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A Matter of Interest – California Usury Law

Many people wrongfully believe they can charge whatever interest level they choose when lending money. Unfortunately, that is not generally the case. In most circumstances, a “non-exempt” lender is restricted to collecting ten percent (10%) per year on a loan, even if the borrower agrees, or even begs and pleads, to pay a higher rate of interest.

Usury is the charging of interest in excess of that allowed by law. California courts have held that “interest” includes anything of value that is received directly or indirectly by the lender from the borrower regardless of the nature or form of the consideration (e.g., fees, bonuses, commissions, and other miscellaneous charges).

California’s usury law limits the amount of interest which can be charged on any loan. However, there are many exemptions to the usury law, which means that one should consult an attorney when attempting to draft a loan agreement. If a loan is deemed to be usurious, the originator may be subject to penalties. The borrower is generally entitled to the following cumulative remedies, including but not limited to an action for money damages for ALL the money he has previously paid during the two year period prior to the filing of an action (not just the usurious amount), damages equal to three times the interest paid, and cancelling any interest due on the loan.

Moreover, there really are no defenses to a usury claim. Usury is usury. The lender either has, or has not, charged an illegal interest rate. Ignorance of the law is no defense. There are many exemptions to California’s usury law: For example, banks and credit card companies are generally exempt. The attorneys at Vogt, Resnick & Sherak, LLP can assist you in drafting and enforcing loan documents which comply with California’s usury laws. Doing so may prevent significant legal bills and headaches in the
future. Remember, it is in your own “best interest.”