Attorney Brendan A. Sweeney Of Sweeney Law, P.A. Featured In The July/August 2024 Edition Of The Broward County Bar Barrister – The Distinction Between Civil and Criminal Usury in Florida

Aristotle stated “[t]he most hated sort, and with the greatest reason, is usury, which makes a gain out of money itself, and not from the natural object of it. For money was intended to be used in exchange, but not to increase at interest. And this term interest, which means the birth of money from money, is applied to the breeding of money because the offspring resembles the parent. Wherefore of all modes of getting wealth this is the most unnatural.” While beliefs regarding usury have changed, some religions still prohibit lending money with any
amount of interest being applied.

In today’s modern times the concept of charging interest for money loaned is commonplace and an accepted practice. However, the Florida legislature has enacted statutes to protect borrowers from usurious transactions. Lenders and borrowers in Florida need to be cognizant of the important distinction between civil and criminal usury.

Section 687.04, Fla. Stat., provides that the penalties for civil usury are a forfeiture of the entire interest charged or contracted to be charged, and only the principal sum of the usurious contract can be enforced.

In Florida the maximum rate of interest a lender can charge is 18 percent for amounts up to $500,000.00. For amounts in excess of $500,000.00, section 687.071, Florida Stat., sets forth that any individual who willingly and knowingly charges, takes, and/or receives interest at a rate exceeding 25 percent but not in excess of 45 percent per annum commits a misdemeanor in the second degree. § 687.071(2), Fla. Stat. Moreover, any individual who willingly and knowingly charges, takes, and/or receives interest at a rate exceeding 45% per annum commits a felony in the third degree. § 687.071(3), Fla. Stat. The books of account or other documents regarding the extensions of credit for an individual who willingly and knowingly charges, takes, and/or receives interest at a rate exceeding 25% are deemed as contraband under Florida law and any individual who knowingly and willfully possesses or maintain such books of account or other documents or conspires to do so commits a misdemeanor in the first degree. § 687.071(5), Fla. Stat. The most significant impact of criminal usury is that no extension of credit made in violation of the criminal usury statute shall be an enforceable debt in any court of Florida.

A debtor that alleges usury in order to avoid and/or defeat an obligation to pay money must establish it by clear and satisfactory evidence.” Dixon v. Sharp, 276 So. 2d 817, 820 (Fla. 1973). The critical distinction is with civil usury the lender forfeits the entire interest charged or contracted to be charged and only the principal sum can be enforced. Conversely, in a criminal usury transaction the lender forfeits the interest, principal sum, and can potentially face misdemeanor or felony criminal charges.

Pursuant to Florida law the four requisites of a usurious transaction are: (1) there must be a loan express or implied; (2) an understanding between the parties that the money lent shall be returned; (3) that for such a loan a greater rate of interest than is allowed by law shall be paid or agreed to be paid, as the case may be; and (4) there must exist a corrupt intent to take more than the legal rate for the use of the money loaned. Stewart v. Nangle, 103 So.2d 649 (Fla.App.1958); Clark v. Grey, 101 Fla. 1058, 132 So. 832 (1931).

The fourth element, whether a corrupt intent to take more than the legal rate for the use of money loaned is most often the most critical for the analysis whether a transaction is deemed civil or criminal usury. The question of intent is to be gathered from the circumstances surrounding the entire transaction. River Hills, Inc. v. Edwards, 190 So. 2d 415 (Fla. 2d DCA 1966). Florida Courts recognize that usury is largely a matter of intent, and is not fully determined by the fact that the lender actually receives more than law permits, but is determined by existence of a corrupt purpose in the lender’s mind to get more than legal interest for the money lent. Chandler v. Kendrick, 108 Fla. 450, 146 So. 551 (1933); Jones v. Hammock, 131 Fla. 321, 179 So. 674 (1938); Maule v. Eckis, 156 Fla. 790, 24 So.2d 576 (1946); Shaffran v. Holness, Fla., 93 So.2d 94; Stewart v. Nangle, 103 So.2d 649 (Fla.App.1958); Connecticut Mutual Life Insurance Co. v. Fisher, 165 So.2d 182 (Fla.App.1964).

The Florida Supreme Court has stated that Courts must analyze whether there was a purpose in the lender’s mind to get more than legal interest for the use of his money, whether by the terms of the transaction and the means employed to effect the loan. Benson v. First Trust & Sav. Bank, 105 Fla. 135 (1931). When the Court conducts an analysis as to the purpose in the lender’s mind by analyzing the lender’s intent, Florida law provides that intent is whether or not there was an improper motive in the lender’s mind to get more than the legal interest at the time the loan agreement is entered. Shorr v. Skafte, Fla., 90 So.2d 604 (1931). A lender’s testimony that it did not have an intent to charge and receive interest in excess of the legal rate is not determinative of the question. Id. Rather, it is a fact that the lender consciously intends and does in fact make charges which result in usury that establishes a requisite element of corrupt intent. Id. A lender’s corrupt intent pursuant to Florida law means intentionally seeking unlawful interest amounts by knowing corruption, dishonesty or at least some indicia of bad faith. The difference between a lawful transaction and usurious one, therefore, is the difference between “good faith” and “bad faith”. The parties are permitted to testify as to their purposes and intentions, and the question of intent is to be gathered from the circumstances surrounding the entire transaction. Diversified Enterprises, Inc. v. West, 141 So. 2d 27 (Fla. 2d DCA 1962); Kay v. Amendola, 129 So. 2d 170 (Fla. 2d DCA 1961).

To counteract any argument of corrupt intent, lenders typically insert into their loan documents provisions specifically disclaiming any purpose of effect of exacting interest in excess of lawful limits. In Szenay v. Schaub, 496 So. 2d 883 (Fla. 2d DCA 1986), the appellate court examined one such provision:

Notwithstanding any provisions in this note to the contrary, no interest, charges, or other payments in excess of those permitted by law shall accrue or become payable hereunder and any excessive payments which may be made shall be applied to principal in reduction of the balance of this note.

The appellate court ruled that usury was not committed despite the operative loan documents and loan amortization schedules setting forth an interest rate of forty two percent. The appellate court agreed with the trial court’s determination that the lender had no intent to assess the borrower with a usurious interest amount due to the disclaimer provision and affirmed the ruling adjusting the interest charged within the legal limits.

Attorneys representing lenders and borrowers in Florida, whether in transactional and/or litigated matters, need to be cognizant of the differences and distinctions between criminal and civil usury. A review and analysis of the operative loan documents is not enough to determine if a loan will be deemed usurious pursuant to Florida law. Practitioners need to conduct a thorough analysis of the transaction and the intent of the parties in order to correctly advise their clients regarding usury in Florida.

See original article here – Pages 32-33