Florida's Usury Laws: A Quick Guide

Florida's Usury Laws: A Quick Guide

This simple guide will help both consumers and lenders make an informed decision about avoiding illegal interest rates.

October 16, 2023

If you have never heard the term “usury” before, you are not alone. This predatory lending practice used to be frowned upon much more – but since the rise of modern consumer lending practices (which are confusing at best, and predatory at worst), sky-high interest rates seem to just be a simple fact of life. A wise person will consider the cost of borrowing and know all the facts before making a decision. This simple guide will help both consumers and lenders make an informed decision about avoiding illegal interest rates.

“Usury” might sound like a complicated term, but it's simply the illegal act of lending money at excessively high interest rates. In Florida, the law spells out what's considered too high, and if a lender crosses that line, the borrower might have an upper hand during negotiations or settlements – including the ability to render the loan unenforceable (which means uncollectible, in this case).

Here's a deeper dive into Florida's usury laws, broken down into simple terms:

1. What’s considered as a ‘loan’?

Some agreements might not fit the traditional definition of a loan. For example, a joint venture whereby a person provides capital in exchange for a stake in the profits of a business endeavor may not be considered a loan. In addition, businesses that buy accounts receivable of other businesses (this is known as "factoring") can charge fees for their service which may not be considered as a loan. In these cases, the interest cap might not apply, even if the returns result in a profit that would be higher than the allowable interest rate.

2. What is considered as ‘interest’?

Like many issues in the law, the name of something doesn’t matter as much as how it actually operates in practice. So, while a loan agreement might label some charges as “fees,” the law might see them as disguised interest. Especially if these fees don’t correspond to any real cost to the lender. For example - origination fees, late fees, and extension fees are all extra fees that can be deemed as "interest", and would be added into the equation to check for a usury violation. Here's a quick example:

  1. Lender (L) loans $1,000.00 to Borrower (B) for a 12-month period, at a simple interest rate of 10% APR.

  1. L charges an ‘origination fee’ to B at the time of funding equal to $500.00. 

  1. At maturity, B pays L back $1,100.00 – the principal amount, plus the 10% simple interest of $100.00.

On its face, the interest rate of 10% appears to be lawful. However, when you add in the $500.00 ‘origination fee’, the total imputed interest charge is $600.00, or 60%! That clearly violates the usury limit, and could result in an unenforceable loan.

3. What's the Max Interest Rate that Can Be Charged?

a. For loans less than $500,000, the maximum interest rate is 18% every year.

b. For loans more than $500,000, the maximum interest rate is 25% annually.

Remember, these percentages are for "simple interest," meaning interest that's calculated just on the principal amount. If a lender uses "compound interest" (interest on both the principal and previously accrued interest) or calculates interest over a 360-day year, for example, the effective rate might shoot above these caps even if the "stated rate" seems lower.

4. How Come Credit Card Companies and Payday Lenders Can Charge Way More than 18%?

Certain transactions or industries have unique rules, meaning that the general usury laws might not touch them. Federal banks, car loans, payday loans, and credit cards are a few examples. And sometimes, parties can choose to follow another state's laws, which might be more lenient. However, there should be a good reason to link the transaction to that other state. For example, two parties who live in Florida, who are making a loan agreement between them for proceeds to be used to buy a Florida property, probably have no good excuse for making a loan agreement to be governed by Delaware for example.

Both lenders and borrowers should know Florida's usury laws inside out. The best time to seek out legal counsel is before you make a loan – that way, you can have an attorney review your loan agreement and ensure you are not inadvertently using a usurious interest rate.

Please note – this guide is not intended as a substitute for legal advice. Every situation is unique, and you should consult with legal counsel before making or receiving any loan.

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