Even a general release does not result in a waiver of a claim of usury, according to the California Court of Appeals in Hardwick v. Wilcox (2017) 11 Cal.App.5th 975. Usury is the illegal action or practice of lending money at unreasonably high rates of interest.
In this case Hardwick received several loans at an interest rate of approximately 12% from Albert Wilcox who was not licensed as a lender and had no other exemption from usury under California law. The loans were secured by deeds of trust on Hardwick’s commercial properties. Hardwick defaulted and Wilcox commenced foreclosure proceedings. The parties entered into a forbearance agreement that included a general release of all claims and a waiver of future unknown claims under California Civil Code section 1152.
Nine months after entering into the forbearance agreement Hardwick sued Wilcox to recover the usurious interest he had already paid. The general release did not specifically mention a waiver of usury claims. Thus, the Court ruled Hardwick’s usury claim against Wilcox had not been waived and, even if the general release purported to release usury claims, to do so would be against public policy and therefore, such waiver would be invalid.
Wilcox appealed. The Court of Appeals affirmed and Hardwick was awarded over $200,000 in damages based on usuriously paid interest.
A lender is required to be licensed or must procure another type of exemption from usury to charge usurious rates of interest.
Generally, usury in California is any rate over 10% simple interest per annum or, if the loan is for home improvements, a home purchase, or for other than personal, family or household purposes, the higher of 5% or 10%, respectively, over the amount charged by the Federal Reserve Bank of San Francisco on advances to member banks on the 25th day of the month before the loan.
There are many other exceptions to the usury law including, but limited to, loans by real estate brokers if the loans are secured by real estate, and loans by most lending institutions such as banks, credit unions, finance companies, pawn brokers, etc. State laws place interest rate limitations on some of these loans.
If you charge interest in excess of these amounts you may be inviting a legal action based on usurious interest. If you pay interest in excess of these amounts you may be able to recover all or a portion of your interest payments. Therefore, before you loan money or accept a loan, with an interest rate in excess of 10% per year, check with your business attorney to determine whether the interest rate is usurious. .
The information presented is not intended to be, and does not constitute, “legal advice.” Because each situation varies, and only brief summary information is provided here, you should not use this information as a basis for action unless you have independently verified with your own counsel that it applies to your particular situation.
Leave a Reply