Is there an interest-rate ceiling on this Delaware loan, and what happens if it is exceeded?
The ceiling is a floating one: a lender may charge and collect interest at any rate agreed upon in writing not in excess of 5% over the Federal Reserve discount rate including any surcharge, and where no contract rate is expressed the legal rate is 5% over that discount rate. That ceiling is Chapter 23's general rule, and it has three large exits. There is no ceiling where the amount loaned or used exceeds $100,000 and repayment is not secured by a mortgage against the borrower's principal residence. A bank's revolving credit plan may charge periodic interest at whatever rate the agreement provides (5 Del. C. § 943), and a lender licensed under Chapter 22 of Title 5 may likewise charge the agreed rate (5 Del. C. § 2229), so the cap does not price a bank's revolving credit plan or a Title 5 licensee's loan, but § 2302 expressly subjects every bank loan contract to § 2301, so an ordinary bank term loan is still capped; § 2305 leaves a bona fide holder of negotiable paper untouched, and § 2307 takes international banking facility credit out of this chapter and every other Delaware rate law. And no corporation, limited partnership, statutory or business trust, limited liability company, or association or joint stock company with corporate powers may interpose the defense of usury in any action (§ 2306): the remedies described below belong, in practice, to individual borrowers. Usury is charging a borrower, directly or indirectly, a higher rate than the law permits; the borrower need not pay the excess over the lawful rate and may deduct it from the debt, and a borrower who has paid the whole debt with unlawful interest may recover three times the interest collected in excess of the lawful rate, or $500, whichever is greater, in an action brought within 1 year of payment.
The trap
Four Delaware-specific edges. The cap governs less than it appears to: entity borrowers cannot interpose usury as a defence (§ 2306; whether the § 2304(b) claw-back action is also barred is not settled by the text), and bank revolving credit and licensed lenders charge the agreed rate, so the ceiling matters mainly for an individual borrowing under $100,000 (or on a home-secured loan) from a non-bank, unlicensed lender. First, the cap moves: it is pegged to the Federal Reserve discount rate rather than to a fixed percentage, and where no contract rate is expressed the legal rate is fixed 'as of the time from which interest is due'. Second, above $100,000 unsecured by a mortgage on a borrower's principal residence Chapter 23 imposes no rate limit (the subsection disapplies only 'any other provision in this chapter'). Third, the claw-back has a hard 1-year clock from payment, far shorter than the general 3-year contract period. Separately, a partner's obligation to a limited partnership or its partners arising under the partnership agreement (6 Del. C. § 17-505), and a member's or manager's obligation to an LLC or its members or managers arising under the LLC agreement (§ 18-505), is not subject to the defence of usury: a rule about capital calls and similar internal obligations, not about loans to the entity from outside lenders.
15 authorities
- statute6 Del. C. § 2301enactment date not established
The words that state the rule
(a) Any lender may charge and collect from a borrower interest at any rate agreed upon in writing not in excess of 5% over the Federal Reserve discount rate including any surcharge thereon.
- statute6 Del. C. § 2301enactment date not established
The words that state the rule
(c) Notwithstanding any other provision in this chapter to the contrary, there shall be no limitation on the rate of interest which may be legally charged for the loan or use of money, where the amount of money loaned or used exceeds $100,000, and where repayment thereof is not secured by a mortgage against the principal residence of any borrower.
- statute6 Del. C. § 2304enactment date not established
The words that state the rule
(b) When a rate of interest for the loan or use of money exceeding that established by law has been reserved or contracted for, the borrower or debtor shall not be required to pay the creditor the excess over the lawful rate and the borrower or debtor may, at the borrower’s or debtor’s option, retain and deduct the excess from the amount of any debt. In all cases where any borrower or debtor has paid the whole debt or sum loaned, together with interest exceeding the lawful rate, the borrower or debtor, or a personal representative, may recover in an action against the person who has taken or received the debt and interest, or the personal representative, the sum of 3 times the amount of interest collected on any loan in excess of that permitted by law or the sum of $500, whichever is greater, if such action is brought within 1 year after the time of such payment.
- statute6 Del. C. § 2306enactment date not established
The words that state the rule
No corporation, limited partnership, statutory trust, business trust or limited liability company, and no association or joint stock company having any of the powers and privileges of corporations not possessed by individuals or partnerships, shall interpose the defense of usury in any action.
- statute5 Del. C. § 943enactment date not established
The words that state the rule
A bank may charge and collect periodic interest under a revolving credit plan on outstanding unpaid indebtedness in the borrower’s account under the plan at such daily, weekly, monthly, annual or other periodic percentage rate or rates as the agreement governing the plan provides or as established in the manner provided in the agreement governing the plan.
