The Basics of Michigan Usury Law
What in the world is Michigan usury law? Basically, it's the law that prevents lenders from charging unfair interest rates to borrowers. This law is a very important regulation on loan agreements entered into in the State of Michigan. However, Michigan's usury law is not always easy to locate or understand. Actually, to be more accurate, it's a crazy patchwork of statutes that are not always easy to understand.
The general interest-rate statute in Michigan is MCL 438.31, which states that "the interest on money shall be at the rate of $5.00 upon $100 for a year". However, the statute goes on to state that parties can lawfully stipulate in writing for an interest rate not to exceed 7% per annum. But, the statute further states that it shall not apply to interest rates "regulated by any other law of this state," or render illegal an interest rate contained in a promissory note or other debt instrument issued by any borrower who is not domiciled in Michigan which is legal under the law of the borrower's domicile.
Under MCL 438.32, any seller or lender who enters into any loan agreement or contract that does not comply with the requirements of MCL 438.31 or charges interest greater than that allowed under that statute "is barred from the recovery of any interest, any official fees, delinquency or collection charge, attorney fees or court costs and the borrower shall be entitled to recover his attorney fees and court costs from the seller, lender or assigns."
MCL 438.41 is Michigan's "criminal usury" statute, and provides that "a person is guilty of criminal usury when, not being authorized or permitted by law to do so, he knowingly charges, takes or receives any money or other property as interest on the loan or forbearance of any money or other property, at a rate exceeding 25% at simple interest per annum or the equivalent rate for a longer or shorter period."
While these statutes may seem straightforward, there are many different exceptions that allow for certain debts to be charged interest greater than 7% per year. These exceptions include loans that are secured by a first lien on real estate, business purpose loans, credit card debts, among others. Under the statutory language, it even appears that some loans may even be exempt from the criminal usury statute.
It is important to consult with a knowledgeable Michigan lawyer when faced with issues relating to loans and the legal interest rates that can be charged for those loans. The stakes are high and those who ignore these laws do so at their own peril.
