Does Montana's usury cap apply to this contract's interest or finance-charge rate, and what happens if we exceed it?
It depends on whether the charge is interest on a LOAN OF MONEY, and even then, the contract survives; only a damages remedy attaches. Montana caps agreed interest at “any rate of interest that does not exceed the greater of 15% or an amount that is 6 percentage points per year above the prime rate published by the federal reserve system in its statistical release H.15…dated 3 business days prior to the execution of the agreement” (§ 31-1-107(1), MCA), and “[a] loan that is not usurious when made is lawful for the duration of the loan, provided the loan agreement is not substantially changed” (§ 31-1-107(2)), a proviso that “does not apply to loan renewals.” The rate the cap is measured against is not just the stated coupon: “[i]nterest is the compensation allowed by law or fixed by the parties for the use or forbearance or detention of money and includes loan origination fees, points, and prepaid finance charges, as defined in 12 CFR 226.2” (§ 31-1-104), so fees priced into the front of a loan count toward the 15% or prime-plus-6 ceiling. Exceeding the cap does NOT void the debt: the penalty is a forfeiture of double the interest charged (§ 31-1-108(1)), and a borrower who actually paid excessive interest may sue to recover double what was paid, provided the action is brought within 2 years of payment and after a written demand for return of the interest (§ 31-1-108(2)). Confederated Tribes of Grand Ronde Community v. Quantum Five, Inc. confirms Montana courts apply exactly this double-damages mechanic, not contract voidance: against a party's argument “that the interest rates charged were not usurious, the District Court held otherwise, and under §§ 31-1-107 and -108, MCA, assessed a usury penalty” rather than voiding the underlying debt. Two broad carve-outs remove the cap entirely: a “regulated lender” (other than certain deferred-deposit or consumer-loan licensees) “is exempt from all limitations on the rate of interest that it may charge and is exempt from the operation and effect of all usury statutes” (§ 31-1-112(1)), and a merchant-to-merchant finance operation is exempt as well (§ 31-1-112(2)), “merchant” being a person “that deals in goods of the kind or otherwise is held out by occupation as having knowledge or skill peculiar to the practices or goods involved in the transaction” (§ 30-2-104(1)).
The trap
The biggest trap is scope: Johnston v. Palmer held a defendant's usury defense “misplaced” because § 31-1-107 lives in “Title 31, Part 1 of the MCA”, which “specifically addresses interest rates associated with loans of money”: LOANS, which is the whole point. The 18% rate at issue there was not usurious because it was “not for a loan of money but rather…a contractually-agreed upon finance charge owed on the balance of funds due and unpaid after thirty days.” A late-payment finance charge on a commercial account, in other words, is not automatically subject to § 31-1-107 at all. Do not assume every commercial lender needs the statutory cap analyzed: § 31-1-112's “regulated lender” exemption is broad, and § 31-1-111 spells out how broad: it reaches a bank, building and loan association, savings and loan association, trust company, credit union, credit association, consumer loan licensee, deferred deposit loan licensee, residential mortgage lender licensee, development corporation, bank holding company or insurer “organized pursuant to state or federal statutory authority and subject to supervision, control, or regulation by” a Montana or federal agency, together with any subsidiary of one of those, state and federal lending agencies, and congressionally or legislatively created entities owned in whole or in part by the United States or Montana. An ordinary private lender is on none of those lists. And remember the remedy ceiling: even a genuinely usurious LOAN remains a valid, collectible debt in Montana: the statute punishes the excess, not the loan.
12 authorities
- statuteMont. Code Ann. § 31-1-107enactment date not established
The words that state the rule
Parties may agree in writing to the payment of any rate of interest that does not exceed the greater of 15% or an amount that is 6 percentage points per year above the prime rate published by the federal reserve system in its statistical release H.15 Selected Interest Rates for bank prime loans dated 3 business days prior to the execution of the agreement. Interest must be allowed according to the terms of the agreement.
- statuteMont. Code Ann. § 31-1-108enactment date not established
The words that state the rule
The taking, receiving, reserving, or charging a rate of interest greater than is allowed by 31-1-107 must be considered a forfeiture of a sum double the amount of interest that the note, bill, or other evidence of debt carries or that has been agreed to be paid on the note, bill, or other evidence of debt.
- statuteMont. Code Ann. § 31-1-112enactment date not established
The words that state the rule
A regulated lender, except for a deferred deposit loan licensee or consumer loan licensee, is exempt from all limitations on the rate of interest that it may charge and is exempt from the operation and effect of all usury statutes.
The words that state the rule
Palmer relies solely upon § 31-1-107, MCA, to support her claim that 18% interest exceeds the amount lawfully allowed and is usurious. However, Palmer’s reliance on § 31-1-107, MCA, is misplaced. Title 31, Part 1 of the MCA specifically addresses interest rates associated with loans of money. The interest rate awarded by the District Court in the case before us is not for a loan of money but rather is premised upon a contractually-agreed upon finance charge owed on the balance of funds due and unpaid after thirty days.
- statuteMont. Code Ann. § 31-1-107enactment date not established
The words that state the rule
A loan that is not usurious when made is lawful for the duration of the loan, provided the loan agreement is not substantially changed. This subsection does not apply to loan renewals.
- statuteMont. Code Ann. § 31-1-108enactment date not established
The words that state the rule
When a greater rate of interest has been paid, the person by whom it has been paid or the person's heirs, assigns, executors, or administrators may recover from the person, firm, or corporation taking, receiving, reserving, or charging interest a sum double the amount of interest paid, provided that the action must be brought within 2 years after the payment of the interest, and provided that, before any suit may be brought to recover the usurious interest, the party bringing suit makes written demand for return of the interest paid.
- statuteMont. Code Ann. § 31-1-112enactment date not established
The words that state the rule
A finance operation that finances transactions between merchants, as defined in 30-2-104 , is also exempt from usury limits.
- statuteMont. Code Ann. § 31-1-107enactment date not established
The words that state the rule
The provisions of this section do not apply to regulated lenders as defined in 31-1-111 .
- case91 P.3d 1255Confederated Tribes of Grand Ronde Community v. Quantum Five, Inc.Mont.decided 2004read it at the source ↗
The words that state the rule
While Tribes proffered arguments that the interest rates charged were not usurious, the District Court held otherwise, and under §§ 31-1-107 and -108, MCA, assessed a usury penalty.
- statuteMont. Code Ann. § 31-1-104enactment date not established
The words that state the rule
Interest is the compensation allowed by law or fixed by the parties for the use or forbearance or detention of money and includes loan origination fees, points, and prepaid finance charges, as defined in 12 CFR 226.2.
- statuteMont. Code Ann. § 31-1-111enactment date not established
The words that state the rule
The term "regulated lender", as used in 31-1-112 and 31-1-116 , means: (1) a bank, building and loan association, savings and loan association, trust company, credit union, credit association, consumer loan licensee, deferred deposit loan licensee, residential mortgage lender licensee, development corporation, bank holding company, or mutual or stock insurance company organized pursuant to state or federal statutory authority and subject to supervision, control, or regulation by: (a) an agency of the state of Montana; or (b) an agency of the federal government;
- statuteMont. Code Ann. § 30-2-104enactment date not established
The words that state the rule
"Merchant" means a person that deals in goods of the kind or otherwise is held out by occupation as having knowledge or skill peculiar to the practices or goods involved in the transaction or to which the knowledge or skill may be attributed by the person's employment of an agent or broker or other intermediary that is held out by occupation as having the knowledge or skill.
“Defective” means that reading found something to correct. What you are reading is the rule as it stands after that reading.