I'm being charged at an annual percentage rate of 24.75%. Am I a victim of usury?
Contracts / Agreements Lawyer
I wrote a blog post on my blog (www.businesslawpost.com) about the interest rates on loans in New York. I am re-posting it for you below. Note that banks and credit card companies fall under different laws and are allowed to charge higher interest rates.
Maximum Interest on Private Loans in New York
A lot has been written about how difficult it is now to obtain financing for small businesses. Banks charge high interest rates, and it is tough to qualify even for a bank loan. Angel or VC funding is even harder to come by. So, to secure funding, business owners turn to their friends and family members for loans. Business owners may feel so appreciative of much needed loans, that they may be willing to pay whatever interest they are asked, even if it is 50%.
This blog is to educate the New York residents and business owners as to how much interest they can really charge or be charged on such private loans made by private individuals or corporations (not banking institutions or credit card companies, where separate laws apply).
Charging high interest rates (that exceed the state maximum) is called “loansharking” (as many may be familiar with such term through the movies). In legal jargon, excessively high interest rates are called “usurious”, i.e., illegal. Usury laws regulate within each state the maximum interest rate that may be charged on a money loan. In New York, there are civil law limits found in the General Obligations Law and the Banking Law, and there are criminal law limits, found in the Penal Code.
So, what are the usury limits in New York?
For loans made to individuals, if the loan does not exceed $250,000, the maximum annual civil law interest rate is 16%, and the maximum criminal law interest rate is 25%. For loans between $250,000 and $2.5 million, there is no maximum civil law rate, but there is a 25% maximum criminal law rate. There is no maximum on the interests charged on loans over $2.5 million.
For loans made to corporations, there is no maximum civil law rate of interest, but there is a 25% maximum criminal law interest rate for loans not exceeding $2.5 million.
What happens if the interest rate exceeds the state limit?
If this happens, the entire loan is considered void, and the lender may be denied the right to recover the interest and even the principal. In addition, the borrower may be allowed to recover any “extra” portion of interest that he or she has paid to the lender. If the interest exceeds the maximum criminal usury limit, the lender may face a felony prosecution.
Please note that laws change all the time, and the information in this blog is only accurate as of the time when it was written. Also, this blog did not provide information regarding loans secured by mortgages (where separate rules apply). It is always best to consult a business attorney to check the current status of the usury laws and to prepare the appropriate loan documentation.
My response is not a legal advice, and was given for general informational purposes only.
2 lawyers agree
Real Estate Attorney
Possibly. It depends on the size and type of loan and whether the lender is a private lender or a federally chartered lender. As a rule, the maximum interest rate in NY for individuals is 16% and for businesses it is 24%. Anything over 25% is considered criminal usury. If a loan is deemed to exceed the usury rate then the lender can be forced for forfeit the interest. If it is considered criminal usury the lender can be forced to forfeit the principal and interest as well as face criminal sanctions.
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1 lawyer agrees
Criminal Defense Attorney
You've contracted with a legal loan shark. Find another source with lower interest, and pay off this one.
If you found this "helpful" or "best answer," please click it with my appreciation. My response is for educational purposes and does not constitute legal advice nor creates an attorney client relationship which requires all the details and a personal conference.