I. INTRODUCTION
Limitations on interest rates allowed on loans are generally found in state statute. For further information on specific provisions not found in the following outline, please see the Nebraska Legislature website at www.nebraskalegislature.gov.
II. GENERAL USURY RATE
The general usury rule in Nebraska is currently set at 16% per annum (Section 45-101.03(1)). The rate applies to any contractual transaction not otherwise provided for in any other specific interest rate statute. Generally, the general usury rate would include the extension of credit between individuals. Such rate, so long as it does not violate Section 45-101.01 to 45-113 or any federal usury law, may be charged on a variable rate basis (Section 45-101.03(2)). Loans on consumer goods require a notice of any proposed increase by communicating in writing to the person or persons primarily obligated on such loan at least 10 days prior to the proposed increase. Deposit of such notice in the U.S. mail shall be deemed communication for the purpose of this variable rate statute.
Section 45-101.04 allows for a $10.00 minimum charge in lieu of interest. Penalty for violation of the usury statutes in forfeiture of all interest (Section 45-101.04).
III. GENERAL USURY RATE EXCEPTIONS
As often is the case, the exception may be the rule. The following are exceptions to the general usury rate as listed in Section 45-101.04:
A. Loans to any corporation, partnership, limited liability company, or trust;
B. The guarantor or surety of any loan to a corporation, partnership, or trust;
C. Loans made when the aggregate principal amount of the indebtedness is $25,000 or more of the borrower to any one financial institution, licensee, or permittee;
D. Loans insured, guaranteed, sponsored, or participated in, either in whole or in part, by any agency, department or program of the United States or state government;
E. Loans or advances of money, repayable on demand, which are made solely upon securities, as defined in Neb.Rev.Stat. § 8-1101(15), pledged as collateral for such repayment and in which such loans or advances are used by the borrower only for the purchase of securities as so defined: Rate may be anything agreed upon between the parties;
F. Interest charges made on open credit accounts by a person who sells goods or services on credit when the interest charges do not exceed one and one-third percent per month for any charges which remain unpaid for more than 30 days following rendition of the statement of account;
G. A minimum of $10 per loan which may be charged by the lender in lieu of all interest charges;
H. Loans described in Neb.Rev.Stat. § 8-319(4) made by a state or federal savings and loan association at a rate not to exceed 19% per annum;
I. Loans made primarily for business or agricultural purposes or loans secured by real property when such loans are made: (1) by a licensee, registrant, or permittee operating under a license, registration, or permit duly issued by the Department of Banking and Finance except for licensees operating under the Nebraska Installment Loan Act; (2) by any financial institution insured by the FDIC or theNCUA; or (3) by any insurance company organized under the laws of this state and subject to regulation by the Department of Insurance;
J. Loans secured by a reverse mortgage pursuant to Section 45-702.01;
K. Interest charges made on any goods or services sold under an installment contract pursuant to Chapter 45, Article 3. Subject to Section 45-338, it shall be lawful to contract for and receive any rate of interest on such contract as the parties may expressly agree to in writing; or
L. Fees which may be charged by a licensee for services pursuant to the Delayed Deposit Services Licensing Act.
IV. BANK PERSONAL (INSTALLMENT) LOAN RATE
The Nebraska Personal Loan Law is found in Sections 8-815 to 8-829 and the maximum allowable interest rate is 19% per annum, except on loans initiated by bank credit cards (Section 8-820). A bank may charge a minimum fee of up to $7.50 in lieu of interest on small loans (See, NBA Compliance Handbook, Volume III, Lending section, “Minimum Charge in Lieu of Interest” article). Reasonable loan service costs may also be charged by the bank under this law (See, NBA Compliance Handbook, Volume III, Lending section, “Bank Personal Loan Service Costs” article).
These transactions are direct loans made by banks, trust companies or cooperative credit associations that are to be repaid in equal or unequal installments over a period not to exceed 145 months, except on loans for mobile homes, which may exceed 145 months (Section 8-815). National banks qualify for the personal loan rate. The law is regulated by the Nebraska State Department of Banking. All banks must have a Personal Loan License from the Department of banking and must satisfy the requirements of the bank personal loan law. Section 8-821 enumerates additional loan charges permitted under the law and Section 8-822 provides that the actuarial method for refunds must be utilized for all contracts entered into after October 1, 1981. Delinquency charges on any scheduled installment or portion thereof, if contracted for, may be taken, or in lieu thereof, interest after maturity on each such installment not exceeding the highest permissible interest rate (Section 8-822). Note: prior to enactment of LB 137 (1997), contracted for delinquency charges were once limited to no more than 5% on each installment or $5, whichever less.
Penalty for violation is a Class V misdemeanor, forfeiture of all interest and other charges (Section 8-829). No bank or trust company is eligible for a license or to make loans under the Nebraska Installment Loan Act (Sections 45-1001 to 45-1042). Confession of Judgment, power of attorney or contracting for attorney fees are prohibited (Section 8-823).
