Knowing and interpreting the Money Lending Act is mandatory for all money lenders to do successful business. If you are thinking on the same lines it is important that you do the same.
In this Act special emphasis is given to the word “interest.” According to the Act, interest does not include any amount that is charged by a money lender on account of costs, expenses, fees or charges. However, this term includes any amount irrespective of the name by which it is called that is over and beyond the principal amount paid or payable to the money lender. This excess amount is in consideration of the loan or otherwise.
The act also specifies the term “principal” which literally means and involves amount that is in relation to a lent amount that is actually received by the borrower.
Recovery aspect Features of the Act
The Definition of Money Lending Act is also very specific about the recovery aspect of the money lent. Especially, where the proceedings are taken to any court by aReopeningperson for the recovery of the money lent. This is applicable in all the following conditions:
- It can be before or after this Act commences
- After the enforcement of transactions according to the agreement
- When specific security is made or taken in for the money lent either after or even before the commencement of this Act and
- If there is enough evidence that satisfies the court that the interest charged is excessive in respect of the amount of money actually lent.
The court will also take a few other amounts charged apart from the interest into consideration such as:
- Foreclosure or any other charge which is deemed to be excessive in comparison.
The Act is also very particular about other aspects of liberty lending USA. The Act specifies that no transaction under any circumstances should be unconscionable or harsh. In such situations it allows the court to reopen the transaction and take an account between the two parties. The court will not withstand any statement, settlement of the account, security, any note, or any agreement contending to close the previous dealings and to create an entirely new obligation.
The Act is also very specific about reopening any account that already exists between the two parties. This will relieve the person against whom a lawsuit is filed alleging that payments are received in excess of the amount adjudicated by the court and which is considered to be fairly chargeable and owing in respect of the actual principal, interest and other charges. In such situations, the court considers all other aspects with regards to the risks involved and all other theoretical circumstances that may adjudge the situation to be reasonable
Moreover, if the borrower has paid any such excess amount or has been allowed in by the money lender such consideration will also be made.
In short, as per this specific section of the money lending Act nothing is construed as derogating or beyond the jurisdiction or existing powers of the court.
A few exemptions
There may be specific proceedings in respect of any money lending where exemption can be considered on the money lent after the commencement of this Act. This is once again with respect to the interest of the loan agreement or the security made or taken after the commencement of this Act.
- The Act says that either before or after the commencement of this Act if it is found that the interest charged on the sum of money lent is in excess of the prescribed rate per annum, the court has the right to consider such transaction to be harsh and unconscionable unless it is proved on the contrary.
- This presumption by the court is made as per section 2 of the money lending Act that the amount of interest charged is excess. However, this provision will be made without any prejudice to the powers and jurisdiction of the court under this specific section. All that is required is that the court must be satisfied that the interest amount charged is exceeding the prescribed amount.
In this section, the terms “prescribed rate” means such a rate fixed by the Finance Ministry from time to time for a year. Anything beyond that is considered to be excessive.
Act of bad faith
The money lending Act ensures that the all lenders act in good faith while lending money and follows the best practice. The Act has specified a few practices that are considered to be lending in good faith. Any variance will be considered to be unfair. Some of the practices enlisted that are considered to be bad are:
- Making any false, misleading, or deceptive statement
- Representing or promising any dishonest statement
- Concealing material facts and
- Inducing or attempting to induce borrowers fraudulently.
It also says that any lender making the borrowers agree to the terms on which the money is lent or is to be borrowed in ways that are as good as committing an offense shall be liable according to the Act for conviction.
- In such a situation the convict has to appear before a Resident Magistrate and will be liable to pay a fine not exceeding one hundred thousand dollars or even face imprisonment for a term not exceeding two years or both.
- The moneylender may also be considered guilty if any document is issued or published by him or on behalf of him does not indicate the rates of interest and terms of the loan. The rate of interest charged per annum should be as proposed by the Ministry.
- Any money lender that disregards the provisions of the Act will be deemed to have committed an offense and summarily be liable to a fine or imprisonment or both as mentioned above after appearing before the Resident Magistrate.
To sum up, if any aspect of money lending contravenes the provisions of the Money Lending Act, it will be considered to be illegal unless the lender can prove that the contravention befell without his connivance or consent.