Sale Leasebacks Or Disguised Usurious Loans; Substance vs. Form

Efforts to undo a sale-leaseback foreclosure scam sometimes involve attempts to judicially recharacterize the transaction as a secured loan (ie. equitable mortgage) and, more specifically, as a usurious loan.

The underlying legal doctrine applied in these efforts is reflected in the legal maxim that "equity regards substance rather than form," where it is said that ""equity will in no case permit the veil of form to hide the true effect or intent of the transaction."(1) Courts have said that it is "[their] duty to look behind the form to the substance of the challenged transaction."(2) This doctrine applies with equal force whether the transaction involves real property or personal property, as the court cases below illustrate.

The following court cases support the proposition that transactions purporting to be sales of property (either realty or personalty) with a contemporaneous leaseback coupled with a repurchase option, or rent-to-own arrangements can be recharacterized as disguised usurious loans, and may be instructive for those looking to use this approach to undo sale-leaseback scams.

Alaska: Metcalf v. Bartrand, 491 P.2d 747 (Alaska 1971):

• In usurious transactions the parties are usually trying to disguise what they have done. It is to be expected that they will try to mold their deal so that it appears to be a legitimate sale and repurchase.
  
  The presumption that a deed absolute is complete on its face, and that clear and convincing evidence is needed to overcome that presumption, is simply not applicable when it appears that there is usury involved.[citing Kawauchi v. Tabata, 49 Haw. 160, 413 P.2d 221 (1966); C.I.T. Corp. v. Edwards, 418 P.2d 685 (Okl. 1966); Baske v. Russell, 67 Wash.2d 268, 407 P.2d 434 (1965); Britz v. Kinsvater, 87 Ariz. 385, 351 P.2d 986 (1960); Wilcox v. Moore, 354 Mich. 499, 93 N.W.2d 288 (1958); Orlando v. Berns, 154 Cal. App.2d 753, 316 P.2d 705 (1957); Saunders v. Resnick, 142 Pa.Super. 457, 16 A.2d 676 (1940).]
  
  As stated in Wilcox v. Moore,
  
  [A] court must look squarely at the real nature of the transaction, thus avoiding, so far as lies within its power, the betrayal of justice by the cloak of words, the contrivances of form, or the paper tigers of the crafty. We are interested not in form or color but in nature and substance.[2]
  
  The appellant argues that the trial court based its finding that the deeds operated as security instruments solely upon Bartrand's testimony as to her intent. He contends that the law requires mutual intent in order to have an absolute deed operate as a security instrument.
  
  The very case upon which he relies for this contention, Rizo v. Macbeth, 398 P.2d 209 (Alaska 1965), stresses that there are many factors which must be considered.[3] Those factors are: (a) when compared to purchase and improvement costs, the consideration was clearly inadequate; (b) Bartrand retained possession; (c) the conduct of the parties before and after the execution of the instrument is consistent with the view of the deed as a security instrument — especially with regard to the irregularities discussed above and with regard to Metcalf's failure to foreclose; (d) Bartrand's financial condition was desperate; (e) while Metcalf paid the taxes, there was testimony to the effect that Bartrand expected to repay him; (f) while revenue stamps were affixed to the deed to the Big Lake property, a falsified amount was affixed.
  
  In Rizo the decision was against a finding of usury because in that case we found all of the evidence "highly conflicting."[4] Here the testimony of the parties was highly conflicting, but the other evidence substantiates the finding of the trial court. Under the standard of review defined in Alaska Foods, Inc. v. American Manufacturer's Mut. Ins. Co., 482 P.2d 842 (Alaska 1971), the trial court's finding on intent should not be disturbed.
  
