A court determines that a non-exempt $60,000 California loan is usurious. Apart from separate recovery claims concerning payments already made, how does this finding affect the lender’s contractual entitlement to principal and interest?
Correct Answer
B) The lender loses the right to interest, but the principal debt is not automatically void
Usury forfeits the contractual interest, not automatically the principal. This differs from reducing the bargain to a lawful interest rate. Recovery of interest already paid and a request for treble damages are separate matters with their own requirements and time limits; neither is decided by this question. Source: California usury law; Development Acquisition Group v. eaConsulting, E.D. Cal., No. 2:08-cv-03008, order filed March 8, 2011, pp. 9–11
Why This Is the Correct Answer
Usury forfeits the contractual interest, not automatically the principal. This differs from reducing the bargain to a lawful interest rate. Recovery of interest already paid and a request for treble damages are separate matters with their own requirements and time limits; neither is decided by this question. Source: California usury law; Development Acquisition Group v. eaConsulting, E.D. Cal., No. 2:08-cv-03008, order filed March 8, 2011, pp. 9–11
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