63 N.Y.2d 254 (1984)
A bank lender is not civilly liable for usury, absent usurious intent, solely for failing to properly itemize an otherwise authorized bank charge.
Summary
The Freitas case addresses whether a bank is liable for usury simply because it failed to properly itemize a bank charge, even if the charge itself was authorized and there was no intent to charge a usurious interest rate. The plaintiffs claimed the bank charged an unauthorized fee rendering the loan usurious. The Court of Appeals held that absent usurious intent, a mere failure to properly itemize a permissible fee does not constitute usury. The court emphasized that usury requires a knowing intent to charge an unlawful rate, and the burden of proving this intent lies with the borrower. The case highlights the importance of establishing usurious intent in usury claims and protects lenders from strict liability for minor technical errors.
Facts
Daniel and Beverly Freitas applied for a mortgage from Geddes Savings and Loan to finance the purchase of a modular home. The bank approved a $29,000 loan at 8.5% interest, the maximum legal rate at the time. Along with the commitment letter, the bank requested a “one percent Commitment Fee of two hundred ninety dollars.” The Freitas paid the fee and closed the loan. Subsequently, they claimed the unitemized $290 fee rendered the loan usurious, seeking cancellation of interest and recovery of twice the interest paid.
Procedural History
The trial court denied summary judgment, finding a factual issue regarding the fee’s purpose. After a non-jury trial, the court found no usurious intent but ruled the bank could not collect the fee due to improper itemization, awarding the plaintiffs $290. The Appellate Division affirmed. The Court of Appeals granted leave to appeal.
Issue(s)
Whether a bank lender is civilly liable for usury, absent usurious intent, solely because of a failure to properly itemize an otherwise authorized bank charge.
Holding
No, because usury requires a knowing intent to charge an unlawful rate of interest; a mere failure to properly itemize a permissible fee, without usurious intent, does not constitute usury.
Court’s Reasoning
The Court of Appeals emphasized that usury statutes are strictly construed, and the borrower bears a substantial burden to prove all elements of usury, including usurious intent, with clear and convincing evidence. The court stated that penalties for usury should not apply to violations not clearly within the statute’s intent. The court referenced Di Nome v Personal Fin. Co., stating that technical violations of disclosure requirements, absent usurious intent, do not warrant the harsh penalty of forfeiture. Usurious intent is a question of fact. Citing Hammelburger v Foursome Inn Corp., the court held that where usury isn’t apparent on the note’s face, it’s a factual question whether the charge was a ruse to collect excess interest. A bona fide mistake of fact vitiates usurious intent. The court found that because the trial court determined the fee was for an authorized item and not a subterfuge, and the Appellate Division affirmed, there was an affirmed finding that the bank lacked the intent to charge interest above the legal rate. The court stated, “To accept this interpretation of the bank regulations and the statute would impose a strict liability upon the bank, a much more stringent test for usury than would be authorized by the statute under which the regulations were promulgated.” The court also noted that “Section 380-e of the Banking Law prohibits the knowingly taking of interest in excess of that allowed by law.”