Federal law is stringent regarding the practices of “loansharking,” i.e., lending money in a predatory manner at exorbitant interest rates, usually with violent consequences for non-repayment.
Making extortionate extensions of credit, defined under Title 18 U.S. Code 892, is a federal crime that involves the unlawful use of threats or force to gain repayment from an individual or business for a loan they have taken out.
This criminal offense can carry severe penalties and consequences, so it's essential to understand what constitutes extortionate credit and how to defend yourself against charges if accused of this crime.
Extortion is wrongfully obtaining property from another person by using an express or implied threat of force, violence, or harm.
In the context of creating or collecting a loan, this crime is punished in federal courts by 18 U.S.C. 892 making extortionate extensions of credit, along with the related crimes of 18 U.S.C. 1893 financing extortionate extensions of credit and 18 U.S.C. 894 collection by extortionate means.
18 U.S.C. 892(a) says, “Whoever makes any extortionate extension of credit or conspires to do so shall be fined under this title or imprisoned not more than 20 years, or both.”
Subsection (2) says, “The extension of credit was made at a rate of interest over an annual rate of 45 per centum calculated according to the actuarial method of allocating payments made on a debt between principal and interest.”
Due to the severe penalties for federal loan extortion, you need to consult with legal counsel immediately to have the best chance of success. Let's review this federal law in more detail below.
What Constitutes an Extortionate Extension of Credit?
The term “extension of credit” essentially refers to making a loan to be repaid at a later time, typically with interest. This is usually an innocuous practice done all the time by individuals and financial institutions alike.
However, according to 18 U.S.C. 892, an extension of credit is considered to be extortionate if the following are true:
- Repayment of the loan would be unenforceable through the “civil judicial process” in the local jurisdiction. In other words, the extension of credit itself would be considered illegal and a violation of state/local ordinances;
- The interest rate on loans is greater than 45 percent per year, effectively making it nearly impossible for the average person to repay; or
- The borrower knows or has reason to believe the lender has previously collected on their debts using “extortionate means,” such as threats or violence.
Other Things to Know About This Law
18 U.S.C. 892 includes two interesting provisions that make it easier for prosecutors to prove their case in court.
The definitions of extortionate extensions of credit are non-exclusive. If the three factors above are all present, it's considered prima facie evidence of a violation of 18 U.S.C. 892; however, these are not the only factors prosecutors can use to show that loansharking occurred.
Prosecutors may be allowed to introduce additional evidence to show the prior reputation of the creditor.
For example, if there is evidence that a legally unenforceable loan was issued at an interest rate of greater than 45 percent, but there's incomplete evidence to show that the borrow knew the lender engaged in loansharking practices, the court may permit prosecutors to bring additional evidence or witness to show that the lender had such a reputation in the community.
There are several elements of the crime for a federal loan extortion charge. First, the alleged victim must have been led to believe, either directly or indirectly, that nonpayment would result in harm or their good standing.
Federal prosecutors must also prove that the alleged perpetrator deliberately tried to make, finance, or collect extensions of credit using threats or force.
Notably, if it can't be proven they acted knowingly through circumstantial or direct evidence, the burden of proof has not been met, and there is a good chance of avoiding a conviction.
What Are the Related Definitions?
18 U.S. Code 891 Definitions and rules of construction define several terms that are related to 18 U.S.C. 892 making extortionate extensions of credit, such as the following:
- (1) To extend credit means to make or renew any loan or make an agreement whereby the will be deferred;
- (2) The term “creditor” refers to any person making that credit extension or anyone claiming to make it;
- (3) The term “debtor” refers to any person to whom that extension of credit is made or to anyone who guarantees repayment;
- (4) The repayment of any extension of credit includes the repayment, satisfaction, or discharge in whole or in part;
- (5) To collect an extension of credit means to induce in any way any person to make the repayment;
- (6) An extortionate extension of credit is any extension where it's understood that any delay could result in the use of violence or harm;
- (7) An extortionate means is any means involving an express or implicit threat of the use of violence or other criminal means to cause harm.
What Are Some Examples?
EXAMPLE 1: Bruce needs money to pay off a gambling debt. On the recommendation of a friend, he approaches Edwin, known in the community for “helping out” people in need of quick cash.
Bruce knows Edwin charges high-interest rates and sometimes sends muscle men out to collect, but he's desperate and takes the loan. As a result, Edwin (not Bruce) could be charged under 18 U.S.C. 892 for extortionate lending practices.
EXAMPLE 2: Bob is an entrepreneur who needs help obtaining a bank loan to expand his business. He learns about Ruth, who lends money at very high-interest rates but does not require collateral.
Bob takes the loan but later discovers from others who have done business with her that Ruth collects her debts with threats of violence. Although Bob was unaware of Ruth's practices before taking the loan,
Ruth can still be convicted of making extortionate extensions of credit—especially if prosecutors can get witnesses to show that Ruth had a reputation for loansharking.
What Are the Penalties for 18 U.S.C. 892?
Making an extortionate extension of credit is a federal felony under U.S.C. 892 and has potentially severe consequences. If convicted of this crime, you could face fines of up to $250,000 and up to 20 years in prison.
What Are the Defenses for 18 U.S.C. 892?
Because the definitions of an extortionate extension of credit are so broad and non-exclusive, prosecutors have numerous avenues by which they can procure a conviction.
However, a good federal criminal defense attorney may employ specific defense strategies that could work in your favor. Common defenses against this charge are discussed below.
Perhaps we can argue that you have no history of employing extortionate collection practices. In other words, regardless of whether you were charging high-interest or unenforceable loans, if your attorney can demonstrate that you have never threatened or used force to collect, you may be able to beat the charge.
Perhaps we can argue that you had no intention of predatory lending. If your attorney can show evidence that you genuinely believed you were lending money at reasonable rates or that you weren't violating any laws, you may be able to get the charge dismissed.
If you are under investigation for a federal loan extortion case, contact our law firm to review the case details and legal options. Perhaps we can negotiate with the federal prosecutor for a favorable outcome.
You can contact us by phone or by using the contact form. Eisner Gorin LLP is located in Los Angeles, California.