Minnesota’s Usury Law, which is codified in Minnesota Statutes Chapter 334, sets limits on the amount of interest that can be charged on any particular type of debt. Chapter 334 also does not allow collection of interest that exceeds the statutorily allowed rate and renders some of these contracts with a higher rate invalid. Determining the maximum allowed interests depends on the type and amount of the loan ranging from no limit for loans exceeding $100,000 to a low of 8%. Minn. Stat. § 334.01, subd. 1, 2.
Usury is a Defense to Enforcement
In Minnesota, the usury statutes exist for individuals that are being sued for enforcement of usurious contracts to use in defense. In other words, Chapter 334 is meant not necessarily to bring a cause of action but to defend against the enforcement of a contract that violates the statutes. Strickland v. First State Bank of Balaton, 202 N.W. 727, 729 (Minn. 1925) (holding that “[o]ne who voluntarily pays usurious interest may not maintain an action to recover it, while one against whom a usurious contract is sought to be enforced may invoke the statute in his defense”).
As a practical matter, a usury defense is generally only available to a borrower. Id. (holding that “[t]he usury statute is a shield but not a sword”).
Elements of Usury
1. The loan of money or forbearance of debt,
2. Agreement between parties that principle shall be repayable absolutely,
3. Exaction of greater amount of interest or profit than is allowed by law, and
4. Presence of intention to evade law at the inception of the transaction.
Chapter 334 has a general 8% usury cap on interest rates. However, there are many exceptions to this 8% cap. Some of the more notable exceptions are credit organizations, any credit for a loan in an amount of $1,000 or more, contracts for the loan or forbearance of money in amount of less than $1,000 for businesses or agricultural purposes, interests on verdicts, judgments and awards, and retail installment sales of motor vehicles.
Usury Liability
Any bond, bill, note, mortgage, or other contract or agreement is void as to the holder if a court determines it was usurious. Minn. Stat. § 334.05. A lender who operates under a usurious contract can lose interest on the money loaned and can also stand to lose the principle. Minn. Stat. § 334.03 and 334.05. There have been cases, however, that limit recovery to the collection of interest only.
Exceptions for Businesses
The statute says there no interest rate limit applies to an extension of credit to an organization. The term “organization” includes “a corporation, government, government subdivision or agency, trust, estate, partnership, joint venture, cooperative, limited liability company, or association.” Minn. Stat. § 334.022.
However, practitioners may observe there is a conflict of law between Minnesota Statutes sections 334.022 (no limit) and 334.011 (4.5% limit on loans for less than $100,000 for business or agricultural purposes). As of the writing of this article (2018), Minnesota courts have not resolved this conflict.
Exceptions
The Minnesota usury statute provides a general ban on high interest rates, but there are exceptions from this statute:
- Business and agricultural loans (see Minn. Stat. § 334.011)
- Dealers under Securities Exchange Act (see Minn. Stat. § 334.19)
- Loans secured by savings accounts (see Minn. Stat. § 334.012)
- Mortgage loans (see Minn. Stat. § 47.204)
- Plans under ERISA (Employee Retirement Income Security Act of 1974) (see Minn. Stat. § 334.01)
- State banks/savings associations (see Minn. Stat. § 48.195)
- State credit union (see Minn. Stat. § 52.14)
Credit cards and loans from national banks are not subject to Minnesota usury laws. In Marquette National Bank v. First of Omaha Corp., the Court held that federal law trumps state law and permits a national bank “to charge on any loan” interest at the rate allowed by the laws of the State “where the bank is located.” As a result, Minnesota state usury laws do not apply to national banks located in a state where a higher interest rate is permitted.