When drafting a promissory note or other agreement for a loan, the interest rate is usually specified. The agreed-upon interest rate may exceed the interest rate allowed by law for a specific transaction. In addition to the interest, there can be other fees not expressly described as interest that may later be deemed interest. This could cause the total interest rate to rise past the maximum amount allowed under the criminal-usury statute (25% in Michigan).
To protect against a claim for violating the usury laws, including the criminal-usury statute, the parties can include a usury-savings clause in the loan document. The clause states that the lender does not intend to charge more interest than is legally allowed. While this may not protect against the invalidation of the amount of interest over the legally allowed amount, it could protect the lender from the wrongful-conduct rule.
In a recent decision, Soaring Pine Cap. Real Est. & Debt Fund II, LLC v. Park St. Grp. Realty Servs., LLC, Docket No. 349909 (scheduled for publication), the Court determined that the lender was charging the borrower an interest rate greater than the amount allowed under the criminal-usury statute (25%). Normally, the Court would apply the wrongful-conduct rule and bar the lender from collecting any amount in interest. However, because the parties had included a usury-savings clause, the Court found that the contract did not “charge” a usurious rate of interest.
The key takeaway from this case is to ensure that, as a lender, you include a usury-savings clause in your contracts. This will protect you against the wrongful-conduct rule in the event the Court later finds that the interest rate was over the amount allowed in the criminal-usury statute. A usury-savings clause will also help where the usury law may limit the interest rate for specific loans based on the identity of the lender, the borrower, or the loan.
The full text of this case can be found at:
https://law.justia.com/cases/michigan/court-of-appeals-published/2021/349909.html
