In New York State, charging interest of more than 16% per year is civil usury.  Further, in New York, charging, taking, or receiving interest of 25% or more is criminal usury.  Lenders and borrowers frequently ask me what fees or charges count toward a loan’s interest rate for purposes of New York’s usury laws.  The answer depends upon the nature of the loan.

With respect to any loan or forbearance secured primarily by an interest in real property improved by a one- or two-family residence occupied by the owner, the term ‘interest,’ for purposes of New York’s civil and criminal usury statutes, “includes[s] origination fees, points and other discounts and all other amounts paid or payable, directly or indirectly, by any person, to or for the account of the lender in consideration for making the loan or forbearance,” except for those categories of fees and charges which are set forth in 3 N.Y.C.R.R. § 4.3.  3 N.Y.C.R.R.  § 4.2 [an annotated version of this statute is available to lexis.com subscribers]  ; see N.Y. Gen. Oblig. Law § 5-501(2) [annotated version]. 

With regard to the above-described home mortgage loans, the fees and charges which 3 N.Y.C.R.R. § 4.3 excludes from the definition of ‘interest’ include, among other categories, the following, if itemized in writing to the borrower:

• Reasonable fees, charges and costs for appraisal of property securing the loan or forbearance, for preparation of surveys, for title examinations, for title insurance, for legal services, and for notarizations and authentications;
• Charges for the payment of transfer, mortgage recording and other taxes and governmental charges; and
• Fees and charges paid or payable under a written agreement between the lender and the borrower upon the occurrence of specific acts or defaults of the borrower, such as prepayment penalties, charges for delinquent or late payments, and collection fees.

3 N.Y.C.R.R. § 4.3(b), 4.3(e), 4.3(g) [annotated version].

With respect to any loan or forbearance other than the above-described residential mortgage loans, the term ‘interest,’ for purposes of New York’s civil and criminal usury statutes, “mean[s] all amounts paid or payable, directly or indirectly, by any person, to or for the account of the lender which would be includible as interest under New York law as it existed prior to the enactment of [section 14-a of the New York Banking Law,] chapter 349 of the Laws of 1968.”  3 N.Y.C.R.R. § 4.2(b); see N.Y. Gen. Oblig. Law § 5-501(2).

In other words, as to any loan other than the above-delineated home mortgage loans, the term ‘interest,’ for purposes of New York’s statutes banning usury, includes all fees and charges which were considered interest under New York judicial decisions predating 1968.

The categories of fees and charges which, under pre-1968 New York case law, were considered interest included, but were not limited to, the following:

• Consulting fees, i.e., ” ‘an ostensibly unrelated contract providing for payment by the borrower for the lender’s services which are of little value or which are not in fact to be rendered.’ ”  See Kredietbank, N.V. v. ESIC Capital Corp. (In re Rosner), 48 B.R. 538, 547-551 (Bankr. E.D.N.Y. 1985) [an enhanced version of this opinion is available to lexis.com subscribers].
• Incentive fees.  See Funding Group, Inc. v. Water Chef, Inc., 19 Misc. 3d 483, 486-488, 852 N.Y.S.2d 736 (N.Y. Sup. Ct. N.Y. County 2008) [enhanced version].
• Commissions.  See Weiss v. Screen Arts Corp., 2009 N.Y. Misc. LEXIS 4705, 2009 N.Y. Slip op. 31045(U) (N.Y. Sup. Ct. N.Y. County May 12, 2009) [enhanced version].
• Loan origination fees.  Lugli v. Johnston, 78 A.D.3d 1133, 1133-1135, 912 N.Y.S.2d 108 (2d Dep’t 2010) [enhanced version].

It follows that — as to any loan or forbearance other than the above-mentioned home mortgage loans — consulting fees, incentive fees, commissions, and loan origination fees, among other fees and charges, count toward a loan’s interest rate for purposes of New York’s usury laws.  See Kredietbank, N.V., 48 B.R. at 547-551; Funding Group, Inc., 19 Misc. 3d at 486-488;  Weiss, 2009 N.Y. Misc. LEXIS 4705; Lugli, 78 A.D.3d at 1133-1135.

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