Usury Laws: Do Late Fees Count?

Usury laws, which have been regulated since Biblical times, are in place to protect people from extortionate interest rates on loans. But do these laws apply to late fees?

In New York, usury is defined as the corrupt agreement of parties by which more than lawful interest is paid, or is to be paid, as compensation for a loan or forbearance in collecting money advanced as a loan. However, the application of usury laws to late fees is a grey area. While some courts have found that late fees are not considered loans and therefore can exceed the equivalent of 16% interest per year, others have found that late fees that are confiscatory can be voided as usurious.

Similarly, in Texas, courts have held that because a rental or lease agreement is not a lending transaction, the usury statute does not apply to late charges assessed on overdue rental payments. However, it's important to note that each state has its own usury laws, and the specific facts of each case will determine whether late fees are considered usurious.

Usury laws and late fees on rental agreements

Usury laws are designed to protect consumers from being charged unreasonably high-interest rates on loans. While usury caps only apply to loan transactions, courts often refer to these rates when determining the reasonableness of fees charged on other amounts due, including late fees. Late fees are typically considered liquidated damages, not interest on a loan, so usury laws do not directly apply. However, if a late fee significantly exceeds the applicable usury rate, it may be found to be an unenforceable penalty.

In the context of rental agreements, late fees are a common form of "theft" by landlords. While many leases include late fees, these fees are often illegal. For example, in California, Civil Code 1671 outlaws virtually all late fees in residential rental agreements by classifying them as "liquidated damages". This means that a landlord cannot charge excessive late fees, even if the tenant has agreed to them in the lease.

When determining the legality of late fees, courts will consider whether the fee is reasonable. For example, in Florida, a late fee of $20 or 20% of the monthly rent is considered reasonable, while a higher fee may still be valid but would require the landlord to prove its reasonableness. On the other hand, a New York court found a late fee of $800 on a monthly maintenance fee of $1,300 to be excessive and reduced it to $0.04 per dollar owed.

To avoid issues with late fees, landlords should ensure that any fees charged are reasonable and enforceable by a court. Tenants, on the other hand, should be aware of their rights and not feel pressured to pay excessive late fees just because they are included in their lease.

Usury laws and late fees on credit cards

Usury laws, which date back to Biblical and Roman times, are in place to prevent lenders from charging borrowers excessively high rates of interest on loans. In the US, usury laws vary from state to state, with more than half of US states having such laws in place.

However, these laws do not apply to credit card companies, which are exempt from state usury laws. This is due to a combination of federal court decisions, statutes, and deregulation. Credit card companies can charge customers the interest rates allowed by the company's home state, regardless of the customer's state. For example, if a credit card company is based in South Dakota, which has no defined maximum interest rate limits, it can charge customers from any state the same interest rate.

The maximum credit card interest rate that a national bank may charge is determined by the law of the state where the bank has its headquarters. However, under certain circumstances, a national bank may charge rates permitted by the law of a state where it has branches, even if its headquarters are located elsewhere. In both cases, the rates can be charged regardless of the borrower's residence.

While there are no limits on credit card interest rates in practice, late fees on credit cards are capped at $25 per transaction under the Credit CARD Act of 2009.

Usury laws and late fees on cable bills

Usury laws are designed to protect individuals and small businesses from extortionate interest rates on loans. In the US, usury laws are enforced at the state level, and while they vary, they generally apply only to loan transactions. Late fees, on the other hand, are applied to a wide range of transactions, from credit card payments to cable bills.

In the case of cable bills, late fees are not uncommon, and they are generally legal. Cable companies are prohibited from charging subscribers for services or equipment they did not request. However, if a subscriber fails to pay their bill on time, late fees may be applied, provided certain conditions are met. Late fees for cable bills are not considered usury, and thus, are not governed by usury laws.

The legality of late fees depends on the terms of the agreement between the cable company and the subscriber, as well as the specific state laws. It is important to note that late fees cannot be imposed arbitrarily; they must be specified in the initial agreement and clearly stated on invoices. Late fees should also be reasonably related to the actual damages suffered by the cable company due to the late payment. This includes accounting and collection expenses, the cost of sending reminders and pursuing payment, and lost interest on the unpaid amount.

While there is no standard rate for late fees, they typically range from a flat fee per day of delay to a percentage of the invoice amount, calculated annually and charged monthly. For example, a late fee of $10 per day or 10% per year is not uncommon. However, late fees that exceed a certain percentage, such as 10% or 18%, may be challenged in court as unreasonable penalties.

In summary, usury laws in the US apply specifically to loan transactions and not to late fees on cable bills or other services. Late fees on cable bills are generally legal, provided they are specified in the agreement, reasonably related to the actual damages incurred, and not excessively punitive.

Usury laws and late fees on loan repayments

In New York, for example, the maximum interest rate for loans and forbearances of repayments is set at 6% per year, but the New York Banking Law allows for a maximum annual rate of 16%. Charging more than this rate could result in penalties, including invalidation of the loan, and in some cases, criminal charges. However, there are exceptions for loans exceeding specific amounts, and corporations may not use the usury defence against civil usury.

When determining if a late fee is considered usurious, courts consider whether the fee is "confiscatory" or excessive in relation to the amount owed. In one New York case, a condominium association's late fees ranging from $200 to $800 per month were found to be unreasonably excessive and reduced by the court. Similarly, in Texas, courts have held that usury laws do not apply to late charges assessed on overdue rental payments or condominium assessments, as these are not considered lending transactions.

In California, interest charges on unpaid invoices for goods and services are generally allowed and not subject to usury limitations, as long as they are reasonable (up to 18%) and specified in the contract or invoice. However, individuals and small businesses should exercise caution when charging interest rates above 10% per year, as they may be challenged as unreasonable penalties.

Overall, the applicability of usury laws to late fees depends on the specific circumstances, the jurisdiction, and the nature of the transaction. Late fees that are significantly higher than the applicable usury rate may be deemed unenforceable by courts.

Usury laws and late fees on invoices

In New York, the maximum interest rate for loans and forbearances is 6% per year, unless the New York Banking Law states otherwise. If the interest charged exceeds 25% per year, it could be considered criminal usury, resulting in hefty financial penalties or even imprisonment.

However, there are exceptions to these rules. For instance, loans of $2.5 million or more are exempt from both civil and criminal penalties. Additionally, corporations cannot use the usury defence against civil usury because they are not considered the protected class that usury laws aim to safeguard.

In Texas, usury is defined as "interest that exceeds the applicable maximum amount allowed by law." Courts of appeals have ruled that usury statutes do not apply to late charges on overdue rental payments because rental or lease agreements are not considered lending transactions.

In California, the Supreme Court has ruled that interest charges on unpaid invoices for goods and services are legal if the contract or invoice allows for it and the interest rate is reasonable. While California's usury laws apply to loans and forbearance on loans, the sale of goods and services on credit is not considered a loan. Therefore, interest charges on unpaid invoices are not subject to these laws.

It is important to note that the applicability of usury laws to late fees depends on the specific circumstances and the state in which the transaction occurs.

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