Usury Bites—A Refresher on an Easily Overlooked Issue in the Restructuring and Private Equity Arenas

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For millennia usury (defined as any interest on a loan, not just interest above some prescribed rate) was condemned as immoral in almost every culture (and in some it still is). Even such great thinkers as Aristotle disapproved of the charging of interest, describing it as the “most unnatural” means of “getting wealth” because it “makes a gain out of money itself, and not from the natural object of it.”1 In the United States, of course, compensating a lender for making a loan seems a completely natural and expected part of finance; and usury is a term that typically now only refers to the charging of interest in excess of that permitted by applicable law. But usury, however defined and regardless of the rate at which the concept kicks in, remains a subject of state specific opprobrium. Indeed, those states that proscribe usurious rates of interest typically declare the charging of usurious interest as being contrary to a fundamental public policy of the applicable state. And the penalties for violating these proscriptions can be severe, including in certain circumstances the forfeiture of the principal advanced.
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