When passing judgement on an agreement, the distinction between a loan bearing a usurious interest and a sale of receivables makes a significant difference. As we mentioned earlier, the legal disparities between states can play a crucial role when handling usurious loans.
This discussion was prompted by a recent case where the choice-of-law provision involving Virginia law was deemed invalid. Since Virginia does not prohibit usury, this violated New York’s public policy concerning usurious loans. Jeffrey M. Haber provided an insightful analysis on this subject here.
This intersection between state choice of law, fact analysis and the nature of the loan should serve as a guide in setting up interstate financial transactions, especially when lending at high rates. This particular case showcases the effect of the choice-of-law provision in a usury scenario by implementing out-of-state law that is against the public policy of another state.
To avoid such legal pitfalls, it is essential for attorneys and legal professionals to carefully review and understand the implications of the choice of law, while thoroughly analyzing the nature of the transaction.