On July 25, 2024, Justice Ruchelsman of the Kings County Commercial Division issued a decision in Citilink Motors, LLC v. Joel K. Holding Co, LLC, 2024 NY Slip Op. 32560(U), holding that a note with a criminally usurious rate is void, explaining:
The plaintiff next asserts that there is no conclusive consensus whether criminally usurious loans are void and the court should not declare the loans void when to do so would absolve the defendant of paying the loans, an unjust and unconscionable result. General Obligations Law § 5-511 states that usurious contracts contained within General Obligations Law § 5-501 are void. General Obligations Law §5-501 governs civil usury. The voiding statute does not mention criminal usury at all. Therefore, in Sabella v. Scantek Medical Inc., 2009 WL 3233703 [S.D.N.Y. 2009] the court held it was an open question whether criminally usurious 1oans are void.
However, while that may be true in the Federal Courts there is no question that contracts that contain rates that are criminally usurious are void ab initio in New York state courts. Thus, in Fareri v. Rain’s International Ltd., 197 AD2d 481, 589 NYS2d 579 [2d Dept., 1992] where a contract had an effective interest rate above twenty-five percent the court explicitly stated that the agreement is in violation of Penal Law 190.40 and was void ab initio. In Funding Group Inc., v. Water Chef Inc., 19 Misc3d 483, 852 NYS2d 736 [Supreme Court New York County 2008] the court sought to distinguish Fareri by essentially asserting that Fareri merely copied language from an earlier case that dealt with civil usury and inadvertently applied the rule to criminal usury as well. To the extent other courts impute such explanations in attempts to soften the result of Fareri, this court is bound by its plain language. Again, in Blue Wolf Capital Fund II, L.P. v. American Stevedoring Inc., 105 AD3d 178, 961 NYS2d 86 [1st Dept., 2013] the court held that a note with criminally usurious interest was void essentially disagreeing with Blue Wolf and consistent with Federal decisions refused to declare the note void. Finally, in Venables v. Sagona, 85 AD3d 904, 925 NYS2d 578 [2d Dept., 2011] the court explicitly upheld the dismissal of a cause of action seeking recovery of principal and interest payments pursuant to the demand note on the ground that the subject transaction was void and unenforceable where the rate of interest was criminally usurious.
These cases are direct and binding authority that any contract that contains usurious interest rates is void. The court is constrained to follow the above precedent and is unable to temper the harshness of this result. Any efforts to amend the law and validate usurious contracts, at least concerning the principle, must be addressed to the Legislature. Therefore, the notes which contain criminally usurious interest are unenforceable. Consequently the plaintiff’s motion seeking summary judgement is denied and the cross-motion seeking dismissal of the lawsuit is granted.
(Internal quotations and citations omitted).