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Consumer Credit Regulation: 7.5.3.4 Does a Contingency Create a Real and Substantial Risk of Nonpayment, Beyond the Risks Inherent in Any Loan?

Repayment will not be considered contingent unless the lender, by the terms of the loan, is subjected to some greater hazard than that the borrower will fail to repay the loan or that the security will depreciate in value.260 A transaction will be treated as a loan where the contingency under which the obligor may avoid repayment is a practical impossibility.261 For example, in a Florida case, a contract supposedly for the construction and purchase of a condominium complex was found to be a usur

Consumer Credit Regulation: 7.7.1.4 Other Standing Issues

One case holds that a borrower who is seeking an affirmative usury remedy under section 86 of the National Bank Act and who has not paid the challenged charges does not have standing.422 This issue is usually analyzed in terms of whether one of the necessary elements of a prima facie usury claim has been met, rather than as a standing question, however.423

Consumer Credit Regulation: 7.7.4.3 A Subsequent Event Generally Does Not Make Credit Usurious

Clearly some subsequent events can make a legal credit transaction usurious. If a credit agreement gives the creditor the right to raise the interest rate, a later increase to a rate above that allowed by applicable law would undoubtedly be usurious. Thus, an adjustable rate pegged to an index that rises to the point that the rate becomes usurious would likely violate a state’s usury law.502

Consumer Credit Regulation: 7.7.6.1 Nature and Origin of the Voluntary Payment Doctrine

A borrower who has already made payments on a usurious loan may have to contend with an ancient and sporadically recognized defense—the voluntary payment doctrine. The doctrine developed in tax cases, and was created to prevent those who had paid illegally imposed taxes from recouping their payments from the tax collector.529 The basis for the doctrine lies in the fiscal concerns of a government that may need to be certain of the amount of funds available for disbursement.

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: 7.8.1 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: 9.1.1 Introduction

There is no universal definition of “payday loan.” State laws refer to payday loans by many different terms and define them with even greater variation.1 Nevertheless, a payday loans is typically considered a short-term, unsecured, high-cost loan repayable on the borrower’s next payday.2

Consumer Credit Regulation: 9.1.3 Is the APR a Fair Cost Measurement for Payday Loans?

Most payday lenders quote the cost of credit using add-on interest,58 such as $30 per $100 borrowed. But the federal Truth in Lending Act requires payday lenders to disclose the annual percentage rate (APR) of loans, which is an actuarial rate that better discloses the true cost of the credit because it takes into account the term of the loan as well as both interest and fees.

Consumer Credit Regulation: 9.3.13 Hawaii

Payday lending used to be authorized by statute in Hawaii, but in 2021 the legislature enacted reforms that impose new restrictions on small installment loans.251 Under the new laws, installment loans of up to $1,500 are subject to a rate cap of 36%,252 which must be precomputed.253 The loan term must be at least two months i

Consumer Credit Regulation: 9.3.15 Illinois

Payday lending is technically legal. In Illinois under the Payday Loan Reform Act but, due to the 2021 enactment of the Predatory Loan Prevention Act, payday lending is now effectively prohibited. The new law imposes a 36% annual interest rate cap on payday loans.271 The APR is to be calculated using the methodology specified in federal the Military Lending Act.272

Consumer Credit Regulation: 7.7.8.1b.1 Introduction

A consumer has three avenues to raise defenses against a card issuer concerning a merchant’s credit card charges appearing on the consumer’s statement. All three are based on rights found in the federal Truth in Lending Act (TILA):