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Banking Interpretations

NYSBL 14-a(1)

June 13, 2006

Re: Usury, Interest Rates and Bankruptcy in New York State

Dear [ ]:

Your January 9, 2006 letter to Diana Taylor, Superintendent of Banks, has been forwarded to me for response. In this letter, you ask a number of questions regarding usury, interest rates and bankruptcy in New York State. I apologize for the delay in my reply.

I thought that it might be best to give you a brief overview on usury and interest rate caps in New York State. The New York State General Obligations Law § 5-501 through § 5-531 ("N.Y. Gen. Oblig. Law") and Banking Law § 14-a(1) govern interest rates on most loans made in New York State. Personal loans can be made by anyone, to anyone at 16% per annum or less under all circumstances. Loans made at rates exceeding 25% to any person or entity are generally criminally usurious (N.Y. Penal Law § 190.40), except as noted below. Loans made to a corporation can charge interest as high as 25% per year.

There are certain types of loans that may charge interest rates of between 16% and 25% per year. These are loans made by anyone to a corporation; all loans that exceed $250,000; margin account loans, made by a broker to a customer to purchase securities; and the following types of loans made by banks to individuals: unsecured personal loans; secured demand loans of $5,000 or more (a demand loan has no specific maturity date, but the lender may demand full repayment at any time); and loans of less than one year where interest is taken in advance (if the loan is paid off early, the advance interest may have been overpaid). In addition, licensed premium finance agencies can make certain insurance loans at rates over 16%.

Finally, there are three instances in which loans may be made at rates over 25% per year in New York State: all loans of at least $2.5 million; Federal Housing Administration loans and Veterans Administration loans; and first liens, made by bankers on residential mortgages.

You have asked about various statistical data regarding consumer credit, the Banking Department does not compile this information. You may obtain this information from the Federal Reserve Bank of New York.

Lastly, New York Bankruptcy Law is not under the Banking Department's purview, therefore I cannot comment on that particular area of the law.

Sincerely,
Christine M. Tomczak
Assistant Counsel