Florida Courts Should Apply New York's Adar Bays Analysis To Determine Usury

• Published date: 10 November 2022
• Subject Matter: Finance and Banking, Litigation, Mediation & Arbitration, Criminal Law, Charges, Mortgages, Indemnities, Financial Services, Trials & Appeals & Compensation, Crime
• Law Firm: The Basile Law Firm P.C.
• Author: Agapija Cruz, Esq.

Usurious loans have been the scourge of finance since early times. Despite being condemned as wrong and sinful for over 4000 years, usurious interest rates always seem to find their way into modern financial transactions. Less than a century ago, the Florida Supreme Court stated that the "purpose of the statute prohibiting usury is to bind the power of creditors over necessitous debtors and prevent them from extorting harsh and undue terms in the making of loans." Chandler v. Kendrick, 146 So. 551, 552 (Fla. 1933). Unlike New York's well developed body of usury laws, today, Florida courts provide little guidance as to what constitutes interest on a loan. Nevertheless, Florida, like many other states, has imposed a cap on the amount of interest a lender can charge.¹ Personally, I don't believe interest changes its shape just because you cross a state's border.

Florida Usury Statutes

Florida law specifies two levels of usury, civil and criminal. Under Florida's usury laws, it is considered usurious and unlawful to charge a rate of interest more than 18% for any loan, money advance, line of credit, or other obligation where the principal balance is $500,000 or less. See Fla. Stat.' 687.03(1). A creditor who willfully violates Florida's usury law is liable to the borrower for double the amount of interest collected. See Fla. Stat. ' 687.04; Jersey Palm-Gross, Inc. v. Paper, 639 So.2d 664, 667 (Fla. 4th DCA 1994). For criminally usurious loans, the lender forfeits all interest and the entire debt becomes unenforceable. Fla. Stat. ' 687.071(7). If liable for criminal usury under Fla. Stat.' 687.071(2) and (3), the lender is facing enhanced penalties ranging from first-degree misdemeanor to a third-degree felony. The lender may also be liable for damages double the amount of interest collected and borrower's attorney's fees. Fla. Stat. ' 687.147; 687.04.

Fla. Stat. ' 687.03 prohibits lenders from reserving, charging or obtaining "an advance of money, line of credit, forbearance to enforce the collection of any sum of money, or other obligation a rate of interest greater than the equivalent of 18 percent per annum simple interest, either directly or indirectly, by way of commission for advances, discounts, or exchange, or by any contract, contrivance, or device." Further, if the loan, line of credit, or promissory note exceeds $500,000 in value or amount, "it shall not be usury or unlawful to reserve, charge, or take interest thereon unless the rate of interest exceeds the rate prescribed in ' 687.071."² Additionally, if the loan exceeds $500,000, "stock options and interests in profits, receipts, or residual values are examples of the type of property the value of which would be excluded³ from calculation of interest" under Fla. Stat. ' 687.03(5)(a)⁴ and ' 687.03(5)(b)⁵. This is of course obvious because it is next to impossible to predict how much a lender can make based on future sales. However, fixed percentage discounts are a different story as such provisions guarantee the lender the same return for each conversion made, no matter what the value of the property is.

In accord, Florida courts impose four requisites for usurious transactions: (1) a loan, express or implied; (2) an understanding between the parties that the money lent shall be returned; (3) payment or agreement to pay a greater rate of interest than is allowed by law; and (4) a corrupt intent to take more than the legal rate for the use of the money loaned. Video Trax, Inc. v. NationsBank, N.A., 33 F. Supp. 2d 1041, 1056 (S.D.Fla. 1998) citing Dixon v. Sharp, 276 So. 2d 817, 819 (Fla. 1973); See also Pinchuck v. Canzoneri, 920 So. 2d 713, 715 (Fla. 4th DCA 2006); Jersey Palm-Gross, Inc. v. Paper, 639 So. 2d 664, 666 (Fla. 4th DCA 1994). .Similarly, New York law allows usurious intent to be established when a borrower sufficiently "intends to borrow," rather than to "engage in a joint transaction or exchange money for some other reason," and a lender intends to accept such payment. Szerdahelyi v. Harris, 67 N.Y.2d 42, 46 (N.Y. 1986); see Adar Bays, LLC. v. GeneSYS ID, Inc., 37 N.Y3d 320, 339 (N.Y. 2021) (holding that "stock conversion options should be considered when determining the interest charged on a loan transaction and usurious loans to corporations" because...