Is the interest rate in this Louisiana loan or credit agreement usurious, and does it matter that the borrower is a business?
It depends heavily on whether the transaction is consumer or commercial. Louisiana Revised Statutes 9:3500(C)(1) sets the general conventional-interest cap: "The amount of the conventional interest cannot exceed twelve percent per annum. The same must be fixed in writing; testimonial proof of it is not admitted in any case." The Louisiana Supreme Court applies the cap's writing requirement literally: in Chittenden v. State Farm Mut. Auto Ins. Co., construing the identical predecessor text, the Court held that a contract merely providing reimbursement of "the full amount of the interest charged" did not satisfy the requirement: "It is obvious from a reading of the contract that Chittenden did not agree to pay a sum of conventional interest which was fixed in writing." Failing the writing requirement did not wipe out the interest, though, and that is the part a reader would act on: the Court held the lender "may nonetheless recover interest from the dates that he expended money on Chittenden's behalf", limited him to "simple legal interest on the funds advanced in the performance of his contingent fee contract", and remanded for its computation. But the cap has a broad, express commercial-transaction exemption: R.S. 9:3500(D), "The provisions of this Article shall not apply to a loan made for commercial or business purposes or deferring payment of an obligation for commercial or business purposes." A borrower who pays more than the cap on a covered transaction has a limited, time-bound remedy, and it is qualified in its own first words, "Except in the cases herein provided": R.S. 9:3500(C)(2), "if any person shall pay on any contract a higher rate of interest than the above, ... the same may be sued for and recovered within two years from the time of such payment."
The trap
The commercial-purpose exemption in R.S. 9:3500(D) is easy to miss because it sits at the very end of a long section whose opening subsections read as an unqualified, general-purpose usury cap: a reviewer who stops at subsection (C)'s 12% ceiling and writing requirement will misstate the law for any business loan, where the cap does not apply at all under Louisiana's own text. Do not assume subsection (C)(1) is the whole of the section, either. R.S. 9:3500(C)(3)(a) and (C)(4)(a) let the holder of a note or other written evidence of debt collect the full amount "notwithstanding" a rate beyond twelve percent, capping only what runs afterwards: "such obligation shall not bear more than twelve percent per annum after maturity until paid." Both paragraphs then except the regimes a reviewer is most likely to be in. (C)(3)(b) takes out "the banking institutions of this state in operation under existing laws" and "a consumer credit transaction as defined by the Louisiana Consumer Credit Law", and (C)(4)(b) takes out consumer credit transactions as well, so neither a bank nor a licensed consumer lender is answering to this section on those terms. (C)(4)(c) is the borrower's side of the writing requirement: where usury is a defence, "it is permissible for the defendant to show the usury whether same was given by way of discount or otherwise, by any competent evidence." Chittenden's holding cuts against a lender relying on an oral or informally-referenced interest arrangement even within the cap's own scope: the "fixed in writing" requirement is a real formality, not boilerplate, and "testimonial proof of it is not admitted in any case" bars a lender from proving an above-cap oral rate by witness testimony even where the borrower does not dispute having agreed to it. And the usury remedy of R.S. 9:3500(C)(2) runs from the DATE OF PAYMENT, not the date the rate was charged or the date the loan was made: a borrower who let years pass without making a usurious payment may find the two-year window has not even started running, while one who paid recently but under a years-old note is still within time.
9 authorities
- statuteLa. R.S. 9:3500enactment date not established
The words that state the rule
The amount of the conventional interest cannot exceed twelve percent per annum. The same must be fixed in writing; testimonial proof of it is not admitted in any case.
- statuteLa. R.S. 9:3500enactment date not established
The words that state the rule
The provisions of this Article shall not apply to a loan made for commercial or business purposes or deferring payment of an obligation for commercial or business purposes.
- statuteLa. R.S. 9:3500enactment date not established
The words that state the rule
(2) Except in the cases herein provided, if any person shall pay on any contract a higher rate of interest than the above, as discount or otherwise, the same may be sued for and recovered within two years from the time of such payment.
The words that state the rule
When charging interest, the Louisiana Civil Code mandates that the conventional rate of interest cannot exceed 12% per annum and that the interest rate be expressed in writing. LA. CIV.CODE ANN. art. 2924C(1). [22] The article provides, in pertinent part: C. (1) The amount of the conventional interest cannot exceed twelve percent per annum. The same must be fixed in writing; testimonial proof of it is not admitted in any case.
The words that state the rule
In the present case, the contract only provided that "the full amount of the interest charged on such loans will be reimbursed to Attorneys ... out of the funds received on this claim." It is obvious from a reading of the contract that Chittenden did not agree to pay a sum of conventional interest which was fixed in writing. It is likewise clear that Carimi may not establish the conventional rate of interest through the testimony of Chittenden and Breaux that they may have had discussions about what the interest rate might be.
- statuteLa. R.S. 9:3500enactment date not established
The words that state the rule
(3)(a) The owner or discounter of any note or bond or other written evidence of debt for the payment of money, payable to order or bearer or by assignment, shall have the right to claim and recover the full amount of such note, bond, or other written evidence of debt and all interest not beyond twelve percent per annum interest that may accrue thereon, notwithstanding that the rate of interest or discount at which the same may be or may have been discounted has been beyond the rate of twelve percent per annum interest or discount. (b) This provision shall not apply to the banking institutions of this state in operation under existing laws or to a consumer credit transaction as defined by the Louisiana Consumer Credit Law.
- statuteLa. R.S. 9:3500enactment date not established
The words that state the rule
(4)(a) The owner of any promissory note, bond, or other written evidence of debt for the payment of money to order or bearer or transferable by assignment shall have the right to collect the whole amount of such promissory note, bond, or other written evidence of debt for the payment of money, notwithstanding such promissory note, bond, or other written evidence of debt for the payment of money may include a greater rate of interest or discount than twelve percent per annum; such obligation shall not bear more than twelve percent per annum after maturity until paid. (b) This provision shall not apply to a consumer credit transaction as defined by the Louisiana Consumer Credit Law. (c) Where usury is a defense to a suit on a promissory note or other contract of similar character, it is permissible for the defendant to show the usury whether same was given by way of discount or otherwise, by any competent evidence.
The words that state the rule
Notwithstanding, Carimi may nonetheless recover interest from the dates that he expended money on Chittenden's behalf because he contracted to pay interest to Carimi on the loans that were made on his behalf. However, because Chittenden did not agree that interest would be compounded, he is only obligated to pay simple interest to Carimi.
The words that state the rule
However, we find that Carimi is limited to the recovery of simple legal interest on the funds advanced in the performance of his contingent fee contract. DECREE For the foregoing reasons, the judgments of the lower courts are affirmed in part and reversed in part. This case is remanded to the trial court for the computation of Chittenden's interest obligations in accordance with the views expressed in this opinion. REMANDED.
“Defective” means that reading found something to correct. What you are reading is the rule as it stands after that reading.