V. BANK CREDIT CARDS
In the case of loans initiated by bank credit cards or other type of transaction card, the rate may be any amount agreed to by the parties. Any registered bank or special purpose credit card bank may also charge a reasonable fee for service and use of a credit card or other type of transaction card in an amount not to exceed $20 per year, except that for a premium card (as determined by the Department of Banking) which has at least $1,500 credit limit and provides an additional service, any reasonable fee for service and use of such card may be charged. Such charges shall not be construed as interest.
VI. LEGAL RATE
Interest on loans, except where otherwise contracted is 6% per annum (Section 45-102).
VII. INSTALLMENT CONTRACTS
The Nebraska Installment Sales Act is found in Sections 45-334 to 45-353 and provides in part that the maximum installment contract rate is 18% per annum (Section 45-338). A minimum fee of $10 may be charged in lieu of the time price differential (Section 45-338). The act allows for variable rates as well as equal or unequal installment as of July 17, 1986.
These transactions arise out of the sale of merchandise wherein an installment contract is entered into by the buyer and seller for the balance of the purchase price of the goods or services (includes all goods or services). The contract may or may not be sold to a third party. An installment contract may provide and the holder may collect, in addition to any time-price differential, a delinquency charge on each installment in default for a period of not less than fifteen days, if provided for in the contract, not in excess of five percent of each installment or twenty-five dollars, whichever is less, or in lieu thereof, interest after maturity on each such installment not exceeding the highest permissible contract rate. If the time-price differential is computed by application of the rate charged to the unpaid principal balance for the number of days actually elapsed, such delinquency charge may not exceed five percent of each installment or twenty-five dollars, whichever is less. If any installment payment is made by a check, draft, or similar signed order which is not honored because of insufficient fund, not account, or any other reason except an error of a third party to the contract, the holder may charge and collect a fee of not more than fifteen dollars. The delinquency charge and such fee may be collected when due or at any time thereafter (Section 45-341).
Where the seller or “sales finance company” (the term’s definition includes banks) in making or collecting on the contract, directly or indirectly contracts to receive excess interest, all excess interest, the first $1,000 of authorized interest, and the first $4,000 of the principal shall be forfeited. If other than the violation described above, except as the result of accident and bona fide error, the first $500 of interest and the first $1,000 of the principal shall be forfeited. The act is regulated by the Department of Banking.
VIII. REVOLVING CHARGE ACCOUNTS
Revolving charge accounts involve transactions which arise out of periodic sales of merchandise where the outstanding balances may fluctuate on a monthly basis. Non-bank credit card transactions usually involve revolving charge accounts agreements (Sections 45-204 to 45-209).
The maximum rate of interest is 21% per annum on the first $500 and 18% per annum over $500. The penalty for violation is a Class II misdemeanor and forfeiture of all time price differential and cancellation of the outstanding indebtedness.
IX. INSTALLMENT LOANS
Installment loan transactions are direct loans of money, generally considered to be for consumer goods to be repaid in installments within a certain maximum maturity. The loans are made pursuant to a small loan license (Sections 45-1001 to 45-1039 and 45-1043 to 45-1058). The maximum rate of interest allowed is 24% per annum on the first $1,000 and 21% per annum on any remainder over $1,000. The penalty for violation is a Class II misdemeanor and the forfeiture of all interest and other charges. The act is regulated by the Department of Banking.
X. OTHER RATE LIMITATIONS
A. Credit Unions: 18% per annum (Section 21-1788).
B. Savings & Loans: 19% per annum (Section 45-101.04(a)).
C. Industrial Loans: 19% per annum (Sections 8-401.01 to 8-451).
D. Judgment Rate: Varies (See, Section 45-103).
E. Unsettled Accounts: 12% per annum (Section 45-104).
F. Open-end Credit: 16% (1 1/3% per month; Section 45-101.04(7)).
G. Delinquent State Taxes: 14% per annum (Section 45-104.01).
XI. MISCELLANEOUS PROVISIONS
A. Federal Preemptions – Abolition by LB 623 (1982)
Federal preemptions on business and agricultural loans between $1,000 and $25,000 – as well as the preemption on all first lien residential mortgage loans – are abolished in Nebraska. LB 623, passed in the 1982 Legislative Session, states that Nebraska rejects these preemptions in favor of its own usury laws (Section 45-1,104).
B. Most Favored Lender Doctrine
The FDIC’s legal counsel has opined that federal law allows a state-chartered bank to charge maximum rates under the “most favored lender doctrine”. National banks previously had such authority. Prior to relying upon this doctrine, each bank should check with its own bank counsel.
C. Interest Definition
INTEREST means the compensation agreed upon or allowed by law upon any loan or forbearance of money, goods or things in action but does not include loan service costs (Section 45-101.02).
D. Loan Service Costs Definition
LOAN SERVICE COSTS means reasonable and necessary costs and charges incurred in connection with the making, closing, disbursing, servicing, extending, transferring or renewing of a loan, including but not limited to:
1. Prepayment charges
2. Late charges
3. Premiums for hazard, private mortgage, disability, life or title insurance
4. Fees for escrow, appraisal, abstracting, title examination
5. Origination fees
6. Interest on interest after default
7. Costs and charges incurred for determining qualification for the loan proceeds and disbursement of the loan proceeds.
Therefore, a lender may charge the borrower not only the maximum allowable interest rate but also reasonable and necessary loan service costs (Section 45-101.02).