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Consumer Credit Regulation: 7.7.9 De Minimis Violations

The de minimis defense to usury is the argument that penalties should not be assessed for trivial usury violations. This defense is rejected in some states on the grounds that its recognition by the courts in the face of mandatory statutory penalties would constitute judicial legislation beyond the courts’ authority.674 Nevertheless, the de minimis defense is recognized in other states,675 and in these jurisdictions it can cause problems for usury claimants.

Consumer Credit Regulation: 7.7.10 Industry Custom and Usage

A less commonly raised usury defense is the argument that long-standing and widely accepted financial industry practices should not be deemed usurious or otherwise illegal. For example, in an Illinois case borrowers claimed that a bank had overcharged them by calculating interest on the basis of a 360-day year. The bank replied that the banking industry universally calculated interest in this manner, that the borrowers should have known this (unpublicized) fact, and that this should be a defense to the borrower’s challenge.

Consumer Credit Regulation: 7.7.11 Usury Saving Clauses

Many credit contracts contain boilerplate “saving clauses” which, in one form or another, recite that the parties to the contract intend to comply with applicable usury laws, and that the contract should not be interpreted as providing for usurious interest rates. Saving clauses frequently specify that any charge above the usury ceiling should be deemed a mistake, and that the overcharge should either be refunded to the borrower or credited against the outstanding principal balance.686

Consumer Credit Regulation: 7.7.12 Correction of Error As a Defense

In the absence of a statute so providing, creditors cannot rebut usurious intent or otherwise avoid usury statutes simply by rebating excessive charges that the debtor has already paid696 or by unilaterally reducing the interest rate to a non-usurious rate.697 However, allowing a creditor a period of time to avoid liability by correcting an error is a common feature of usury statutes.698 Texas gives a lender a statu

Consumer Credit Regulation: 7.7.13 Exhaustion of Administrative Remedies

In a 2005 Texas case, Meekey v. Rick’s Cabaret International, Inc., the defendant argued that the consumers were required to exhaust their administrative remedies.712 The case involved an illegal surcharge in violation of the Texas Finance Code. The defendant argued that the code was part of a pervasive regulatory scheme and that the Texas Finance Commission had either exclusive or primary jurisdiction of the dispute.

Consumer Credit Regulation: 7.8.1 Introduction

The remedies available to victims of illegal overcharges are primarily determined by individual state statutes. Consequently, attorneys who are concerned about the remedies available in an individual overcharge case must first pay close attention to the statute under which the action is brought or the defense raised.718 Remedies for exceeding authorized cost ceilings vary widely from statute to statute, so an earlier case decided under a different statute may have little precedential value.

Consumer Credit Regulation: 7.8.2.2.2 Statutes that void the entire obligation

Although many usury statutes limit usury remedies to a forfeiture of interest, harsher sanctions are also found. Numerous statutes declare usurious obligations to be completely void and prohibit any creditor recovery whether or not the principal has been repaid.759 This sanction is most common in small loan laws and consumer loan laws derived from them.

Consumer Credit Regulation: 7.8.2.3.1 Introduction

A critical question that often arises when a loan is declared usurious is: what happens to the money already paid to the creditor? The answer will depend partly on whether the statute voids the entire obligation or merely the interest.

Consumer Credit Regulation: 7.8.2.3.2 Statutes allowing recovery

Some statutes that declare usurious loans to be completely void spell out the debtor’s right to recover payments made, in which case the problem is solved.766 For example, some versions of the uniform small loan act have denied the creditor the right to “retain” payments, so a refund is obviously required.767 Small loan acts which declare usurious loans void and deny the creditor’s right to “collect or receive” any charges on the contract have generally been interpreted as requiring a refund of

Consumer Credit Regulation: 7.8.2.3.4 Common law action for recovery of usurious interest that has been paid

Even in the absence of a statutory cause of action, many states recognize a common law action for the recovery of the usurious portion of interest payments made on a contract.780 Such a claim has particular potential in very high-rate credit such as payday loans, where the finance charges often exceed the principal after a few rollovers. Such an action can be invaluable to debtors if litigation occurs only after most of a loan is paid off because the creditor’s forfeiture of future payments means little at this point.

Consumer Credit Regulation: 7.8.2.5 Attorney Fees

Usury statutes that provide explicit causes of action for consumers often provide for awards of attorney fees if the consumer prevails.802 A fee award is mandatory under the UCCC if the consumer prevails.803 A decision that a loan is usurious may also prevent the creditor from recovering its fees under a contract clause.804

Consumer Credit Regulation: 7.8.3.1 Courts’ Authority to Impose Equitable Remedies

Although most remedies for usury and other overcharges exist under statutes or common law, there are circumstances when a debtor’s appropriate remedy for usury is in equity.805 The most common occasion is when the creditor is attempting to foreclose upon security, often the borrower’s home, given in conjunction with the usurious loan. Borrowers who want to enjoin foreclosures must typically invoke the court’s equitable powers.

Home Foreclosures: 3.4.8 Challenging Authority to Foreclose in Post-Sale Eviction Proceedings

Lenders clearly benefit from the lack of court oversight in non-judicial foreclosures. The procedures are simpler and move faster than judicial foreclosures. However, one aspect of the non-judicial process invariably requires some form of court approval. The party acquiring title to the property through the foreclosure sale must go through the courts to obtain a judgment for possession of the property. The judgment for possession authorizes a government official to evict the borrower.

Consumer Credit Regulation: 7.8.4.1 Unjust Enrichment

In many cases, it will be advantageous to assert a claim for unjust enrichment in addition, or as the alternative, to a usury claim. The simplicity of an unjust enrichment claim is an advantage even though it does not offer special penalties or fee-shifting.

Consumer Credit Regulation: 7.8.4.2 Money Had and Received

“Money had and received” is a cause of action that arises, where recognized, when “one person obtains money that in equity and good conscience belongs to another.”845 Conceptually, it is an equitable doctrine that encompasses those unjust enrichment claims wherein the benefit retained by the defendant is cash, as opposed to services or some other subject.

Consumer Credit Regulation: 7.8.4.3 Constructive Trust

One advantage of asserting a claim in equity is that a plaintiff entitled to restitution may take the further step of seeking a constructive trust on the funds.855 Not a remedy or a cause of action, nor even a genuine trust, a constructive trust is a legal concept that attaches to the property held unjustly by the defendant, to protect it until it is returned.856 Like unjust enrichment,857 the concept of the constructive trust stems from property b