How To Prove A California Usury Defense

In California, a defense of Usury is defined as:
The charging of an illegal rate of interest as a condition to lending money. An illegally high rate of interest.
It simply means:
Charging an interest rate that is illegally high.
There are 5 elements of the defense:
- Element 1. A transaction was made by a loan or forbearance A transaction involving a loan or forbearance occurs when one party lends money to another, with the understanding that the borrower will repay it later, which can be a key point in defending against claims of excessive interest rates, known as usury.
Facts that might support this element look like:
* The borrower received a sum of money from the lender with the understanding that it would be repaid with interest over a specified period.
* The terms of the agreement explicitly stated that the borrower would pay back the principal amount along with an additional fee classified as interest.
* The lender provided a written contract outlining the repayment schedule and the interest rate, which exceeded the legal limit set by state law.
* The borrower was unable to repay the loan on time, leading to a renegotiation of terms that included additional fees classified as interest.
* The lender’s actions included charging fees that were not disclosed upfront, which effectively increased the total cost of the loan beyond legal limits. - Element 2. The interest to be paid on the loan or forbearance exceeded the statutory maximum. The interest charged on the loan or payment plan was higher than what the law allows, which can be used as a defense against claims of usury, meaning the lender may have violated legal limits on how much interest they can charge.
Facts that might support this element look like:
* The loan agreement specified an interest rate of 25%, which exceeds the statutory maximum of 15% for consumer loans in the state.
* The borrower was charged an additional fee labeled as “interest,” raising the effective annual percentage rate to 30%.
* The lender failed to disclose the total cost of the loan, including hidden fees that contributed to an interest rate above the legal limit.
* The loan documents indicated a compounding interest structure that resulted in an annual interest rate exceeding the statutory cap.
* The lender provided a forbearance agreement that included interest terms that surpassed the allowable statutory maximum for such agreements. - Element 3. The loan and interest were absolutely repayable by the borrower. The borrower was fully capable of repaying the loan and interest, which is an important point in a usury defense, as it shows that the borrower had the means to meet their financial obligations without being unfairly burdened by excessive interest rates.
Facts that might support this element look like:
* The borrower received a loan agreement that clearly outlined the repayment terms, including the principal amount and interest rate.
* The borrower made regular payments on the loan for several months, demonstrating an ability to repay the debt.
* The borrower had a stable income and sufficient financial resources to cover the loan payments as agreed.
* The loan was used for a legitimate purpose, which further supports the borrower’s capacity to repay the debt.
* The borrower was fully aware of the loan terms and voluntarily accepted the conditions set forth in the agreement. - Element 4. The lender had a willful intent to enter into a usurious transaction. The lender knowingly and deliberately set up a loan with excessively high interest rates, fully aware that it was illegal, which shows their intention to take advantage of the borrower.
Facts that might support this element look like:
* The lender knowingly charged an interest rate exceeding the legal limit established by state law.
* The lender failed to disclose the true cost of the loan, including hidden fees that contributed to the excessive interest rate.
* The lender has a history of engaging in similar transactions that violate usury laws.
* The lender pressured the borrower into accepting unfavorable terms, disregarding the borrower’s financial situation.
* The lender provided misleading information about the loan’s terms to ensure the borrower would agree to the usurious rate. - Element 5. The transaction is not subject to an exception or exemption. This means that the financial transaction in question does not qualify for any special rules or exceptions that would allow it to avoid being considered usurious, which is when interest rates are excessively high and illegal.
Facts that might support this element look like:
* The loan agreement did not meet the criteria for any statutory exemptions under state usury laws.
* The interest rate charged exceeded the maximum allowable limit set forth in applicable usury statutes.
* The transaction involved a consumer loan, which is not exempt from usury regulations.
* The lender did not provide any documentation to support a claim of exemption from usury laws.
* The borrower was not a licensed financial institution, which would qualify for certain exemptions.
(See Ghirardo v. Antonioli, 883 P. 2d 960 – Cal: Supreme Court 1994. California Constitution Article XV, Section 1. California Civil Code Appendix Sections 2 and 3. California Civil Code Section 1916.)
If you’re in court without a lawyer and plan to assert a Defense of Usury, having a Personal Practice of Law at Courtroom5 is essential. You’ll need to make informed decisions about what to file at each phase of your case and prepare legal documents that are supported by thorough legal research and a strong analysis of the facts. Equip yourself with the tools and knowledge necessary to effectively present your Defense of Usury.
U.S. Civil Cases Only