  As for the intent to evade the usury law, the authorities are in near unanimous agreement with Bartrand and the court in Britz v. Kinsvater, 87 Ariz. 385, 351 P.2d 986 (1960), that unless the applicable statute requires knowledge or willfulness (which AS 45.45.040 does not) then
  
  
  [t]he intent required to constitute usury is not necessarily a consciousness of the illegality of the transaction. It is sufficient that the loan contract unequivocally calls for an excessive rate of return on the indebtedness. In such case, the intent to exact usury is presumed.[5]
  
  Looking not to the form but to the substance of the transactions, there can be little doubt but that they come within the broad terms of the Alaska usury law. We hold that the trial judge properly considered evidence beyond the deed absolute, and that there was sufficient evidence to support his finding that the transactions were usurious.

Alaska: Moran v. Kenai Towing and Salvage, Inc., 523 P.2d 1237 (Alaska 1974):

• We must first observe that the "lease with purchase option" in this case is really a device to secure repayment of a debt. It is no different functionally than a mortgage or contract for the sale of land. Hervey v. Rhode Island Locomotive Works, 93 U.S. 664, 23 L.Ed. 1003 (1877); McKeeman v. Commercial Credit Equipment Corp., 320 F. Supp. 938 (D.Neb. 1970); American Can Co. v. White, 130 Ark. 381, 197 S.W. 695 (Ark. 1917).
  
  
  ***
  
  In Metcalf v. Bartrand, 491 P.2d 747, 750 (Alaska 1971), we adopted the rule of Wilcox v. Moore, 354 Mich. 499, 93 N.W.2d 288 (1958). The court in Wilcox stated that in determining whether a transatcion is usurious, a court must look to the real nature of the transaction, in order to avoid "the betrayal of justice by the cloak of words, the contrivances of form, or the paper tigers of the crafty." Id. at n. 1, 291. Intent to violate the usury law will be presumed when the loan agreement unequivocally calls for an impermissible rate of return on the indebtedness. Metcalf v. Bartrand, supra, 491 P.2d at 750-751.
  
  That the transaction here was cast in terms of a "lease with option to purchase" does not save it from the application of the usury statute. Lease-purchase contracts or contracts for the sale of land are often used as devices to disguise usurious loans. When this is the case, courts unhesitatingly pierce through the transaction to determine whether, in substance, a usurious loan was negotiated. Metcalf v. Bartrand, supra at 750-751; McKeeman v. Commercial Credit Equipment Corp., 320 F. Supp. 938 (D.Neb. 1970); Burr v. Capital Reserve Corp., 71 Cal.2d 983, 80 Cal. Rptr. 345, 458 P.2d 185 (1969).
  
  We hold, therefore, that the superior court's finding was clearly erroneous. Under the applicable statutory provision, usury results in a forfeiture of the entire interest on the debt.[8]

Arizona: Britz v. Kinsvater, 87 Ariz. 385, 351 P.2d 986 (1960):

• A judicial definition was declared in Blaisdell v. Steinfeld, 15 Ariz. 155, 137 P. 555, and reaffirmed in Seargeant v. Smith, 63 Ariz. 466, 163 P.2d 680. Therein it was held:
  
  "In deciding whether any given transaction is usurious or not, the courts will disregard the form which it may take and look only to the substance of the transaction in order to determine whether all the requisites of usury are present. These requisites are: (1) An unlawful intent; (2) the subject-matter must be money or money's equivalent; (3) a loan or forbearance; (4) the sum loaned must be absolutely, not contingently, repayable; and (5) there must be an exaction for the use of the loan of something in excess of what is allowed by law. If all these requisites are found to be present, the transaction will be condemned as usurious, whatever form it may assume, and despite any disguise it may wear. But, if any one of these requisites, is lacking, the transaction is not usurious, although it may bear the outward marks of usury." Seargeant v. Smith, 63 Ariz. 466, 468, 163 P.2d 680, 681.
  
  The position taken by defendant appears to rest upon three specific points:
  
  1. That this was a sale rather than a loan;
  
  2. That the sum paid to plaintiff was not subject to the usury law, since it was contingently, not absolutely, repayable;
  
  3. That there was no intent on the part of defendant to contravene the statute by exacting usurious interest.
  
  Each of these points contradicts the following conclusion of law entered by the trial court, viz.:
  
  "The transaction amounted to a loan of money, absolutely repayable, with an unlawful intent for the exaction for its use of something in excess of the amount allowed by law." The sole question before us, then, is whether this conclusion is legally supportable upon the facts shown by the record. We shall consider defendant's three points seriatim.
  
