Usury Laws and Unlicensed Private Lenders

[Steven Lange]

When does a private lender cross the line? When does your need for the money to get the deal through get outweighed by the inconveniences a private money lender sets forth in your terms. My partner and I are at odds over some lending practices. One of us is willing to look the other way if the lender isn't licensed in the state of California as a loan broker. The other thinks it's not a big deal. One of us thinks the lender must abide by usury laws and the other is sure that a private lender--especially unlicensed CA lenders--can do what they will as long as 2 seemingly savvy investors agree to it.  The other thinks it's a big deal. Here is an example of a loan we have: The PML cashed out an annuity worth 127k. There was a 14k penalty charge on his cash out. We agreed to pay that fee as an undetermined loan charge, yet to be specified or written anywhere in ink. So we got roughly 114k.  On top of the 14 k charge for the use of the money, we are paying 7% for 6 mos. use of the money. Is there foul play here? Or is this just caveat emptor?  

[Kyle J.]

The real risk in a loan that violates usury laws is to the lender, not the borrowers. Here's some more reading on the topic if you're interested: CALIFORNIA USURY LAWS: What you should know before lending or borrowing money.