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Understanding the Basics Of New York’s Usury Laws

 

Under New York law, charging an interest rate in excess of sixteen percent (16%) on a loan or forbearance is civil usury.[1] An interest rate in excess of twenty-five percent (25%) is criminal usury.[2]

There are various exemptions from the civil and criminal usury provisions. Loans or forbearances of $250,000.00 or more are generally exempt from the civil usury statutes but remain subject to the criminal usury statutes.[3] Loans or forbearances of $2,500,000.00 or more are exempt from both the civil and criminal usury statutes.[4] In addition, the civil usury cap does not apply to defaulted obligations.[5] Moreover, loans or forbearances secured pursuant to Article 9 of the New York Uniform Commercial Code are not subject to civil usury or criminal usury limitations, if on the date when the interest is charged or accrued, such interest is not greater than eight percentage points above the prime rate.[6]

Corporations and limited liability companies are generally barred from asserting civil usury as a defense to an action.[7] However, any defendant, including corporations and limited liability companies may assert criminal usury as a defense.[8]

Generally, under the civil usury statute a loan is void if the interest rate exceeds sixteen percent (16%).[9] However, criminal usury must be asserted as an affirmative defense. It is “an open question under New York law whether a criminally usurious loan is void ab initio or whether a successful defense based on criminal usury results merely in the cancellation of the interest obligation or in a revised obligation to pay a non-usurious rate.”[10]

While this open question of law may permit a creditor to file an action to collect a criminally usurious loan, doing so opens the creditor to the risk of criminal prosecution. Criminal usury is a class E felony and punishable by up to four (4) years imprisonment.[11] If the creditor has previously been convicted of criminal usury, attempt to commit criminal usury, or the creditor’s conduct was part of a scheme or business of making or collecting usurious loans, the creditor may be guilty of criminal usury in the first degree which is a class C felony and punishable by up to fifteen (15) years imprisonment. [12]

 

 

 

[1] Gen. Oblig. Law § 5-501(1).

[2] Penal Law § 190.40.

[3] Gen. Oblig. Law § 5-501(6)(a).

[4] Gen. Oblig. Law § 5-501(6)(b).

[5] Madden v. Midland Funding, LLC, 237 F. Supp.3d 130, 140-141 (S.D.N.Y. 2017).

[6] Gen. Oblig. Law § 5-526(1).

[7] Gen. Oblig. Law § 5–521(1); Limited Liab. Co. Law § 1104

[8] Gen. Oblig. Law § 5–521(3); Limited Liab. Co. Law § 1104(c).

[9] Gen. Oblig. Law § 5-511.

[10] Adar Bays, LLC v. 5Barz Int’l, Inc., No. 16 CIV. 6231 (NRB), 2018 WL 3962831, at *4 (S.D.N.Y. Aug. 16, 2018) quoting Carlone v. Lion & the Bull Films, Inc., 861 F. Supp. 2d 312, 321 (S.D.N.Y. 2012) (citing Venture Mortg. Fund, L.P. v. Schmutz, 282 F.3d 185, 189 (2d Cir. 2002)(internal quotation marks omitted); see also Funding Group, Inc. v. WaterChef, Inc., 19 Misc.3d 483, 490-491, 852 N.Y.S.2d 736, 740-742 (N.Y. Sup. Ct. N.Y. County 2008) (“The criminal usury statute… does not expressly void a loan that exceeds it maximum rate.”).

[11] Penal Law §§ 190.40, 70.00.

[12] Penal Law §§ 190.42, 70.00.