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Reformation of Usurious Loans.In Begelfer v. Najarian' the Supreme Judicial Court considered for the first time problems presented by Massachusetts' unique criminal usury statute.'While the Court's decision resolves a number of significant interpretive problems concerning the statute, the decision is in some respects unsatisfying.Yet it must be admitted that the source of the problem lies principally in the peculiarity of the Massachusetts provision.Since 1867 Massachusetts has had no generally applicable usury statute, 3 although a variety of statutes do impose maximum interest rates on specific types of loans.'In 1970 the General Court, acting upon the recommendation of the Governor, enacted a criminal usury statute, section 49 of chapter 271.The scant legislative history suggests that the measure was adopted in order to provide a mechanism for the prosecution of loansharks.6 Section 49(a) of chapter 271 provides that contracting for or receiving interest and expenses at a rate in excess of 20% per year is a criminal offense punishable * JAMES STEVEN ROGERS is an Assistant Professor of Law at Boston College Law School.§ 3.1 1 1980 Mass. Adv.Sh. 1721, 409 N.E.2d 167.Four months before the Supreme Judicial Court's decision in Begelfer, the Massachusetts Appeals Court rendered a decision dealing with similar issues.Beach Assoc.Inc. v. Fauser, 1980 Mass. App.Ct.Adv.Sh. 525, 401 N.E.2d 858.The two cases adopt essentially the same approach to the problem of the effect of the criminal usury statute in civil litigation.In Begelfer the Supreme Judicial Court adopted much of the reasoning of the Appeals Court in Beach Assoc.See 1980 Mass. Adv.Sh. at 1730-31, 409 N.E.2d at 174-75. 1 G.L. c. 271, § 49.Many other jurisdictions have adopted criminal usury statutes.For discussion of such statutes, and other approaches to the problems of loansharking, see Goldstock & Coenen, Controlling the Contemporary Loanshark: The Law of Illicit Lending and the Problem of Witness Fear, 65 CORNELL L. REV.131 (1980).The feature of the Massachusetts provision which is the source of many of the interpretive difficulties, section 49(d) of Chapter 271 which provides that the statute does not apply to lenders who register with the Attorney General, appears to be unique.1980 Mass. Adv.Sh. at 1725, 409 N.E.2d at 170.E.g., G.L. c. 140, § 73 (pawnbrokers); G.L. c. 140, § 90A (small home mortgage loans); G.L. c. 140, § 100 (small loan businesses); G.L. c. 255B, § 14 (retail installment sales of motor vehicles); G.L. c. 255D, § 11 (retail installment sales).Acts of 1970, c. 826, codified as G.L. c. 271, § 49. 6 The bill which became G.L. c. 271, § 49 was proposed by Governor Sargent as part of aby fine and imprisonment.7 Section 49(d), however, provides that the statute shall not apply to any person who files a notification with the Attorney General of his intention to enter into a loan which would otherwise violate section 49(a) and maintains records of the transaction.I Section 49(c) provides that upon the petition of the borrower any loan on which the interest and expense charges exceed 20% "may be declared void" by the Supreme Judicial Court or the Superior Court.'Begelfer v. Najarian'" was an action brought by borrowers under section 49(c) seeking to have their loans declared void.Plaintiffs were developers who had raised funds for a real estate project by borrowing from a variety of persons, including the defendant Najarian, a pharmacist."The promissory note signed by the plaintiffs provided for monthly payments of principal and interest, with interest at the rate of 150, later raised to 17%.12The note also provided for default charges on late payments of up to 15% of the overdue installment and made the borrower liable for the lender's attorneys' fees in collection proceedings.' 3 The parties made no filing with the Attorney General.After defaulting on the note, plaintiffs brought suit under section 49(c) seeking a declaration that the loan was void.' 4 On appeal from a grant of summary judgment for defendant, the Supreme Judicial Court held that default charges and attorneys' fees were to be included in the computation of the interest and expense charges on the loan and that the loan therefore violated the criminal usury statute.'"The Court ruled, however, that the language of section 49(c) confers discretion upon the courts to fashion appropriate equitable remedies for violations of the statute, rejecting the contention that any loan found to violate the statute must be declared void in toto.6 Acting on this equitable remedy theory, the Court refused to enforce the default charge provision and directed that reasonable attorneys' fees should be recomputed such that the lenders' total recovery on the loan would not exceed 20%.'"package of bills directed at facilitating prosecution of organized crime.Message of the Governor, 1970 House Doc.No. 5439.G.L. c. 27-1, § 49(a).G.L. c. 271, § 49(d).As initially proposed by the Governor the bill did not include an exemption for persons who register with the Attorney General.1970 House Doc.No. 5439, App.F. The exemption now found in section 49(d) was added by the House Committee on Banks and Banking.1970
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