Interest Paid In Advance Should Not Be Deducted from the Face Amount of the Loan When Determining Interest Rate—Law of Usury Does Not Apply to Interest After the Maturity of the Note (Late Payments)

The Third Department explained the law of usury as it related to interest paid in advance and interest after maturity of the note (late charges):

The defense of usury requires clear and convincing evidence of a loan given with the intent to take interest in excess of the legal rate … . As relevant here, a loan is usurious if the annual interest rate exceeds 16% (see General Obligations Law § 5-501 [1]; Banking Law § 14-a [1]). Defendant bases his claim of usury on his advanced interest payment, claiming that the annual interest rate should be calculated by dividing the total annual interest, $18,750, by the total received at closing, $115,625, resulting in an annual interest rate of 16.2%. However, the Court of Appeals has held that “interest on the whole amount of principal agreed to be paid at maturity, not exceeding the legal rate, may be taken in advance” … . Thus, under the traditional method of computation as set forth in Band, the prepaid interest is not deducted from the face amount of the loan and defendant was charged a legal rate of 15% interest … . Defendant’s contention that the late charges incurred after the default should also be included in the calculation of interest is unavailing, because “[t]he defense of usury does not apply where the terms of a promissory note impose a rate of interest in excess of the statutory maximum only after maturity of the note” … . Martell v Drake, 2015 NY Slip Op 00685, 3rd Dept 1-29-15