Usury

"The Depository Institutions Deregulation and Monetary Control Act (DIDMCA) preempts certain loans subject to New Jersey's state interest and usury laws.

A lender of money, wares, merchandise, goods and chattels may not charge an interest rate greater than 6% on oral contracts, and 16% on written contracts. See If a loan is secured by a first lien on real property, then the Commissioner of the New Jersey Department of Banking may establish the allowable interest rate with a ceiling based on Monthly Index of Long Term United States Government Bond Yields plus 8% per year rounded off to the nearest quarter of 1% per year. Other permissible calculations of interest are included within N.J. S.T.A.T. ANN. § 31:1-1.

New Jersey imposes several penalties for violations of the usury laws. In an action to enforce any note, bill, bond, mortgage, contract, covenant, conveyance, or assurance, for the payment or delivery of any money, wares, merchandise, goods, or chattels lent that charged an interest rate higher than the allowable rate, then the lender may recover only the amount lent. N.J. STAT. ANN § 31:1-3; 31:1-4

A corporation, limited liability company, limited liability partnership may not defend against an action to recover damages by claiming usury. N.J. STAT. ANN. 31:1-6.

Any claim for usury violation is subject to the general statute of limitations under N.J. STAT. ANN. 2A:14-1; 2A:14-4.

New Jersey also imposes criminal usury provisions which can be found at N.J. STAT. ANN. 2C:21-19. The criminal usury ceiling is a 30% annual interest rate, and 50% for loans made to corporations. See N.J. STAT. ANN. 2C:21-19.

"In general, three types of loans are exempt from New Jersey's interest rate restrictions - (1) loans of $50,000 or more; (2) bank loans for mortgages which are purchased by the Federal housing Administration, Federal National Mortgage Association, the Government National Mortgage Association, or Federal Home Loan Mortgage Corporation; and (3) loans made to corporations. See id. at 31:1-1(e). If a default rate of interest on an exempt loan is unconscionably high, however, it will be unenforceable. See Stuchin v. Kasirer, 237 N.J. Super. 604 (App. Div. 1990).

If a loan is made to a corporation in form, but is actually in substance, a loan to an individual borrower, then the loan may be considered usurious if the interest rate exceeds the maximum legal interest rate under New Jersey's usury laws. See In re Greenberg, 21 N.J. 213 (1956); Gelber v. Kugel's Tavern, 10 N.J. 191 (1952); Monmouth Capital Corp., 92 N.J. Super. 480 (Ch. Div. 1966); First Mutual Corp. v. Grammercy & Maine, Inc., 176 N.J. Super. 428 (Law Div. 1980).

If a loan is made to a corporation in form, but is actually in substance, a loan to an individual borrower, then the loan may be considered usurious if the interest rate exceeds the maximum legal interest rate under New Jersey's usury laws. See In re Greenberg, 21 N.J. 213 (1956); Gelber v. Kugel's Tavern, 10 N.J. 191 (1952); Monmouth Capital Corp., 92 N.J. Super. 480 (Ch. Div. 1966); First Mutual Corp. v. Grammercy & Maine, Inc., 176 N.J. Super. 428 (Law Div. 1980).

New Jersey imposes several penalties for violations of the usury laws. In an action to enforce any note, bill, bond, mortgage, or contract for the repayment of a loan that charged an interest rate higher than the allowable rate, then the lender may recover only the amount lent. See N.J. STAT. ANN 31:1-3 Rosenstein v. Rosenstein, 116 N.J. L. 517 (E&A 1936); Schuran, Inc. v. Walnut Hill Associates, 256 N.J. Super. 228 (L. Div. 1991) (addressing violation of criminal usury statute). Before the loan has been fully paid, therefore, the lender forfeits all rights to interest and is prevented from recovering litigation fees in any action brought to recover principal. See N.J. STAT. ANN. 31:1-3; see also Pick v. Brand, Inc., 25 N.J. Misc. 329 (Sup. Ct. 1947); Gorrin v. Higgins, 73 N.J. Super. 243 (Ch. Div. 1962). The borrower may bring an action in Superior Court to compel a lender to accept repayment of principal. See N.J. Stat. Ann. 31:1-4. After the loan has been repaid, the borrower may recover the amount of interest paid in excess of the legal interest rate. See N.J. STAT. ANN31:1-3; see also Hupshman v. Broda, 247 A.2d 698 (N.J. Super. Ch. Div. 1968); D'Onofrio v. Galliotto Auto, 118 N.J. Eq. 271 (E&A 1935). The lender, however, is entitled to retain interest paid according to the legal rate. See Resolution Trust Corp. v. Minassian, 777 F. Supp. 385 (D.N.J. 1991)."