California Constitution Article XV - Usury [Section 1]
California Constitution – Article XV: Usury
Section 1
Full Text of Section 1:
Section 1.
The rate of interest upon the loan or forbearance of any money, goods or things in action shall be 7% per annum after December 10, 1918, but it shall be competent for the parties to any loan or forbearance to contract in writing for a rate of interest not exceeding 10% per annum.No person, association, copartnership or corporation shall, by charging any fee, bonus, commission, discount or other compensation receive from a borrower more than the equivalent of 10% per annum upon any loan or forbearance.
However, none of the above restrictions apply to:
Certain real estate loans, or
Loans made by banks, credit unions, pawnbrokers, finance lenders, or other financial institutions regulated by state or federal law.
The Legislature shall have the power to regulate all rates of interest and the method of charging the same in connection with any loans not subject to the above exceptions.
Summary & Explanation:
🏛️ What This Section Does:
Default Interest Rate:
If there is no written agreement, the default interest rate is 7% per year.
Maximum Contract Rate (General Rule):
If agreed to in writing, parties may charge up to 10% interest per year on a loan or forbearance.
No Hidden Charges:
A lender cannot disguise extra interest as fees or commissions that exceed 10% total interest.
Important Exceptions:
The 10% cap does not apply to:
Real estate-secured loans
Loans made by regulated institutions (e.g., banks, credit unions, finance lenders)
Legislative Power:
The Legislature may further regulate interest rates for loans not covered by these exceptions.
📌 Why It Matters:
This section provides usury laws — legal limits on the amount of interest that can be charged. It is designed to:
Protect consumers from predatory lending
Allow flexibility for real estate and institutional lending
Give the Legislature authority to respond to changing financial environments
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