How New York Usury Law Tripped Up An Over-Smart Lender

Abstract

How New York Usury Law Tripped Up An Over-Smart Lender New York has a convoluted body of usury law that deems certain loans usurious and invalidates them. New York's usury law almost never actually applies to any loan because the law riddled with so many exceptions and exclusions. New York usury law states generally that a corporation cannot assert usury as a defense to any loan obligation. The borrower countered by saying the whole arrangement violated New York's usury laws because the value of the favorable conversion right made the effective interest rate exceed 25%. On that basis, the borrower asked the court to declare the entire loan void, which would allow the borrower to keep the lender's money. The New York court explored two centuries of history of New York usury law, concluding that New York has always taken usury law very seriously and tried to protect borrowers from overly greedy lenders. In a lengthy decision, the court concluded that under New York usury law, the value of the favorable conversion right constituted additional compensation for the borrower's use of the lender's money. A dissenting New York judge argued that the initial decision in favor of the lender was correct.