Kiritsis & Associates

 

What is usury?

Jul 16, 2021

Kiritsis Law Group 212 922 0005

By: John Kiritsis, Esq., CPA, MBA, MS, JD, LL.M


Generally usury refers to the illegal practice of charging an impermissibly high rate of interest. Allegations of usury may in certain situations lead a court to  invalidate a loan contract. Also, it is possible that a  party commits usury unintentionally (i.e. poorly drafted loan contract that does not provide cap on adjustable loan interest rates). Laws regarding usury are usually a matter of state law. Constitutional issues have led the federal government to avoid usury regulations, and many legal commentators have viewed it is as one of the motivations behind the federal RICO laws. There are various of some legal and some illegal and others of dubious legality ways to avoid being subjected to usury type of laws -- certain techniques may include -- formation of separate corporate entity charging service and application fees which permit ownership interest by the lender -- annual reporting fees -- appointment of a paid director who is controlled by the lender -- service and/or supply agreement between the lender and borrower, structuring the arrangement in a way that a foreign jurisdictions set of laws may apply, which are very laxed with enforcing usury type of laws. 

 

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