Legal Question in Business Law in California

Re: usurious contracts

You recently asked a question about the legal interest rate.

The California Constitution, Article 15, �1 spells it out.

The basic interest rate is 7% per annum, for a loan or

forbearance of moneys, goods or things, but the

parties can contract for a different rate as follows:

On a loan or forbearance where the money, credit,

goods, etc., is used primarily for personal, family or

household purposes, the parties can agree to an

interest rate of up to 10%. But, if the loan or forbearance

is used primarily to purchase, construct or improve real

property, the transaction is not considered one primarily for

personal, family or household purposes.

Where the transaction does not involve personal, family or

household purposes, the parties can contract for an interest

rate that is the higher of:

� 10% per annum, or;

� The Fed Reserve Bank (San Francisco) prevailing rate for

member banks + 5%. Check the section for details on the

date to be used for determining the prevailing rate.

The restrictions described above don't apply to banks, S&Ls,

credit unions and other types of corporations or associations.

See the section for a complete list of exempt entities.

Let me know if you need more assistance.

The foregoing information is provided as an

accommodation only, and does not constitute legal

advice or a legal opinion based on a comprehensive

review of all relevant facts, nor can provision of

such information be construed as creating an

attorney-client relationship.