Chapter 302.001. Conclusion of a contract, settlement or receipt of interest or hourly price difference, usurious interest. In the absence of a written agreement on the calculation of interest, creditors are initially limited to charging 6% per year (0.5% per month), starting 30 days after the due date of the invoice. In the case of a written contract, the legal interest rate can be up to 18% per year. When you make a purchase, especially large purchases like homes and cars, you usually sign a lot of paperwork and are faced with an often confusing array of numbers and rates. However, if you are asked to pay interest that goes well beyond the legal limits, you may have a valid claim. Consider speaking to a Texas banking and financial attorney for reassurance. According to Article 302,002, the maximum statutory interest rate of the State is six per cent per annum. According to article 304.002, the interest rate on monetary judgments is 18% per annum.
If the judgment is based on a contract setting a different interest rate, the interest will be equal to the lower interest rate specified in the transaction. Confusion about conditional obligations Texas law is unclear as to whether a conditional bond can constitute a disguised interest leading to usury. Fed. Service. & Loan Ins. Corp. v. Griffin, 935 F.2d 691, 700 n.5 (5th Cir.
1991). A number of cases conclude that a conditional obligation may not be the basis for usury. See, for example, Beavers v. Taylor, 434 pp.2d 230 (Tex. Civ. App.—Waco 1968, writ ref`d n.r.e.); Fin. Sec. Servs., Inc. v Phase I Electronics of W. Texas, Inc., 998 S.W.2d 674, 681–82 (Tex. App.—Amarillo 1999, pet.
denied). However, a separate set of cases asserts that « a contract is usurious if there is a type or contingency by which the lender could receive more than the maximum interest rate permitted by law. » See, for example, Dixon v. Brooks, 678 pp.2d 728, 729 (Tex. App.—Houston [14th Dist.] 1984, writ ref`d n.r.e); Grotjohn Precise Connexiones Intern., S.A. v. JEM Fin., Inc., 12 S.W.3d 859, 876 (Tex. App.—Texarkana 2000, without pet). The Texas Supreme Court provided some guidance on the issue, noting that it supported Beavers for the proposition that a conditional obligation to pay an amount was a factor in determining whether the amount was disguised interest, and clarified that « uncertainty as to the value of a contractual right asserted by a debtor raises doubts as to whether that value qualifies as interest. » First USA Mgmt., Inc. v. Esmond, 960 S.W.2d 625, 628 (Tex.
1997). (b) The interest rate or maximum amount is 10% per annum, unless otherwise provided by law. An interest rate of more than 10% per annum is usury, unless otherwise provided by law. All usurious interest contracts are contrary to public policy and are subject to the appropriate penalty provided for in Chapter 305. Restrictions on the amount of interest a creditor can charge are often referred to as « usury laws. » The term itself has been used since the Middle Ages and once had a negative association with any type of interest-bearing loan. It has since been redefined as a term for inflated interest rates on loans. Although Texas law explicitly exempts certain types of loans from its interest limits (including business loans and open accounts), it does not apply to interest rates agreed upon by both parties. Texas` usury laws can be a nasty surprise for any business because the penalties are so severe. The creditor may be liable to the debtor for (1) three times the agreed-upon excess interest on the interest calculated or received, or (2) $2,000.00 or 20% of the principal amount, whichever is less. The penalty is deducted from the principal amount owing, which may mean that the creditor is actually liable to the debtor. The situation is getting worse. If more than double the legal interest rate is agreed, calculated or received, the creditor can also lose the principal amount of the debt and be charged with a misdemeanor – with a penalty of up to $1,000.00! Finanzgesetzbuch § 304.002 states: « § 304.002.
Judgment Interest rate: interest rate or price difference over time in the contract According to the judgment, a pecuniary decision of a court of that State on a contract providing for interest or a price difference over time yields interest at the lower of the following rates: (1) the interest rate fixed in the contract, which may be a variable rate; or (2) 18% per annum. The collection of an interest rate higher than the maximum legal interest rate allowed is wear and tear. According to section 305.008, usury is an offence punishable by a fine of up to $1,000. Under section 305.001, a lender who charges usurious interest is required to pay the borrower more than three times the amount charged by subtracting the amount of interest permitted by law from the total amount of interest agreed, calculated or received contractually agreed, or $2,000 or 20% of the principal amount, whichever is lower. Under section 305.005, a lender responsible for usury is also required to pay reasonable attorneys` fees to the debtor. The moral of the story is that if you want to charge more than 6% per year, the customer will have to sign an agreement with the higher interest rate. It is not necessary for the agreement to be in a specific form – it can be a work order, quote, proposal or memo – as long as it sets the interest rate to be used and is signed as agreed by the client. (d) In addition to the interest permitted under clause (b), a loan that provides for an interest rate of 10% per annum or less may provide for late charges on the amount of an overdue payment for a period of at least 10 days for an amount not exceeding five per cent of the amount of the payment or $7.50; whichever is higher. Collection of the unpaid royalty does not subject the loan to Chapter 342 or any other provision of Subtitle B.
There are only a few ways to avoid this result, apart from a written agreement before charging more than 6% per year. One is when the creditor can prove that the interest charged was « de minimis » or a minimum amount, and the other is to prove that the excess interest was calculated as a result of an accident or error – the defence of « bona fide error ». The attrition rate in Texas is ten (10) percent per annum, unless otherwise required by law. Tex. Fin. Code ann. § 302.001. The ten percent usury rate means virtually nothing, as the interest limits in Chapter 303 of Subchapter A of the Texas Financial Code create an exception to the usury rule, which more or less swallows up the rule as a whole. « Subject to the provisions of Subchapter B [primarily with respect to credit cards], a person may contract, charge or receive an interest rate or an amount that does not exceed the applicable interest rate limit set out in this Chapter. » Code ann.
§ 303.001. « The parties to a written agreement may agree on an interest rate. that does not exceed the applicable weekly limit. » Code ann. § 303.002. In principle, most loans can calculate the weekly cap, which will usually be much higher than the usurious rate of ten (10) percent, making the default rate rarely applicable. After reading this far, are you sweating the potential liabilities that are in your claims drawer? Well, the good people in the Texas legislature have created another « out » for you. If, within 60 days of discovering the wear and tear charges, you 1) correct the account, including payment of a refund to the customer, with interest, and 2) notify the customer of the usury charges. Of course, this must be done before the customer announces wear and tear. Most states have laws that limit the interest rates a creditor can charge, between 5 and 15 percent, but consumers typically accept higher interest rates by agreeing to the terms of the loan (and thus waiving legal interest limits).