Exceptions to N.Y. Usury Law Explained

In New York, there are specific situations where lenders can charge interest rates above the usury limit, which is 25% per annum.

For example, federal law allows for higher interest rates on certain types of loans, such as those made by federally chartered banks.

The federal Truth in Lending Act also permits higher interest rates on certain consumer loans, like those for mobile homes or home improvements.

These exceptions are designed to allow lenders to offer financing options for specific purposes that might not be covered by traditional lending.

You might enjoy: Pennsylvania Higher Education Assistance Agency

New York's usury law is a complex and nuanced topic. The law has a long history of protecting borrowers from overly greedy lenders.

A loan with an interest rate exceeding 25% can be considered usurious and void under New York law. This is because the state takes usury law very seriously and tries to protect borrowers from exploitation.

The New York Court of Appeals has explored two centuries of history of New York usury law. The court has concluded that the law is intended to protect borrowers from lenders who ask for too much.

If this caught your attention, see: Frivlous Civl Lawsuit Will Umbrella Insurance Protect Me

A publicly held corporation borrowed $35,000 with an 8% interest rate in a recent New York Court of Appeals case. The lender also had an option to convert the loan into corporate stock on favorable terms.

New York law generally prohibits corporations from asserting usury as a defense to any loan obligation. However, if the total interest rate exceeds 25%, the "criminal usury" law may apply.

The lender in the case tried to exercise its favorable conversion right. The borrower countered by saying the arrangement violated New York's usury laws because the value of the conversion right made the effective interest rate exceed 25%.

The New York usury statute makes it a Class C felony to engage in loan sharking, with a maximum penalty of 15 years in prison and a fine of $5,000 or double the gain made by committing the crime.

Loans of $2,500,000 or greater are exempt from criminal usury statutes under General Business Law 5-501(b)6.

Consider reading: Conversion Gourdes En Dollars

Some loans are exempt from New York's usury law, including loans made by banks and other financial institutions.

These institutions are exempt from the law because they are regulated by federal agencies.

Loans made by credit unions are also exempt, provided they are insured by the National Credit Union Administration.

There are also some specific types of loans that are exempt from the law, such as loans made to non-profit organizations and loans made to finance the purchase of a business.

The exempt amount for these types of loans is $500,000 or less.

Additionally, loans made to finance the construction or rehabilitation of a dwelling are exempt from the law, provided the loan does not exceed $500,000.

Loans made by licensed lenders in other states are also exempt from the law, provided the loan does not exceed the maximum rate allowed in that state.

Here's an interesting read: Institutions for Occupational Retirement Provision Directive 2016