What are the Interest Rates and Usury Laws?

California’s usury law, found in Article XV, Section 1 of the California Constitution, limits the interest rate which may be charged on nonpersonal loans. Loans made or arranged by licensed real estate brokers are exempt from the limit. Id.; CC Sec. 1916.1.

Elements

The essential elements of usury are:

  1. The transaction must be a loan or forbearance;
  2. the interest to be paid must exceed the statutory maximum;
  3. the loan and interest must be absolutely repayable by the borrower; and
  4. the lender must have a willful intent to enter into a usurious transaction.

Ghirardo v. Antonioli (1994) 8 Cal. 4th 791, 798.

Standard of Review

The constitutional proscription against usury applies by its express terms only to a “...loan or forbearance of any money, goods or things in action.” (Cal. Const., art. XV, Sec. 1.) Without a loan or forbearance, usury cannot exist. (Southwest Concrete Products v. Gosh Construction Corp. (1990) 51 Cal. 3d 701, 705.) “However, ‘[b]oth a loan of money and a forbearance’ are to be distinguished from a sale which is the 'transfer of property in a thing for a price in money.’” (O'Connor v. Televideo System, Inc. (1990) 218 Cal. App.3d 709, 713.)

“In determining whether a transaction constitutes a loan or forbearance, we look to the substance rather than the form of the transaction.” (Boerner v. Colwell Co. 21 Cal. 3d 38, 44.) "In all such cases the issue is whether or not the bargain of the parties, assessed in light of all the circumstances and with a view to substance rather than form, has as its true object the hire of money at an excessive rate of interest." Id.

Statute of Limitations

“Every person... who for any loan or forbearance of money, goods or things in action shall have paid or delivered any greater sum or value than is allowed to be received ... may ... recover in an action at law against the person, company, association or corporation who shall have taken or received the same, or his or its personal representative, treble the amount of the money so paid or value delivered in violation of said sections, providing such action shall be brought within one year after such payment or delivery.” (Civ. Code, § 1916-3(a).)

Remedies

The Usury Law is designed to discourage the imposition of excessive charges on necessitous borrowers, and in order to foster this policy, it provides for an additional, cumulative remedy to a borrower against the lender of the usurious loan. (E.g., Gibbo v. Berger (2004) 123 Cal.App.4th 396, 404; Charlotte Guyer and Assoc. v. Franklin Factors (1963) 211 Cal.App.2d 690, 696 (stating “plaintiff is entitled to a return of interest paid prior to the one-year period and treble the amount of usurious interest paid within one year”); Penziner v. West American Finance Co. (1937) 10 Cal.2d 160, 171.) As a statutory penalty against the lender, the borrower can recover damages against the lender in the sum of three times the amount of interest paid the lender during the one-year period preceding the filing of the action. (Id.)

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