- statute5 Del. C. § 2229enactment date not established
The words that state the rule
A licensee may charge and collect interest in respect of a loan at such daily, weekly, monthly, annual or other periodic percentage rate or rates as the agreement governing the loan provides or as established in the manner provided in such agreement and may calculate such interest by way of simple interest or such other method as the agreement governing the loan provides.
- statute6 Del. C. § 17-505enactment date not established
The words that state the rule
No obligation of a partner of a limited partnership to the limited partnership, or to a partner of the limited partnership, arising under the partnership agreement or a separate agreement or writing, and no note, instrument or other writing evidencing any such obligation of a partner, shall be subject to the defense of usury, and no partner shall interpose the defense of usury with respect to any such obligation in any action.
- statute6 Del. C. § 18-505enactment date not established
The words that state the rule
No obligation of a member or manager of a limited liability company to the limited liability company, or to a member or manager of the limited liability company, arising under the limited liability company agreement or a separate agreement or writing, and no note, instrument or other writing evidencing any such obligation of a member or manager, shall be subject to the defense of usury, and no member or manager shall interpose the defense of usury with respect to any such obligation in any action.
- statute6 Del. C. § 2301enactment date not established
The words that state the rule
Where there is no expressed contract rate, the legal rate of interest shall be 5% over the Federal Reserve discount rate including any surcharge as of the time from which interest is due; provided, that where the time from which interest is due predates April 18, 1980, the legal rate shall remain as it was at such time. Except as otherwise provided in this Code, any judgment entered on agreements governed by this subsection, whether the contract rate is expressed or not, shall, from the date of the judgment, bear post-judgment interest of 5% over the Federal Reserve discount rate including any surcharge thereon or the contract rate, whichever is less.
- statute6 Del. C. § 2304enactment date not established
The words that state the rule
(a) Usury is the charge to a borrower by a lender, directly or indirectly, of a higher rate of interest than that permitted by law.
- statute6 Del. C. § 2305enactment date not established
The words that state the rule
Nothing in this chapter shall affect the holders of negotiable paper taken bona fide in the usual course of business.
- statute6 Del. C. § 2302enactment date not established
The words that state the rule
Every contract for the loan or advance of money by banking corporations, within this State, shall be subject to § 2301 of this title. In any case where loans or advances of money, made by banking corporations or otherwise, repayable on demand to an amount not less than $5,000, are made upon warehouse receipts, bills of lading, certificates of stock, certificates of deposit, bills of exchange, bonds, or other negotiable instruments, pledged as collateral security for such repayment, any sum agreed upon, in writing, by the parties to the transaction may be received, or contracted to be received, and collected as compensation for making the advances.
- statute6 Del. C. § 2301enactment date not established
The words that state the rule
(b) If the rate of interest specifically set forth in any bond, note or other evidence of indebtedness, exclusive of other charges, fees or discounts authorized or permitted under federal law or under any rule or regulation promulgated pursuant thereto, does not exceed the lawful rate prescribed in subsection (a) of this section, no person shall, by way of defense or otherwise, avail himself or herself of any of the provisions of this chapter, to avoid or defeat the payment of any interest or any such charges, fees or discounts, which any such person shall have contracted to pay in respect of any loan insured by the Federal Housing Administration, or the Commissioner thereof, under or pursuant to the provisions of the National Housing Act [12 U.S.C. § 1701 et seq.], approved June 27, 1934, and amendments thereto, or guaranteed by the Veterans Administration, or the administrator thereof, under and pursuant to Title 38 of the United States Code [38 U.S.C. § 3701 et seq.], and amendments thereto; nor shall anything contained in this chapter be construed to prevent recovery of any such interest or any such charges, fees or discounts from any person who shall have contracted to pay the same.
- statute6 Del. C. § 2307enactment date not established
The words that state the rule
This chapter and any other law of this State limiting the rate or amount of interest, discount, points, finance charges, service charges or other charges which may be charged, taken, collected, received or reserved shall not apply to any international banking facility extension of credit, as such terms are contained in § 101 of Title 5.
- statute10 Del. C. § 8106enactment date not established
The words that state the rule
§ 8106. Actions subject to 3-year limitation. (a) No action to recover damages for trespass, no action to regain possession of personal chattels, no action to recover damages for the detention of personal chattels, no action to recover a debt not evidenced by a record or by an instrument under seal, no action based on a detailed statement of the mutual demands in the nature of debit and credit between parties arising out of contractual or fiduciary relations, no action based on a promise, no action based on a statute, and no action to recover damages caused by an injury unaccompanied with force or resulting indirectly from the act of the defendant shall be brought after the expiration of 3 years from the accruing of the cause of such action; subject, however, to the provisions of §§ 8108-8110, 8119 and 8127 of this title.
“Defective” means that reading found something to correct. What you are reading is the rule as it stands after that reading.