usury laws

Usury Claims Cannot Be Waived

This week we have a special article written by Alan Foster of the Foster Law Group regarding usury laws. As Alan explains, usury laws prohibit unreasonably high interest rates. Alan, a corporate and business transaction attorney, explains why a general release does not release a claim for usury.

I’ve referred a number of clients to Alan because he does such a great job helping business clients.


Even a general release does not result in a waiver of a claim of usury, according to the 2007 California Court of Appeals case Hardwick v. Wilcox. Usury is the illegal action or practice of lending money at unreasonably high rates of interest.

In this case Hardwick received several loans at an interest rate of approximately 12% from Albert Wilcox, who was not licensed as a lender and had no other exemption from usury under California law. The loans were secured by deeds of trust on Hardwick’s commercial properties. Hardwick defaulted and Wilcox commenced foreclosure proceedings. The parties entered into a forbearance agreement that included a general release of all claims and a waiver of future unknown claims under California Civil Code section 1152.

Nine months after entering into the forbearance agreement Hardwick sued Wilcox to recover the usurious interest he had already paid. The general release did not specifically mention a waiver of usury claims. Thus, the Court ruled Hardwick’s usury claim against Wilcox had not been waived, and the Court added that, even if the general release had expressly included usury claims, to do so would be against public policy and therefore invalid.

Wilcox appealed. The Court of Appeals affirmed and Hardwick was awarded over $200,000 in damages based on usuriously paid interest.

A lender is required to be licensed or must procure another type of exemption from usury to charge usurious rates of interest.

Generally, usury in California is any rate over 10% simple interest per year or, if the loan is for home improvements, a home purchase, or for other than personal, family or household purposes, the higher of 5% or 10%, respectively, over the amount charged by the Federal Reserve Bank of San Francisco on advances to member banks on the 25th day of the month before the loan.

There are many other exceptions to the usury law including, but limited to, loans by real estate brokers if the loans are secured by real estate, and loans by most lending institutions such as banks, credit unions, finance companies, and other specified lenders. State laws place interest rate limitations on some of these loans.

If you charge interest in excess of these amounts you may be inviting a legal action based on usurious interest. If you pay interest in excess of these amounts you may be able to recover all or a portion of your interest payments. Therefore, before you loan money or accept a loan, with an interest rate in excess of 10% per year, check with your business attorney to determine whether the interest rate is usurious.

Alan Foster counsels entrepreneurs and businesses of all sizes on business operations, corporate, and intellectual property

Alan Foster

Alan formed Foster Law Group in 2006. Previously, he was a principal attorney at Burriss & Monahan in Mountain View and his own firm in Palo Alto. He also served as Legal Counsel & Manager of State Government Affairs for the American Electronics Association, working with the executive management of HP, Intel, Apple, IBM and other industry leaders to promote laws that encourage the startup and growth of technology-based companies.

Robert E. Nuddleman of Nuddleman Law Firm, P.C.

Feel free to suggest topics for the blog. We are happy to consider topics pertaining to general points of Labor and Employment Law. We cannot answer questions about specific situations or provide legal advice over the Internet. If you desire legal advice, you should contact an attorney.

Using this blog does not create an attorney-client relationship between you and Nuddleman Law Firm, P.C. Using the Internet or this blog to communicate with the firm does not establish an attorney-client relationship. Do not post confidential or time-sensitive information in this blog. The Nuddleman Law Firm, P.C. cannot guarantee the confidentiality of anything posted to this blog.

The Nuddleman Law Firm, P.C. represents employees and businesses throughout Silicon Valley and the greater San Francisco Bay Area including Pleasanton, Oakland, San Ramon, Hayward, Palo Alto, Menlo Park, Mountain View, Los Altos, San Jose, the South Bay Area, Campbell, Los Gatos, Cupertino, Morgan Hill, Gilroy, Sunnyvale, Santa Cruz, Saratoga, and Alameda, San Mateo, Santa Clara, San Benito, Mendocino, and Calaveras counties.