A private lender in California charges exactly 10% interest on an unsecured personal loan. The current SF Federal Reserve discount rate is 7%. Is this loan usurious?
Correct Answer
A) No, because the usury ceiling is the greater of 10% or 5% + 7% = 12%, and 10% is below 12%
The usury ceiling is the GREATER of 10% or 5% + the Fed discount rate (7%) = 12%. Since 12% is greater than 10%, the ceiling is 12%. The lender's 10% rate is well below this ceiling, so the loan is not usurious.
Why This Is the Correct Answer
The usury ceiling is the GREATER of 10% or 5% + the Fed discount rate (7%) = 12%. Since 12% is greater than 10%, the ceiling is 12%. The lender's 10% rate is well below this ceiling, so the loan is not usurious.
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