Usury

The rate of interest upon the loan or forbearance of any money, goods, or things in action, or on accounts after demand, shall be 7 percent per annum but it shall be competent for the parties to any loan or forbearance of any money, goods or things in action to contract in writing for a rate of interest: For any loan or forbearance of any money, goods, or things in action, if the money, goods, or things in action are for use primarily for personal, family, or household purposes, at a rate not exceeding 10 percent per annum; provided, however, that any loan or forbearance of any money, goods or things in action the proceeds of which are used primarily for the purchase, construction or improvement of real property shall not be deemed to be a use primarily for personal, family or household purposes; or For any loan or forbearance of any money, goods, or things in action for any use other than specified in paragraph (1), at a rate not exceeding the higher of 10 percent per annum or 5 percent per annum plus the rate prevailing on the 25th day of the month preceding the earlier of the date of execution of the contract to make the loan or forbearance, or the date of making the loan or forbearance established by the Federal Reserve Bank of San Francisco. (West's Ann.Cal.Const. Art. 15, § 1)

When a seller finances the purchase of real or personal property by extending payment of the price over time and charging a higher price for carrying the financing, California usury laws do not apply (so-called "time-price doctrine"). Ghirardo v. Antonioli (1994) 8 Cal.4th 791, 802-803, 35 Cal.Rptr.2d 418, 426.

A contract is null and void as to the usurious interest portion of the contract. In such case, the lender may not bring an action at law to recover any interest and the debt cannot be declared due until the full period of time it was contracted for has elapsed. The borrower is entitled to recover a penalty equal to three times the usurious interest paid, if it brings the action within one year after making such payment. Cal. Civ. C. § 1916-3(a). The borrower or his or her representative generally remains liable, however, for any unpaid principal (and legal interest thereon-- i.e., 10%) from the date the obligation matured through the date of judgment. The borrower may offset against the unpaid principal balance all usurious interest payments made and any treble interest granted by the court. In addition, a lender, which makes or negotiates a usurious loan, is guilty of loan-sharking, a felony which is punishable by imprisonment in the state prison for not more than five years or the county jail for not more than one year. Ca Civil § 1916-3(b).