  1. Sale or loan. The trial court was clearly correct in its determination of this basic issue. It is unquestionably the law that a "sale" absolute on its face may be treated as a mortgage if the intention of the parties so indicates. De Wulf v. Bissell, 83 Ariz. 68, 316 P.2d 492; Rogers v. Greer, 70 Ariz. 264, 219 P.2d 760; Farrell v. West, 57 Ariz. 332, 113 P.2d 866; Coffin v. Green, 21 Ariz. 54, 185 P. 361; Stephen v. Patterson, 21 Ariz. 308, 188 P. 131.
  
  An examination of all the facts surrounding this escrow sale agreement manifestly reveals that the parties envisaged a security transaction rather than a sale. Evidence adduced at the trial shows that the defendant had no familiarity with the property involved, i.e., the Tempe real estate. The reassignment agreement indicates the extent to which the "seller" reserved her interest in the property. Not only was she given an option to repurchase at an advanced price (the $12,000 "sale" price plus an amount equal to 4% interest on $63,200 for one year), but it was specifically provided that the contract would revert to her after the payments thereunder (with interest on the principal amount) had reduced the principal by $12,000. Furthermore, the "buyer" bound himself as a trustee of the property conveyed; he could assert no dominion — other than the receipt of the proceeds — over his "purchase" without the consent of the "seller". Even defendant, in spite of his repeated protestations that this was a bona fide sale, suffered a lapse at one point and gave the following answer during direct examination by his attorney:
  
  "Q. Was it your entire effort to make a legal transaction with as good security as you could get for the loan of your money? A. Yes."
  
  The device of disguising a usurious loan contract as a resale with option to repurchase is not new. In Wilcox v. Moore, 354 Mich. 499, 93 N.W.2d 288, wherein a similar transaction was before the Michigan court, it was said:
  
  
  "There is no need, at this late date in the law of usury (see Leviticus, XXV, 35-37; Deuteronomy XXIII, 19, 20; Saint Chrysostom's Fifth Homily on the Gospel of St. Matthew;[*] C.L. 1948, § 438.52, Stat.Ann. § 19.12) to discuss its rationale. Suffice to say that its purpose is to protect the necessitous borrower from extortion. In the accomplishment of this purpose a court must look squarely at the real nature of the transaction, thus avoiding, so far as lies within its power, the betrayal of justice by the cloak of words, the contrivances of form, or the paper tigers of the crafty. We are interested not in form or color but in nature and substance." 93 N.W.2d 291.
  
  In addition to our own decision in De Wulf v. Bissell, supra, we find a wealth of authority from other jurisdictions to the effect that, when the intent of the parties has been to create a debtor-creditor relationship, it is immaterial that the form of the transaction is a sale with option to repurchase. Tillar v. Cleveland, 47 Ark. 287, 1 S.W. 516; Cannon v. Seattle Title Trust Co., 142 Wash. 213, 252 P. 699; Fiedler v. Darrin, 50 N.Y. 437; Ferguson v. Sutphen, 8 Ill. 547; and other cases cited in note, 154 A.L.R. 1063.
  
  This is not to say that the mere fact that a transaction in the form of a sale is accompanied by an agreement of repurchase at an advanced price renders the transaction a loan, so as to subject it to the usury law. Many such transactions are perfectly legitimate and precisely what they purport to be. Stark v. Bauer Cooperage Co., 6 Cir., 3 F.2d 214, certiorari denied 267 U.S. 604, 45 S.Ct. 464, 69 L.Ed. 809. But when, as here, the circumstances of the "sale" indicate that it was intended to be no more than a thinly disguised security transaction, the courts will not be deceived by the outward appearances. We agree with the trial court's implied holding that the assignment of the contract was solely as security for the loan to plaintiff by defendant of $12,000, and that any amounts received by defendant under the contract were to be in repayment of the principal and interest on that loan.
  
