While health and safety concerns raised by the novel coronavirus are obvious and tragic, how long the economic impact will last is still largely unknown. For individuals and businesses in New York with outstanding loans that are facing financial hardship and the inability to make monthly payments, and for lenders bracing for a potential wave of defaults, New York’s usury statutes may become fertile ground for litigation. Navigating the “complex and cross-referencing statutes that compose New York’s usury law” and the state and federal decisions applying those statutes often necessitates cognitive gymnastics, with statutory text overridden by policy considerations. In re Venture Mortg. Fund, L.P., 282 F.3d 185, 189 (2d Cir. 2002). The lack of clear direction from New York’s highest court has led to a patchwork maze of inconsistent decisions and unresolved questions. In this article, we attempt to make sense of New York’s usury laws and shed light on the ambiguities and tensions that may leave some litigants and judges scratching their heads.
The Basics of New York Usury Law
Usury is an affirmative defense against loan enforcement, and “a heavy burden rests upon the party seeking to impeach a transaction for usury.” Am. E Grp v. Livewire Ergogenics, 2020 WL 469312, at *7 (S.D.N.Y., Jan. 28). New York’s civil and criminal usury provisions apply to loans differently (if at all) based on three main factors: the interest rate, the nature of the party asserting the defense and the initial amount of the loan.
