You need a bigger boat: Criminal usury laws prevent credit sharks | Farrell Fritz, PC

[author: Ryan Pugh]

According to CPLR 3213, a plaintiff can move to the summary judgment instead of complaints, which under the right circumstances serves as a useful instrument to avoid extensive litigation and to receive a quick relief. Recently in Jadr Consulting Group Pty Ltd. Against AULT Alliance, Inc.Some loan sharks tried to use the efficiency of the device. However, the judiciary of Manhattan Commercial Division, Margaret A. Chan, heard the legendary JAWS topic music, but was not deterred, but rejected a summary judgment and granted the accused to be released.

Background:

In YadThe plaintiff and the accused entered a promise in which the defendant promised to repay a director of $ 2,756,245.10. However, the plaintiff admitted that the accused only received $ 2,249,996. The interest rate for the note was set at 16% per year and the rash was set to 24% per year or the statutory maximum.

This note was changed twice. First, a new section was added to increase $ 1,000,000 in the event of a failure. Second, the due date of the note was expanded and included that at the plaintiff's discretion, a failure of the plaintiff would extend the due date by 30 days, but would also add 250,000 US dollars to repay the client. In addition, both changes increased the capital amount, although the defendant never received additional consideration.

The due date came and went without payment, but the plaintiff extended the due date six times, which corresponds to an increase in captain of $ 2,500,000 (USD 1,000,000 compared to the first change and $ 1,500,000 compared to the second change of USD 1,500,000 [$250,000 x 6 extensions]). The plaintiff then applied for a summary judgment instead of a complaint in accordance with CPLR 3213 to receive $ 4,545,086 from the defendant and the defendant's guarantee.

In contrast, the accused claimed that the plaintiff had only borrowed $ 2,249,996 for $ 2,756,245.10 in the note – the difference between $ 506,259.10 was to be classified as interest as interest rates. of 126% of interest to an overview of the interest rate of 126.26% of the compound interest of 25% of the compound interest of 25% of 25%.

The court initially found that a summary judgment would be rejected regardless of the growth analysis because “from the submission of the briefs it is not clear how much is out of the question”. While the plaintiff's request for the applicant claimed 5,545,086, confirmation together with the application claimed that the amount due is $ 4,545,086. Therefore, the plaintiff's own contradictions would have defeated her application for a summary judgment instead of complaints.

The two -stage growth analysis:

The Court of Justice detailed its two -stage analysis in finding whether a transaction is overwhelming. First, the court checked whether the note exceeds $ 2,500,000, because if the note in the amount of $ 2,500,000 drops off, the usury laws are not applicable. Second, the court calculated the actual interest rate of the note.

In view of the plaintiff's admission that the defendant was actually only borrowed from $ 2,249,996, the court found that the loan bent back the maximum of $ 2,500,000 and thus the applicable usury laws.

The court then calculated the interest rate by calculating the annual interest rates received and then shared this amount by the amount that the debtor actually received. According to the court's calculation, the interest rate rose to 42.1%and significantly exceeded the criminal growth rate, albeit by a lower lead than the calculation of the accused. As a result, the court considered the note and its changes invalid From the initio.

Bring away:

Overall the Yad The decision serves as caution for two reasons. First, when submitting an application for a summary judgment, the plaintiffs should ensure that there are no factual questions in their own briefs instead of complaints in accordance with CPLR 3213. A voluntary contradiction proves to be disadvantageous for such an application. Secondly, the creditors should be aware of how a court calculates interest rates and loan promotion. The court in Yad I not only looked at the terms of the note, but on the operational reality of the loan.