Orange County Usury Defense Attorney
California usury law prevents certain types of lenders from charging interests rates at percentages higher than the maximums allowed by law. Usury laws are designed to help prevent lenders from taking advantage of borrows by applying unreasonably high interest rates. However, many exemptions allow lenders to avoid this law. Because usury law is so complex, it is best to contact an experienced business attorney for guidance in this area.
Notwithstanding the below exceptions, the general rule is that lenders may not charge more than 10% annual interest on loans made for personal, family or household purposes. The 10% interest rate is calculated on the amount of the outstanding balance. Other types of loans are generally not subject to usury limits. This means that the 10% interest needs to consider the amount of principal that the borrower has paid in the past.
Additionally, many commercial lending institutions are exempt from usury laws, including credit unions, credit card lenders, and many banks. Real estate brokers with loans secured by real property also do not have to comply with usury law. Loans taken out for home purchases may also be up to 10% higher than the interest charged by the federal reserve bank for advances to member banks. However, non-U.S. banks are only exempt under certain conditions which include if the bank has sufficient assets, and is licensed to have an office in California.
The penalties for violation of usury laws are harsh. Generally, if the usury rates are surpassed in a loan the obligation to pay interest is entirely invalidated and the borrower is entitled to recover any interest paid within the commencement of the usury lawsuit. Additionally, the lender may face civil penalties of three times the interest paid to it within the year preceding the initiation of the lawsuit. The amount of usurious interest can also be offset against the principal. When industrial loan companies violate these interest rate caps the entire agreement between the parties is invalidated. Felony charges may also be brought by the local prosecutor, although this is somewhat rare.
Defenses to Usury
Fraud on the part of the borrower can prevent the borrower from bringing a usury claim, examples include if the borrower lied about the circumstances of the loan. Additionally, a lender may defend itself from usury if they reasonably relied on the representation from the borrower that the loan they were providing was not usurious.
However, except for the above two circumstances, the fact that a borrower understood that the loan interest rates were illegally high is not a defense to usury. Nevertheless, usurious loan agreements can be modified to eliminate the unlawful aspects of the loan. However, the lender must comply with certain measures. The lender must return all interest that exceeded the amount allowed by law. Simply telling the borrower that parts of future interest amounts paid will go towards the principal is not enough. The lender should also send the borrower complete disclosure regarding the portions of the loan agreement that were unlawful.
Orange County Usury Loan Lawyer
Usury law can be harsh, but if corrective action is taken quickly many penalties can be avoided. If you are facing a usury lawsuit the Law Offices of Tony T. Liu can help. To learn more call (714)415-2007 today.