Creditors in New Jersey are restricted in the amount of interest they can charge on loans by New Jersey usury laws. Accordingly, when it is time to bill debtors or to attempt to collect on debts, it is important to charge interest at a rate that is in compliance with New Jersey’s usury laws. Since each state has its own usury laws, the maximum interest rates that can be charged in New Jersey are not the same as the maximum interest rates that can be charged in other states.
Indeed, usury laws tend to vary significantly from state to state, which means that it is essential to understand the usury laws in the state where the lender is providing the loan or line of credit. In addition, it is important to know that states vary when it comes to applying usury laws to consumer and commercial loans. Depending on the state, civil usury laws may apply to certain types of loans, while criminal usury laws may apply to other types of loans.
Given the complicated nature of usury laws, you may be wondering: do usury laws apply to commercial loans in New Jersey? Criminal usury laws may apply, but it is important to be clear that New Jersey usury laws apply differently to consumer loans and commercial loans. Our New Jersey collections lawyers can provide you with more information.
What are Usury Laws in New Jersey?
Usury laws in general are laws that limit the amount of interest that a lender can charge on loans. According to the Cornell Legal Information Institute (LII), “usury is interest that a lender charges a borrower at a rate above the lawful ceiling on such charges.” Accordingly, usury laws are in place to prevent creditors or lenders from charging interest rates above the set amounts. As we noted above, there are both civil and criminal usury laws, which means that lenders can be subject to civil penalties or criminal penalties for charging interest rates to borrowers that exceed particular amounts.
Since usury laws are state-specific, it is essential to be clear about the particulars of New Jersey usury laws when your business is determining the interest rate to set on a loan or the interest rate that you can attempt to recover. To understand whether usury laws apply to commercial loans in New Jersey, you will need to learn more about the state’s civil and criminal usury laws. Under New Jersey law, the following are the civil and criminal usury limitations:
- Civil usury rates: Under N.J.S.A. 31:1-1 et. seq., interest rates generally cannot exceed 6% per year, or in some cases 16% per year if there is a written contract that specifies a particular interest rate.
- Criminal usury rates: Under N.J.S.A. 2C:21-19, lenders can be subject to criminal penalties if they charge interest rates of more than 30% for non-corporate borrowers or more than 50% for corporate borrowers.
Civil Usury Laws Are Not Typically Applicable to Commercial Loans
When a business borrows money in a commercial loan, the civil usury laws in New Jersey are not likely to be applicable. Under N.J.S.A. 31:1-6, the statute clarifies that corporations, limited liability companies (LLCs), and limited liability partnerships (LLPs) cannot raise the defense of civil usury. Here is what the law says:
“No corporation, limited liability company or limited liability partnership shall plead or set up the defense of usury to any action brought against it to recover damages or enforce a remedy on any obligation executed by said corporation, limited liability company or limited liability partnership.”
To be clear, protections provided by civil usury laws apply to consumers. The question of whether civil usury laws apply to commercial loans may be more complicated when a sole proprietorship borrows money.
Criminal Usury Laws Apply to Commercial Loans
While civil usury laws and specific civil usury limitations are not likely to apply to commercial loans in New Jersey, it is important to be clear that criminal usury limitations do apply. While the criminal limitations are different for consumer and commercial loans, New Jersey law is clear that corporations, limited liability companies, and limited liability partnerships cannot be charged interest rates that exceed 50% per year.
Contact a New Jersey Collections Attorney
If you have any questions about usury laws and interest rates that are permissible in New Jersey, or the amount of money that you can attempt to recover from a borrower based on legal interest rates, it is important to seek advice from an attorney who can assist you. Our New Jersey collections lawyers can discuss the state’s usury laws with you today and how they apply (or do not apply) to various types of loans. Do not hesitate to get in touch with our firm to learn more about how we can assist you. Contact Snellings Law LLC today for more information.