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usury is the practice of lending money
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to borrowers at exorbitant interest
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rates this predatory Landing tactic is
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against the law as it forces home buyers
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into paying high interest rates on loans
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because usury and its practice affect
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individuals looking to borrow money for
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mortgages it is an essential part of the
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real estate exam hello everybody Zach
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here from Real Estate licenseward.com
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today we're talking about usury let's
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get started so what is usury well usury
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is the act of lending money at
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unreasonably High interest rates this
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illegal practice is an example of
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predatory lending as it makes it
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difficult for home buyers to pay off
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their loans causes high Consumer Debt
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levels allows lenders to make money from
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paying on consumers typically predatory
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lenders charge High interest rates to
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borrowers with less access to
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traditional financing options this
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includes borrowers with maybe low credit
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scores a history of defaulting on debts
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a history of mortgage foreclosure or
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maybe even repossession of Finance
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property because these borrowers have
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credit many banks and lending
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institutions refuse to provide them with
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Home Loans this leaves borrowers with no
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other option than to seek out private
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lenders with high interest rates an
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interest rate is the amount it will cost
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a borrower to take out a loan these
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rates are a percentage of the total loan
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amount interest rates vary from state to
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state and can change depending on
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certain economic factors however most
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home buyers take out fixed rate
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mortgages to ensure their rates stay the
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same over time what is a maximum
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interest rate well a maximum interest
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rate is the highest amount A lender can
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legally charge for a loan private
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lenders who charge above the maximum
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interest rate for their state violate
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usury laws so why do we have usury laws
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well usury laws protect home buyers from
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taking out home loans with exorbitant
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interest rates states each have their
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own usury laws that set a maximum
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interest rate for lenders to follow
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these laws prohibit predatory lending
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practices and ensure that home buyers
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pay interest at reasonable rates state
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treasury laws vary so real estate
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professionals need to be familiar with a
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maximum interest rate for their state
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and don't worry we do have an article on
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our website that outlines every maximum
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interest rate for usury state by state
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so make sure to check that out after
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this video now it's worth noting that
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not every type of loan applies to usury
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laws for example credit cards have
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extremely high interest rates it's
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technically a loan you're loaning money
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when you're using a credit card but they
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are not subject to usury laws so just
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keep that in mind now what is an example
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of usury in real estate well let's talk
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about one so let's imagine Sally is a
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first time home buyer with a low credit
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score because of her credit history she
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does not qualify for home loans for most
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banks and mortgage companies because she
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has limited options Sally decides to
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take out a loan from a private lender
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Instead This lender agrees to loan Sally
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the money but charges an interest rate
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of 20 percent however the state Sally
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lives in has a maximum legal interest
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rate of six percent in this case the
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lender has violated the law and and
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lending money with rates Beyond State
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usury limits payday loans are the most
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notorious for Lending money at
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exorbitant interest rates a Payday
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lender lends money to borrowers on the
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agreement that the loan will be repaid
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when the borrower gets their next
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paycheck according to the New York Times
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Attorney General Eric T Schneiderman
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sued multiple payday companies for
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violating usury law in 2013. these
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payday lenders were running their
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businesses online and charging New
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Yorkers interest rates as high of 355
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percent according to New York usury law
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the maximum legal interest rate for
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documented loans is 16 so clearly they
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were doing something wrong Schneiderman
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alleged that these lenders were taking
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advantage of desperate borrowers in
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violating State usury law in 2014
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Schneiderman and the payday lenders
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reach a settlement the Predator
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companies were ordered to stop charging
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interest rates on loans and give refunds
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to their borrowers so who then a forces
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usually laws what usury is enforced by
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so private lenders who charge users
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interest rates are typically punished by
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those state-specific governments now
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obviously a lawyer or a law professional
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needs to come into play to handle that
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but the enforcement of it is handled by
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the state there's no national uh no
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National limit or no National seizure
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law so penalties for breaking usually
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loss obviously vary from state to state
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but in most cases the lender must return
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all interests to the Creditor and pay
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additional fines violators may also have
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to spend time in jail in severe cases
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now there are some criticism of usury
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laws some critics say that imposing
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maximum interest rates on lenders
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actually harms borrowers they argue that
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an interest rate ceiling restricts
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credit flow to inexperienced borrowers
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seeking first-time mortgage loans
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critics also say that usury laws
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decrease profitability which distorts
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the entire Financial Market of course
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supporters of usury laws would argue
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that these critics are acting out of
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self-interest and looking to prey on
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consumers so what do you need to know
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for the real estate exam well you need
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to be familiar with the term usury usury
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is an illegal practice that scams home
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buyers into paying higher interest rates
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on mortgage loans because usually laws
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vary from state to state it's essential
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as a real estate professional that
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you're aware of your state Civic usury
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laws we have an article as I mentioned
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earlier on our website that outlines
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every single state by state usually
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maximum interest rate law so definitely
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check that out I'll leave a link down
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below for that in the comments and along
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with the description for more videos on
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Fair Housing and fair lending click here
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and click here to subscribe thank you
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guys so much for watching until next
