NY Appellate Division Affirms Post-maturity Usurious Interest Rate: ECO Engineering, Inc. v. Source Renewables, LLC

New York’s criminal usury statute, New York’s Appellate Division (the “Appellate Division”) has ruled, does not apply to interest rates applicable to a loan following its maturity.  

In ECO Engineering, Inc. v. Source Renewables, LLC (“ECO Engineering”), the Appellate Division was presented with the following facts:

• ECO Engineering, Inc. (“EEI”), during 2020 to 2021, extended five commercial loans (the “Loans”) to Source Renewables, LLC (“SIL”);
• The aggregate principal amount of the Loans totaled $3.75 million;
• All of the EEI Loans took the form of notes containing similar provisions; 
• After SIL failed to make payments in respect of the Loans; EEI sought to enforce its rights thereunder; and
• EEI was able to establish that it and SIL entered into the Loans, that EEI was the lender under the Loans and that SSI failed to make payments thereunder. 

In ECO Engineering, the Appellate Division held that SIL was unable to prove an affirmative defense of usury because both the plain text of the Loans’ terms and EEI’s “conduct in billing only the non-usurious default rate post-maturity establishes that the notes are not usurious under the criminal usury statute, Penal Law § 190.40 (see Barbour v Knecht, 296 AD2d 218, 224 [1st Dept 2002]).”

For the Appellate Division, it would not have been usurious for EEI to have applied the default rate (a percentage in excess of 25%) in respect of the Loans to SIL following their maturity because SIL “had the power to avoid paying the higher rate — for example, by timely paying the debt (see Eikenberry v Adirondack Spring Water Co., 65 NY2d 125, 129 [1985]; 72nd Ninth LLC v 753 Ninth Ave Realty LLC, 168 AD3d 597, 598 [1st Dept 2019]).”

Do your loan agreement templates contain any legally problematic terms? Are you concerned about usury as a legal issue?  If so, schedule an introductory consultation with Castle Garden Law today.