Usury savings clause insufficient to save lenders from HOEPA disclosure violations, but may prevent liability for inadvertent violation of usury laws in connection with commercial loans. Katline Realty Corp. v. Avedon, No. 3D13-22574292, 2014 WL 5654292, (Fla. Dist. Ct. App. Nov. 5, 2014).
A lender’s loan documents included a prepayment penalty and an increase in interest rate upon the borrower’s default, in direct violation of the disclosure requirements under the Homeownership and Equity Protection Act of 1994 (“HOEPA”). The lender argued that the HOEPA violations were cured by savings clauses in the loan documents that attempted to avoid penalties for usury and to excuse any other violations of law. The trial court held that allowing a savings clause to protect lenders from HOEPA liability would undermine Congress’s intent to protect consumers against predatory lending. The lower court reasoned that if savings clauses protected lenders from HOEPA liability, the only penalty for violation would be the loss of a higher interest rate upon default.
On appeal, the Florida District Court of Appeals affirmed, holding that the savings clauses in the lender’s loan documents did not negate the lender’s liability for violations under HOEPA. The appellate court noted that HOEPA is a disclosure law that serves an entirely different purpose than a usury law. While a usury law serves to limit the amount of interest that a lender may charge borrowers, a disclosure law serves to provide up-front information to potential borrowers so that they may be fully informed as to what they are getting and at what cost. The court noted in dicta, however, that savings clauses serve a legitimate function in commercial loan transactions to prevent lender liability due to inadvertent violations of usury laws.