  2. Absolutely repayable. Defendant contends the "absolutely, not contingently, repayable" requisite of a usurious loan is not met here. It is true that nowhere in the various instruments involved in this transaction is there a promise by plaintiff to make any repayment to defendant. However, defendant, in advancing this argument, has misconceived the nature of the requirement set out in the Blaisdell and Seargeant cases, supra. In applying this rule, the courts have held that a loan is "contingently" repayable only if the lender has — by the terms of the loan — subjected himself to some greater hazard than that the borrower will fail to repay the loan or that the security will depreciate in value. Seargeant v. Smith, supra. Knight v. American Investment & Improvement Co., 73 Wash. 380, 132 P. 219. Bang v. Phelps & Bigelow Windmill Co., 96 Tenn. 361, 34 S.W. 516. Otherwise none of the sale-with-option-to-repurchase transactions could be usurious, and this is clearly not the law. De Wulf v. Bissell, supra. An example of a debt "contingently repayable" is posed by this situation: Borrower says to lender: Lend me $10 to bet on a horse race, and if the horse wins, I promise to pay you $15 tomorrow; if the horse loses, you get nothing.
  
  The theory behind the rule is that where the lender risks the principal with the chance of either getting a greater return than the lawful interest rate or possibly getting nothing (if the contingent event fails to occur), there is no usury, since "Usury laws do not forbid the taking of business chances in the employment of money." Restatement, Contracts, § 527, Comment a; Owens v. Conelly, 77 Ariz. 349, 272 P.2d 345. Thus, as a general rule, it would appear that an ordinary secured loan with interest at a definite rate would always be "absolutely repayable" in the terms of this rule, since the lender would never, in such case, face any greater hazard than that the borrower might default or that the security might depreciate. In this case, the loan was secured by the assignment of the contract of sale, and the rate of return was set absolutely by that contract. It is our view the trial court was correct in holding that this loan was not contingently repayable so as to take it out of the prohibition of the usury statute.
  
  3. Intent. The intent required to constitute usury is not necessarily a consciousness of the illegality of the transaction. It is sufficient that the loan contract unequivocally calls for an excessive rate of return on the indebtedness. In such case, the intent to exact usury is presumed. Fagerberg v. Denny, 57 Ariz. 179, 112 P.2d 578; Seargeant v. Smith, supra; Houchard v. Berman, 79 Ariz. 381, 290 P.2d 735, 57 A.L.R.2d 627; Blaisdell v. Steinfeld, supra. As was said in the Blaisdell case:
  
  "The `unlawful intent' referred to is presumed `from the mere fact of intentionally doing what is forbidden by statute. It is not necessary that the parties shall know that in so doing they are violating the law.' 39 Cyc. 920." 137 P. 555, 568. In the instant case, once the escrow arrangement had been set up, it was inescapable that defendant would receive, in return for the use of his money, an amount in excess of the highest permissible rate. Under the agreement entered into by the parties, the least that would be paid to defendant would be 4% interest on $51,200 over a six-month period ($1,024, or 17% on the $12,000 loan for six months). As it turned out, plaintiff found it necessary to satisfy her obligation some seven months after the loan had been made, in order to effect a reassignment of the sale contract. At that time the cost to her to regain the rights to the security was $13,686.07, of which $1,570.87 was interest. Thus she actually paid interest at the rate of 22.4% per annum for the use of the $12,000 for seven months. Even if we spread this interest payment over the full year, since plaintiff's "option" was not to be exercised for that period, the effective rate is 13.1% and the result is still usury.
  
  We hold the trial court was correct in finding that this transaction was usurious on its face, and therefore the requisite intent is presumed.
  
  The arrangement herein described is palpably usurious, and the trial court properly applied the remedy provided by statute, i.e., a forfeiture of all interest.

