Foreclosures: California Usury Regulations

Usury regulations provide protection for Borrowers by setting the maximum limits on interest rates. In California, the maximum interest rate on oral agreements is 7%. The maximum interest rate for judgments is 10%. For personal, family, and household purposes, the maximum rate is 10%. For all others, the maximum interest rate is the greater of 10%, or 5% above the prevailing interest rate set forth by the U.S. Federal Reserve Bank in San Francisco to its member banks, on the 25th date of the previous month.

Certain fees are not usurious and thus Usury laws do not apply. Late payment charges and pre-payment premiums or penalties, attorney’s fees, commission interest, and administrative costs (closing costs, titles and records searches, and investigative costs) are all non-usurious. There are certain loans that are also exempt from Usury regulations. Loans that are made or arranged by a licensed real estate brokers for compensation or expectation for compensation, secured by a real property are exempt from Usury law, even if it is outside the scope of their license, are not usurious. Additionally, loans that are made by Savings and Loans Associations and pawn shops are also exempt from Usury laws. Lastly, a time-credit transaction (A loan by the seller in which the Borrower/buyer signs a promissory note and the seller carries back a deed of trust on that property as a security device) is also exempt from Usury law. A time-credit transaction is sometimes referred to as “seller-financed” transactions.

If it is determined that the interest rate was usurious, all interest paid by the Borrower will be set-off against the principal amount owed. In addition, if the set-off exceeds the principal amount owed, the Borrower will get back interests paid within the last 2 years, starting from the date of filing suit. Lastly, as a penalty, the Borrower may be able to obtain from the Lender three-times the amount of the illegal interest paid within the last 12 months.