Usury Savings Clauses No Longer Save Lenders

by Partridge Snow & Hahn LLP

Commercial lenders in Rhode Island may no longer rely upon a Usury Savings Clause in loan documents. Most commercial loan documents contain such a clause, which usually states that any payments made by a borrower in excess of the maximum lawful interest rate either be deemed to be an additional payment of principal or refunded to the borrower.

In the recently decided case NV One, LLC, et al. v. Potomac Realty Capital, LLC, the lender provided a $1,800,000 loan to the borrower. The loan documents establish a default interest rate equal to “the lesser of (a) twenty-four percent (24%) and (b) the maximum rate of interest… under applicable law.” The loan documents also include a Usury Savings Clause which states that any interest payments received in excess of the maximum allowable interest rate “shall be deemed to have been a payment made by mistake and shall be refunded to the Maker.”

In February of 2009, the borrower received a notice of default for failure to comply with the renovation time schedule set forth in the loan documents. One month later, the lender began accruing interest at the 24% default rate set forth in the loan documents. On December 14, 2009, following receipt of demand and foreclosure notices from the lender, the borrower filed a complaint against lender alleging fraud, breach of contract and usury.  The Rhode Island Superior Court trial justice found that the lender violated the usury statute.

The Rhode Island Supreme Court concluded that the loan was usurious on its face due to the 43.48% effective annual interest rate levied on the actual funds disbursed; however, the Court also discussed in its opinion whether the Usury Savings Clause could nevertheless be used to fix the agreement to eliminate the lender’s otherwise clear violation of the usury statute. The Court stated that the Usury Savings Clause cannot salvage the agreement because the interest rate provisions in the loan documents were contrary to the public policy goal of protecting borrowers from “avaricious lenders.” Instead, lenders must bear the burden of ensuring that interest rates charged to borrowers do not exceed the limits set forth in Rhode Island General Laws §6-26-2. 

Although the Rhode Island Supreme Court’s statements relating to the Usury Savings Clause were not necessary to the Court’s decision, and thus are legally deemed “dicta” which is not binding law at this time, we believe that the Court’s statements provide guidance as to how the law will evolve in Rhode Island. Lenders must provide loans to borrowers at interest rates that do not exceed usury limits as the Usury Savings Clause can no longer be relied upon to fix an otherwise illegal loan. Violating the usury laws in Rhode Island carries stiff penalties as a court may invalidate the lender’s promissory note and terminate the applicable mortgage if the interest rate is deemed usurious. However, the good news for lenders is that there are specific strategies and structures that avoid usurious interest rates and protect a lender in the event of a borrower’s default. These strategies and structures should be incorporated into your loan documents.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Partridge Snow & Hahn LLP | Attorney Advertising

Written by:

Partridge Snow & Hahn LLP

Partridge Snow & Hahn LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.