Legal Definitions - usury

Usury refers to the practice of lending money at an interest rate that exceeds the maximum legal limit set by state law. It's not just about the actual payment, but the agreement itself to charge or pay an unlawfully high rate. Essentially, it describes an illegal or excessive interest charge on a loan, where the agreed-upon rate is higher than what the law permits.

The core elements of usury typically involve:

• A loan or an agreement to delay repayment of money.
• An understanding that the money will be repaid in full.
• An agreement to pay an interest rate for the use of that money that is greater than the legal maximum allowed by the jurisdiction.

Here are some examples to illustrate usury:

• Personal Loan Exceeding State Cap:

  Imagine a state law sets a maximum annual interest rate of 18% for personal loans under $5,000. A person, facing an unexpected emergency, needs to borrow $1,000 quickly. A private lender offers the money, but the loan agreement requires the borrower to repay $1,300 in just three months. When calculated, this repayment schedule translates to an annual interest rate of 120%, which is significantly above the 18% legal limit.

  This illustrates usury because the agreed-upon interest rate (120% APR) far exceeds the state's legally permissible maximum of 18% for personal loans of that amount. The loan agreement itself, due to its excessive interest, is usurious.

• Small Business Loan with Excessive APR:

  A small bakery owner, experiencing a temporary cash flow crunch, secures a short-term business loan from a non-bank lender. The loan contract specifies an interest rate that, when all fees and charges are annualized, results in an effective Annual Percentage Rate (APR) of 65%. However, the state where the bakery operates has a commercial usury cap of 30% APR for loans of this specific type and size.

  This is an example of usury because the lender is charging an annual interest rate (65%) that is more than double the maximum legal rate (30%) allowed by state law for commercial loans, making the loan agreement unlawful.

• Car Title Loan Violating Consumer Protection:

  A car title loan company offers a loan where the borrower uses their vehicle as collateral. The loan contract stipulates an interest rate that, when all associated fees and charges are included and annualized, results in an effective APR of 250%. However, the state's consumer protection laws specifically cap interest rates for car title loans at 36% APR to protect vulnerable borrowers.

  This scenario exemplifies usury because the lender is charging an interest rate (250% APR) that is drastically higher than the 36% APR maximum permitted by state law for car title loans, rendering the loan agreement illegal due to its excessive interest.