Usury

Usury Law ## What Is Usury? Usury is the charging of an interest rate that exceeds the maximum permitted by law. California's usury law (Article XV, Section 1 of the California Constitution, and the California Civil Code) imposes interest rate limits on certain types of lenders. However, these limits contain critically important exemptions — most notably for licensed real estate brokers — that have profound practical implications for California's hard money lending market. --- ## California's Usury Interest Rate Caps For loans that are subject to California's usury law (i.e., non-exempt lenders), the maximum legal interest rates are: - Consumer loans and personal loans: Maximum 10% per year (simple interest) - Business and commercial loans: Maximum of the higher of 10% per year OR the Federal Reserve Bank of San Francisco's discount rate plus 5% These caps are simple rules. A non-exempt lender who charges more than these rates is committing usury, which carries both civil and criminal consequences. --- ## The Critical Exemption: Licensed Real Estate Brokers Here is the most important rule in California usury law for real estate professionals: A licensed California real estate broker who arranges a loan secured by real property is EXEMPT from usury limits. This exemption is grounded in the California Constitution and has been interpreted broadly by California courts. The practical effect: a licensed real estate broker can arrange a loan at any interest rate — 12%, 15%, 18%, or even higher — and the loan is not usurious under California law, regardless of the rate charged. The rationale: the Legislature determined that a licensed real estate broker provides a layer of professional oversight and accountability that justifies removing the usury…