Interest, Usury and Late Charges

No person and no firm or corporation or agent thereof, other than a pawnbroker, shall, as guarantor or otherwise, directly or indirectly, loan money to any person and, directly or indirectly, charge, demand, accept or make any agreement to receive therefor interest at a rate greater than twelve per cent per annum. (C.G.S.A. § 37-4)

C.G.S.A. § 37-9 lists several types of loans that are exempted from this rule, including any loan made by a bank except a loan for consumer purposes and any bona fide mortgage of real property for a sum in excess of five thousand dollars.

Connecticut courts have not generally deemed true lease transactions as subject to usury laws. See Republic Leasing Company, Inc. v. Francis J. Plati, 1997 WL 149672 (Conn. Super. 1997) (enforcing 18% default interest provision against lease guarantors).

Default interest is generally collectible under Connecticut law, when it has been expressly contracted for by the parties. See LaSalle National Bank v. Shook, 2000 WL 1513923 (Conn. Sup. 2000) (""Absent an equitable reason for doing so...a refusal to award the interest rate agreed upon under the note upon default would amount to the court improperly remaking the contract of the parties.""); Ruscito v. F-Dyne Electronics Co., 177 Conn. 149, 163 (1979) (""It is fundamental that interest is allowed on the ground of some contract express or implied to pay it, or as damage for the breach of some contract"").

Late charges are also generally allowable under Connecticut law if contractually provided for. See Hamm v. Taylor, 180 Conn. 491, 493-94 (1980) (reversing trial court disallowance of 10 percent late charge). Indeed, late charges are routinely awarded, see, e.g., Mechanics Savings Bank v. Tucker, 178 Conn. 640, 646 (1979); McKeever v. Fiore, 78 Conn. App. 783, 793 (2003) (recognizing that Connecticut Appellate Court has repeatedly upheld 5 percent late charge); and Putnam Park Associates v. Fahnestock & Co., 73 Conn. App. 1, 16-17 (2002) (late charges are ""an integral part"" of an agreement, and if not allowed, the plaintiff ""would not be made whole.""). Late charge provisions, however, which are deemed to be ""excessive and do not bear a reasonable relationship to the actual damages sustained will be rendered void as a penalty."" McKeever v. Fiore, 78 Conn. App. at 793.

In the context of a promissory note, a lender may collect late charges for payments not paid by the due date prior to acceleration of the note. Accordingly, after an action has been commenced to collect the amounts due under a promissory note, late charges may no longer be assessed. See McKeever v. Fiore, 78 Conn. App. at 794.