What interest can an Oregon lender charge, and what happens if the cap is exceeded?
Where the parties have not otherwise agreed to a rate, the rate of interest is nine percent per annum, payable on all moneys after they become due (with open accounts bearing interest from the date of the last item), on money received to the use of another and retained beyond a reasonable time, and on money due under a contract to pay interest at no specified rate (ORS 82.010(1)). Where the parties do agree a rate, the cap is narrow: except as ORS 82.025 provides, no person may make a business or agricultural loan of $50,000 or less, or any other loan of $50,000 or less, at an annual rate of interest exceeding the greater of 12 percent or five percent in excess of the discount rate (for business or agricultural loans, including any surcharge on the discount rate) on 90-day commercial paper in effect at the Federal Reserve Bank in the Federal Reserve district where the lender is located on the date the loan or initial advance is made (ORS 82.010(3)). A person who violates subsection (3) forfeits the right to collect or receive any interest on the loan, and the borrower is required to repay only the principal amount borrowed (82.010(4)). A commission, bonus, fee, premium, penalty or other charge paid by or at the expense of the borrower to the lender or its broker, officer, director or agent, with the lender's knowledge, as consideration for obtaining the loan or a renewal, extension or forbearance, is deemed part of the interest (82.020(1)), subject to the exclusions in 82.020(3); and in computing interest for 82.010 a bona fide commission paid or sustained by the borrower is computed for the contract term, not for an accelerated period or a prepayment (82.020(2)). ORS 82.010(3)-(4) and 82.020 do not apply to financial institutions and trust companies as defined in ORS 706.008, consumer finance licensees, licensed pawnbrokers, HUD-approved lenders, loans secured by a first lien on real property or made to finance the acquisition of real property and secured by any lien on that property, and five further categories in 82.025: a loan secured by real property and scheduled to be repaid in substantially equal payments by a lender who makes, invests in or arranges more than $1 million of real property loans a year, where no single scheduled payment is more than twice any other (82.025(4)); a loan guaranteed or insured by the Federal Housing Administration, the United States Department of Veterans Affairs or Rural Development, the Farm Service Agency or any other federal body or wholly owned federal corporation (5); a federally permitted loan from a tax qualified retirement plan to a participant (6); a bona fide sale or resale of securities or commercial paper (7); and a registered broker-dealer's interest charge for carrying a customer's demand debit balance secured by stocks or bonds (8). 'Financial institution' in ORS 706.008 means an insured institution, an extranational institution, a credit union as defined in ORS 723.006, an out-of-state credit union under ORS 723.042 or a federal credit union. Judgments are governed separately: the rate on a money judgment is nine percent, simple unless the contract provides otherwise, accruing from entry and also on interest, attorney fees and costs entered as part of the judgment, except that a judgment on a contract bearing more than nine percent carries the contract rate as of the date of entry (82.010(2)).
The trap
The cap reaches only loans of $50,000 or less, and does not apply to the lenders and loans listed in 82.025, which include any financial institution or trust company, any consumer finance or pawnbroker licensee, any loan secured by a first lien on real property, and, under 82.025(4), any substantially-equal-payment loan secured by real property from a lender writing more than $1 million of real property loans a year, which covers much of the professional lending market. Acceleration does not inflate the rate either: a bona fide commission is spread over the contract term rather than the accelerated period (82.020(2)). Where it does apply, the lender forfeits all interest, not just the excess (82.010(4)), and a fee or bonus paid for the loan counts toward the rate (82.020(1)).
10 authorities
- statuteORS 82.010enactment date not established
The words that state the rule
The rate of interest for the following transactions, if the parties have not otherwise agreed to a rate of interest, is nine percent per annum and is payable on: (a) All moneys after they become due; but open accounts bear interest from the date of the last item thereof. (b) Money received to the use of another and retained beyond a reasonable time without the owner’s express or implied consent. (c) Money due or to become due where there is a contract to pay interest and no rate specified.
- statuteORS 82.010enactment date not established
The words that state the rule
Except as provided in this subsection, the rate of interest on judgments for the payment of money is nine percent per annum. The following apply as described: (a) Interest on a judgment under this subsection accrues from the date of the entry of the judgment unless the judgment specifies another date. (b) Interest on a judgment under this subsection is simple interest, unless otherwise provided by contract. (c) Interest accruing from the date of the entry of a judgment shall also accrue on interest that accrued before the date of entry of a judgment. (d) Interest under this subsection shall also accrue on attorney fees and costs entered as part of the judgment. (e) A judgment on a contract bearing more than nine percent interest shall bear interest at the same rate provided in the contract as of the date of entry of the judgment.
