inc., 93 Idaho 200, 457 P.2d 439 (1969); Prather, Mortgage Loans and the Usury Laws, 16 Business Law 181, 188 (1971).

Burleigh House, Inc., 305 So.2d 59 (Florida District Court of Appeals, 1974); Financial Federal SavingsLoan Association (1960).

Consequently, the lender may charge an additional fee for this consideration without breaking the prohibition on usury.

Persky, 140 Tex.

When there is a disagreement in the evidence as to whether the accusation is just a ruse to conceal usury, a question of fact is presented to the jury for consideration.

If a lender is protected by a Usury Savings Clause, when does such protection apply?

In order to avoid usury violations, you cannot simply contract for thirty percent interest and then include a savings provision in the contract.

According to the contract’s wording, a savings clause becomes ineffective only if it is directly in conflict with those provisions.” …

Dorst, 843 S.W.2d 790, 793 (Tex.

A savings clause can “supplement and clarify” the “purpose of the parties,” according to the ABA Model Contracts.

It has been stated by the Texas Supreme Court that a usury savings clause may be used to remedy certain contingency clauses that may or may not result in a charge of usurious interest being assessed.

Harris (1937), which was decided on the basis of the Texas Constitution, and Smart v.



“Because the usury regulations are punitive in character, they must be rigorously read in such a way that the lender is given the benefit of the doubt,” says the attorney general.

Counsel Fin.

13-12-00103-CV, 2013 WL 3895331, at *4 (Tex.

Unless otherwise stated, all rights are reserved by Ian Ghrist, 2019.

Disclaimer: The material contained in this paper is for informative purposes only.

Instead, you should seek the opinion of a professional attorney regarding the specific facts and circumstances of your legal situation.

Furthermore, this material may be out-of-date or incorrect, and it is not meant to be complete or to address any specific factual or legal issue that may arise in the future.

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