Legal Question in Credit and Debt Law in California

Re: Usury

California's usury law appears in the California constitution. Where it applies most often is in situations involving loans by individuals, as most banks and institutional lenders are exempt. In addition, a penalty clause likely could be counted as interest for purposes of calculating whether the interest rate constitutes usury. Moreover, a "penalty clause" could be unenforceable. Whether you are a lender or a borrower, you should have an attorney review the loan documents to make sure they do not pose any problems down the road.