Arizona: SAL Leasing v. State ex rel. Napolitano, 198 Ariz. 434, 10 P.3d 1221 (Az. App. 2000):

• ¶ 16 The crux of the dispute is whether appellees' sale and lease-back transactions were actually disguised consumer loans and not sales. The trial court concluded, as a matter of law, that SAL's transactions were not loans within the meaning of the Consumer Lenders Act. We disagree.
  
  ¶ 17 The mere fact that a transaction is characterized as a lease with an option to repurchase does not save it from the operation of the usury statute. "Lease-purchase contracts ... are often used as devices to disguise usurious loans." Moran v. Kenai Towing & Salvage, Inc., 523 P.2d 1237, 1243 (Alaska 1974).
  
  In Merryweather v. Pendleton, the Arizona Supreme Court set forth six factors that should be analyzed to determine if a transaction structured as a sale with an option to repurchase is actually a security device for a loan:
  
  (1) the prior negotiations of the parties;
  (2) the distress of the "grantor";
  (3) the fact that the amount advanced was about the amount that the grantor needed to pay an existing indebtedness;
  (4) the amount of the consideration paid in comparison to the actual value of the property in question;
  (5) a contemporaneous agreement to repurchase; and
  (6) the subsequent acts of the parties, as a means of discerning the interpretation they themselves gave to the transaction.
  
  91 Ariz. 334, 342, 372 P.2d 335, 340-41 (1962) (footnotes omitted). "No one of these factors is conclusive, but a combination of several will go a long way in showing that an absolute conveyance was actually a security arrangement." Id. at 342, 372 P.2d at 341. In case of doubt, courts tend to hold an agreement to be a mortgage in order to protect all parties and prevent forfeiture of the pledged property. See id.
  
  ¶ 18 Merryweather was a suit in equity to have an agreement for the sale and transfer of stock declared to be an equitable mortgage. Applying the six factors, the Merryweather court decided that the transaction was a security agreement and not a sale. See id. at 342-43, 372 P.2d at 341-42. In analyzing the first of the six factors, the court found that the defendant, Pendleton, had previously loaned $160,000 to the plaintiff, Merryweather, and that Merryweather had repaid said sum. As to the second factor, the court found that Pendleton was aware that Merryweather was in financial distress and faced the possibility that his stock would be garnished. Third, the court found that the proceeds of the transaction were used to pay the existing debt. As to the fourth factor, the supreme court determined that the consideration paid was disproportionate for a sale. An "advisory jury" found the stock to be worth $630,000, while the trial court pegged its value at $394,000. The fifth factor was satisfied because the agreement contained an option to repurchase, making the proceeds of the transaction disproportionate to the proceeds of the alleged sale. Finally, the supreme court determined that the parties' acts following the transaction indicated that the arrangement was considered to be the equivalent of a mortgage and loan. Pendleton treated Merryweather as though Merryweather still owned the stock. Merryweather also appeared as though he still considered himself to be the owner and he communicated this position to Pendleton. See id. The supreme court concluded that all six factors were present and that the transaction was not a sale, but rather a loan secured by the stock.
  
  
  ***
  
  ¶ 29 Using the Merryweather analysis, we conclude that appellees' transactions were, in reality, loans in which vehicle title transfers served as security devices, and not bona fide sales. Although appellees argue that the subsequent event and negotiation elements are not established by these facts, there is some evidence of those factors and strong evidence to support the other four factors. The absence of negotiation for a fair sale price and the absence of any intent to realize a property's full value are particularly persuasive. See Merryweather, 91 Ariz. at 342-45, 372 P.2d at 340-43; De Wulf v. Bissell, 83 Ariz. 68, 71, 316 P.2d 492, 494 (1957) (affirming the trial court's holding that the sale and lease-back of real estate with an option to repurchase constituted a usurious loan); Kawauchi v. Tabata, 49 Haw. 160, 413 P.2d 221, 231 (1966) (holding that the absence of negotiations for sale at a fair price and the fact that neither party intended plaintiff to realize the value of the property in the transaction "unmistakably [mark] the transaction as a loan"). Appellees did not dispute the State's evidence. Accordingly, we find as a matter of law that the transactions constituted consumer loans and that the trial court's declaration on this subject was erroneous.
  
