- Jared Hartman, Esq.
- Posted on August 21, 2014
There are laws in California that prohibit loan transactions from having a APR (annual percentage rate) of greater than 12%–or 7% in many instances. These laws are called Usury Laws and can be found at Article XV, Section 1 of the California Constitution and in California Civil Code § 1916.12-1 through 1916.12-5. Pursuant to Calif. Civ. Code §1916.12-3(b), any person who contracts to receive a usurious amount of interest is considered “loan sharking” and is a felony crime. Additionally, someone who has suffered a usurious loan can sue civilly to recover all interest paid on the loan within the previous two years in addition to triple the amount of interest paid within the previous one year—these are not limited to just the usurious interest paid but applies to all interest paid.
Unfortunately, there are many exemptions from usury laws, such as banks, which is why credit cards, private student loans, and mortgage loans are typically between 10%-24%. There has been a disturbing rise in the past few years for “short term loans”, which are also listed as an exemption.
Short term loans are the types of loans that allow someone to get a quick influx of cash for a very high interest rate. The expectation is that the loan will be repaid in a short period of time and is not usually expected to take an entire year or more to be repaid, and therefore the high annual percentage rate is not expected to be detrimental to the borrower. If the company is labelling the loan a “short term loan” with the intention of evading the Usury laws, then the loan is not protected from Usury laws prohibitions.
If someone is truly in need of emergency funding and has the ability to repay the loan on time, these loans can be beneficial. The problem, though, is that most people don’t know how problematic it can be to pay these loans off on time, and then unexpectedly suffer high penalties, acceleration clauses, and losing both title and possession to their vehicles being used as collateral. Even more disturbing is that almost half of the people who take out these loans have to incur more debt with another company just to pay off the first company, thereby creating a never-ending cycle of debt for the company’s to simply sit back and profit from the unfortunate debtor struggling to survive on a day to day basis.
A very disturbing depiction of these loans was presented by John Oliver on HBO’s Last Week Tonight on Sunday August 10, 2014. Watch the video below for more:
The law offices of Semnar Law Firm, Inc. and Hartman Law Office, Inc. have teamed up to file a lawsuit recently against a company called Trading Financial Credit, LLC. The lawsuit was filed in the Orange County Superior Court under case number 30-2014-00735404. The complaint can be found here complaint. The lawsuit alleges that Trading Financial deceptively labelled their tile loan mandating 92% APR on a $4,000.00 loan as a type of loan exempt from Usury, but only did so with the intention of avoiding usury law prohibitions. The lawsuit further alleges violations of Rosenthal FDCPA (for more on that see our tab called “Debt Collection”) by having someone falsely threaten the plaintiff with criminal investigations for fraud and by calling her references with the same false threats, among other matters.
The bottom line, every person should be very careful when entering into these types of loans. Tough economic times may require quick cash, but there are many other ways to obtain cash that might not cause as many problems. If you or a loved one has entered into such a loan and is being taken advantage of and feel that the loan company is violating your rights, contact us immediately for a free and confidential consultation to discuss your circumstances.