- statuteORS 82.010enactment date not established
The words that state the rule
Except as provided in ORS 82.025, no person shall: (a) Make a business or agricultural loan of $50,000 or less at an annual rate of interest exceeding the greater of 12 percent, or five percent in excess of the discount rate, including any surcharge on the discount rate, on 90-day commercial paper in effect at the Federal Reserve Bank in the Federal Reserve district where the person making the loan is located, on the date the loan or the initial advance of funds under the loan is made; or (b) Make a loan of $50,000 or less, except a loan made under paragraph (a) of this subsection, at an annual rate of interest exceeding the greater of 12 percent, or five percent in excess of the discount rate on 90-day commercial paper in effect at the Federal Reserve Bank in the Federal Reserve district where the person making the loan is located, on the date the loan or the initial advance of funds under the loan is made.
- statuteORS 82.010enactment date not established
The words that state the rule
Any person who violates subsection (3) of this section shall forfeit the right to collect or receive any interest upon any loan for which a greater rate of interest or consideration than is permitted by subsection (3) of this section has been charged, contracted for or received. The borrower upon such loan shall be required to repay only the principal amount borrowed.
- statuteORS 82.020enactment date not established
The words that state the rule
If, pursuant to any arrangement, understanding or agreement, with the knowledge of the lender, either as a part of the contract of borrowing or collateral thereto, regardless of when made and whether it is made as a special arrangement or in conformity to a regular rule, regulation or practice, there is paid by or at the expense of the borrower to the lender, or the lender’s broker, officer, director or agent, with respect to or in connection with any loan to which ORS 82.010 applies, any commission, bonus, fee, premium, penalty or other charge, compensation or gratuity, whether in money, credit or other thing of value, as a consideration, compensation or inducement for obtaining any such loan, or any renewal, extension of forbearance thereof, the same shall be deemed a part of the interest charged on such loan.
- statuteORS 82.020enactment date not established
The words that state the rule
In computing interest for the purposes of ORS 82.010, any bona fide commission paid or sustained by the borrower shall be computed for the contract term and not for any accelerated period or prepayment.
- statuteORS 82.020enactment date not established
The words that state the rule
Notwithstanding subsection (1) of this section, the following charges shall not be deemed a part of the interest charged on a loan: (a) Reasonable amounts actually applied in payment of the expense of inspecting any security offered in connection with the loan, investigating the responsibility of the applicant or procuring or extending any abstract of title or certificate of title insurance covering such security; (b) The amount actually paid for the examination of any such abstract of title or certificate of insurance; or (c) The cost of the preparation, execution and recording of any papers necessary in consummating such loan.
- statuteORS 82.025enactment date not established
The words that state the rule
ORS 82.010 (3) and (4) and 82.020 do not apply to: (1) Any financial institution or trust company, as those terms are defined in ORS 706.008, any consumer finance licensee under ORS chapter 725 or any pawnbroker licensed under ORS chapter 726. (2) Any lender approved by the Secretary of Housing and Urban Development of the United States for participation in any mortgage insurance program under the National Housing Act (12 U.S.C. 1701 et seq.). (3) Any loan secured by a first lien on real property or made to finance the acquisition of real property and secured by any lien on that property.
- statuteORS 82.025enactment date not established
The words that state the rule
Any loan that is secured by real property, scheduled under the loan agreement to be repaid in substantially equal payments and made by a lender described in this subsection. A lender under this subsection is one who makes, invests in or arranges real property loans, including loans secured by first liens on residential manufactured homes, aggregating more than $1 million per year. Under this subsection, payments shall be substantially equal if, under the terms of the loan agreement, no single scheduled payment is more than twice the amount of any other scheduled payment. (5) Any loan wholly or partially secured or covered by guarantees or insurance by the Federal Housing Administration, the United States Department of Veterans Affairs or Rural Development or the Farm Service Agency of the United States Department of Agriculture, any department, bureau, board, commission or agency of the United States, or any corporation wholly owned, directly or indirectly by the United States. (6) Any loan permitted under applicable federal law and regulations from a tax qualified retirement plan to a person then a participant under the plan. (7) Any bona fide sale or resale of securities or commercial paper. (8) Any interest charge by broker-dealers registered under the Securities Exchange Act of 1934 for carrying a debit balance in an account for a customer if the debit balance is payable on demand and secured by stocks or bonds.
- statuteORS 706.008enactment date not established
The words that state the rule
“Financial institution” means an insured institution, an extranational institution, a credit union as defined in ORS 723.006, an out-of-state credit union under ORS 723.042 or a federal credit union.
“Defective” means that reading found something to correct. What you are reading is the rule as it stands after that reading.