Is the interest rate in our Kansas contract lawful?
Fifteen percent is the general contract ceiling, and most commercial loans are outside it. Subject to the rest of the section, the parties to any bond, bill, promissory note or other instrument of writing for the payment or forbearance of money may stipulate for interest at a rate not to exceed 15% per annum unless otherwise specifically authorized by law (K.S.A. 16-207(a)). Where no other rate of interest is agreed upon, creditors are allowed 10% per annum for money after it becomes due, and K.S.A. 16-201(a) lists the other cases: money lent or due on settlement of account from the day of liquidating the account, money received for another's use and retained without the owner's knowledge, money "due and withheld by an unreasonable and vexatious delay of payment or settlement of accounts", other money due for forbearance where an express promise to pay interest has been made, and wages due daily or monthly employees from the end of each month unless paid within 15 days. Contracting for a greater rate than K.S.A. 16-207 authorizes costs the lender the excess twice over: the lender forfeits all interest contracted for in excess of the authorized amount and, in addition, forfeits a sum equal to that excess, to be deducted from the amount due for principal and lawful interest, which may be set up as a defense or counterclaim, and the borrower also recovers a reasonable attorney fee (K.S.A. 16-207(d)).
The trap
Subsection (a) does not apply to five classes, and the fifth swallows most commercial lending: a covered transaction under the Kansas mortgage business act; a consumer credit transaction under the uniform consumer credit code; loans by a qualified plan to a participant or a member of the participant's family; a note secured by a real estate mortgage or a contract for deed that permits adjustment of the interest rate, the term or the amortization schedule; or "a business or agricultural transaction", which the section defines as a loan, including a note secured by a contract for deed to real estate or a credit sale, made primarily for purposes other than personal, family or household purposes (K.S.A. 16-207(e)). The remedy is bounded the same way the ceiling is: subsections (b), (c) and (d) do not apply to a covered transaction under the Kansas mortgage business act or to a consumer credit transaction under the uniform consumer credit code (K.S.A. 16-207(f)), so for those two kinds of transaction neither the 15% ceiling nor the forfeiture remedy is the governing rule and the rate rules of those two acts are. A separate section kills the commonest default clause outright. Where a rate of interest or charges is specified in a contract "that rate shall continue until full payment is made", a judgment on the contract bears the same rate, "in no case shall such rate or charges exceed the maximum rate or amount authorized by law", and any contract for the payment of money "which in effect provides that any interest or charges or any higher rate of interest or charges shall accrue as a penalty for any default, shall be void as to any such provision" (K.S.A. 16-205(a)). A step-up to a higher rate on default is that provision. Two entity statutes go further and take the defence away altogether: no corporation shall plead any statute against usury in any suit to enforce payment of any bond, note or other evidence of indebtedness issued or assumed by it (K.S.A. 17-7105), and no obligation of a member or manager of a limited liability company arising under the operating agreement or a separate agreement is subject to the defence of usury (K.S.A. 17-76,103). Kansas also opted out of the federal override: K.S.A. 16-207a provides that "The provisions of section 501 (a) (1) of title V of public law 96-221 shall not apply with respect to loans, mortgages, credit sales and advances made in this state on and after the effective date of this act", so the federal rate preemption that section would otherwise supply is switched off in Kansas.
10 authorities
- statuteK.S.A. 16-207enactment date not established
The words that state the rule
Subject to the following provision, the parties to any bond, bill, promissory note or other instrument of writing for the payment or forbearance of money may stipulate therein for interest receivable upon the amount of such bond, bill, note or other instrument of writing, at a rate not to exceed 15% per annum unless otherwise specifically authorized by law.
- statuteK.S.A. 16-207enactment date not established
The words that state the rule
Any person so contracting for a greater rate of interest than that authorized by this section shall forfeit all interest so contracted for in excess of the amount authorized under this section; and in addition thereto shall forfeit a sum of money, to be deducted from the amount due for principal and lawful interest, equal to the amount of interest contracted for in excess of the amount authorized by this section and such amounts may be set up as a defense or counterclaim in any action to enforce the collection of such obligation and the borrower shall also recover a reasonable attorney fee.
- statuteK.S.A. 16-207enactment date not established
The words that state the rule
a business or agricultural transaction. For the purpose of this section, a "business or agricultural transaction" means a loan, including a note secured by a contract for deed to real estate or a credit sale, which is made primarily for purposes other than personal, family or household purposes.
- statuteK.S.A. 16-201enactment date not established
The words that state the rule
Except as provided in subsection (b), creditors shall be allowed to receive interest at the rate of 10% per annum when no other rate of interest is agreed upon, for any money after it becomes due; for money lent or money due on settlement of account, from the day of liquidating the account and ascertaining the balance; for money received for the use of another and retained without the owner's knowledge of the receipt; for money due and withheld by an unreasonable and vexatious delay of payment or settlement of accounts; for all other money due and to become due for the forbearance of payment whereof an express promise to pay interest has been made; and for money due from corporations and individuals to their daily or monthly employees, from and after the end of each month, unless paid within 15 days thereafter.
- statuteK.S.A. 17-7105enactment date not established
The words that state the rule
No corporation shall plead any statute against usury in any court in any suit instituted to enforce the payment of any bond, note or other evidence of indebtedness issued or assumed by it.
- statuteK.S.A. 17-76,103enactment 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 operating 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.
- statuteK.S.A. 16-207enactment date not established
The words that state the rule
(e) Subsection (a) shall not apply to: (1) A covered transaction subject to the usury provisions of the Kansas mortgage business act, K.S.A. 9-2201 et seq., and amendments thereto; (2) a consumer credit transaction subject to the usury provisions of the uniform consumer credit code, K.S.A. 16a-1-101 et seq., and amendments thereto; (3) loans made by a qualified plan, as defined by the internal revenue code, to an individual participant in such plan or to a member of the family of such individual participant; (4) a note secured by a real estate mortgage or a contract for deed to real estate when the note or contract for deed permits adjustment of the interest rate, the term of the loan or the amortization schedule; or (5) a business or agricultural transaction.
- statuteK.S.A. 16-207aenactment date not established
The words that state the rule
The provisions of section 501 (a) (1) of title V of public law 96-221 shall not apply with respect to loans, mortgages, credit sales and advances made in this state on and after the effective date of this act.
- statuteK.S.A. 16-207enactment date not established
The words that state the rule
(f) Subsections (b), (c) and (d) shall not apply to: (1) A covered transaction under the Kansas mortgage business act, K.S.A. 9-2201 et seq., and amendments thereto; or (2) a consumer credit transaction under the uniform consumer credit code, K.S.A. 16a-1-101 et seq., and amendments thereto.
- statuteK.S.A. 16-205enactment date not established
The words that state the rule
(a) When a rate of interest or charges is specified in any contract, that rate shall continue until full payment is made, and any judgment rendered on any such contract shall bear the same rate of interest or charges mentioned in the contract, which rate shall be specified in the judgment; but in no case shall such rate or charges exceed the maximum rate or amount authorized by law, and any bond, note, bill, or other contract for the payment of money, which in effect provides that any interest or charges or any higher rate of interest or charges shall accrue as a penalty for any default, shall be void as to any such provision.
“Defective” means that reading found something to correct. What you are reading is the rule as it stands after that reading.