Absent a specific agreement establishing an interest rate between the
parties, it appears that 7% is the maximum allowable. An agreement
can be used to establish a higher rate, generally not to exceed 5%
plus the Federal Reserve Bank of San Francisco's rate at that time.
Exceptions for certain types of businesses do exist, but some sort of
agreement to a higher interest would appear to be required.
Therefore, the interest rate is most likely at most 10% unless
specific terms were agreed to and the unpaid contract/agreement was
entered into either very recently or prior to the end of January of
2001, or the lender qualifies for an exception as specified in the
California Constitution. The Federal Reserve Bank of San Francisco's
rate has only recently exceeded 5% after several years below that
amount.
Sincerely,
Wonko
Sources:
"CALIFORNIA, the legal rate of interest is 10% for consumers; the
general usury limit for non-consumers is more than 5% greater than
the Federal Reserve Bank of San Francisco's rate."
"State Interest Rates & Usury Limits" 'Lectric Law Library
http://www.lectlaw.com/files/ban02.htm
"Usury is the charging of interest in excess of that allowed by law.
Usury laws are complicated and there are many exceptions to the
general rules. Listed below are some of those general rules. Since
there are exceptions, and the penalties for violating usury laws are
severe, individuals making loans for which there are interest charges
should contact an attorney for further guidance."
"In transactions for the purchase of goods or services which are not
for personal, family or household purposes, there are normally no
limits to finance charges except those set by the parties.
In the absence of an agreement, the rate of interest upon a loan or
forbearance (an agreement not to collect until later for money already
owed) of any money or goods or accounts (after demand) is 7% per
year."
"Usury" Office of the Attorney General, State of California (2001)
http://ag.ca.gov/consumers/general/usury.htm
"SECTION 1. The rate of interest upon the loan or forbearance of any
money, goods, or things in action, or on accounts after demand, shall
be 7 percent per annum but it shall be competent for the parties to
any loan or forbearance of any money, goods or things in action to
contract in writing for a rate of interest:
...
(2)
For any loan or forbearance of any money, goods, or things in action
for any use other than specified in paragraph (1), at a rate not
exceeding the higher of (a) 10 percent per annum or (b) 5 percent per
annum plus the rate prevailing on the 25th day of the month preceding
the earlier of (i) the date of execution of the contract to make the
loan or forbearance, or (ii) the date of making the loan or
forbearance established by the Federal Reserve Bank of San Francisco
on advances to member banks under Sections 13 and 13a of the Federal
Reserve Act as now in effect or hereafter from time to time amended
(or if there is no such single determinable rate of advances, the
closest counterpart of such rate as shall be designated by the
Superintendent of Banks of the State of California unless some other
person or agency is delegated such authority by the Legislature).
No person, association, copartnership or corporation shall by charging
any fee, bonus, commission, discount or other compensation receive
from a borrower more than the interest authorized by this section upon
any loan or forbearance of any money, goods or things in action."
"California Constitution Article 15 Usury"
http://ag.ca.gov/consumers/pdf/constitution.pdf
"FRBSF Discount Rate" (April 5, 2006)
http://www.frbsf.org/banking/data/discount/index.html indicates that
the applicable discount rate is currently 5.75%. Extensive historical
data is provided so that you can locate the rate that was in effect at
the time the contract was entered into.
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