Legal Memorandum: Elements of a Loan in OH

Issue: Does a litigation funding company make ‘loans,’ as defined in Ohio usury law?

The legal standard of what constitutes a loan in Ohio is consistent with those of almost all states.  See e.g., Berger v. State Dep’t of Revenue, 910 P.2d 581, 588 (Alaska 1995); Ghirardo v. Antonioli, 883 P.2d 960, 965 (Cal. 1994).  Only Arkansas and Oregon adhere to a contrary rule.  See Luebbers v. Money Store, Inc., 40 S.W.3d 745 (Ark. 2001); Hazen v. Cook, 637 P.2d 195 (Or. Ct. App. 1981), rev’d on other grounds, 646 P.2d 232 (Or. 1982) (en banc).

In fact, it is basic hornbook law that “[t]o constitute usury it is essential that the sum loaned be repayable absolutely.”  45 Am. Jur. 2d Interest & Usury § 132 (1999) (citations omitted).  Put differently, if the principal amount advanced is repayable only upon a contingency, the advance is not a loan for purposes of usury law. See, e.g., Fleet Fin., Inc. v. Jones, 430 S.E.2d 352, 357 (Ga. 1993); Val Zimmermann Corp. v. Leffingwell, 318 N.W.2d 781, 790 (Wis. 1982); Teichner v. Klassman, 49 Cal. Rptr. 742 (Dist Ct. App. 1966); Aldrich v. Aldrich, 260 Ill. App. 333 (1931).  Even the United States Supreme Court, in interpreting Indiana’s usury statute, observed the well-settled principle that if a profit is contingent or uncertain there is no usury.  White Water Valley Canal Co. v. Vallette, 62 U.S. 414, 442 (1858). Moreover, it is generally the rule that a loan is not usurious if it is […]