  ¶ 30 Appellees attempt to distinguish Merryweather urging that the decision is based on the public policy of preventing forfeiture. We believe that the Merryweather policy applies equally to the transactions at issue here. About 18% of SAL's customers forfeited cars they had owned free of liens before doing business with appellees, and appellees' transactions put their remaining customers at risk of suffering the same fate. Moreover, the public policy underlying the usury provisions is part and parcel of the policy requiring safeguards before allowing mortgage foreclosures. Both are intended to protect vulnerable borrowers from overbearing lenders.
  
  ¶ 31 Appellees argue that they are not subject to sanction because their conduct was not willful. Consequently, they argue that such conduct cannot be considered a device, subterfuge, or pretense under the Consumer Lenders Act. The trial court accepted appellees' argument and concluded as a matter of law that the sale lease-back transaction was not a "device, subterfuge or pretense." We disagree.
  
  ¶ 32 Notwithstanding appellees' attempt to ascertain what law, if any, applied to their situation, the fact remains that the business transactions themselves qualified as a device, subterfuge, or practice. In Seargeant v. Smith, Roscoe Smith brought an action under the usury statute to recover amounts paid for options to purchase vehicles. 63 Ariz. 466, 467-68, 163 P.2d 680, 680-81 (1945). Pursuant to their arrangement, Smith, a used car dealer, would find a used car for L.H. Seargeant, a licensed money lender, to buy. The car was placed on Smith's lot, and Seargeant would give Smith an option on the car. Under the option, Smith was entitled to purchase the car for the exact sum of the advanced purchase price. As consideration for the option, Smith paid 3.5% per month of the amount Seargeant had paid for the car. Whenever Smith sold one of the cars, he would exercise the option by paying Seargeant the amount mentioned in the option. Smith eventually sued Seargeant, alleging that the sums paid by Smith and received by Seargeant as consideration for the options were interest in excess of 8% per annum, and therefore violated the usury statute. See id.
  
  ¶ 33 The Seargeant court found that there was an implied obligation to return the amount advanced in payment for each vehicle. Id. at 470, 163 P.2d at 682. In concluding that the transaction was usurious, the court explained that "`unlawful intent' is presumed from the mere fact of intentionally doing what is forbidden by statute." Id. at 469, 163 P.2d at 681. Likewise, we presume that the State has demonstrated the device, subterfuge, or practice element based upon undisputed facts that appellees engaged in sale and lease-back transactions which actually were loans. The fact that the "lease fees" charged by SAL averaged 218% per annum is further evidence of their unlawful intent and the statute's violation.[1]
  
  
  ***
  
  ¶ 42 The trial court dismissed the State's other claims for violations of the Arizona Consumer Fraud Act and the Organized Crime and Fraud Act. These claims are related to appellees' violation of the Consumer Lenders Act. For example, appellees' representations regarding the nature of their transactions arguably implicated the Arizona Consumer Fraud Act. See Burnett v. Ala Moana Pawn Shop, 3 F.3d 1261, 1262 (9th Cir.1993) (holding that a sale with an option to repurchase constituted deception under Hawaii's Deceptive Trade Practices Act because it disguised loans as sales with repurchase options).
  
  Moreover, the State sought remedies for usury and fraudulent schemes under the Organized Crime and Fraud Act. We reverse the dismissal of these claims and remand them for further proceedings.

Arkansas: Hare v. General Contract Purchase Corp., 220 Ark. 601, 249 SW2d 973 (1952):

• [I]n Tillar v. Cleveland, 47 Ark. 287, 1 S.W. 516, 517, the Court used pertinent language. Cleveland sought to borrow $270 from Tillar in order to buy some property. But Tillar insisted on taking title to the property and then selling it to Cleveland for $360. This Court held that Tillar had used the deed and contract of sale to accomplish usury; and the language of Chief Justice Marshall was quoted with approval:
  
  "Yet it is apparent that if giving this form to the contract will afford a cover which conceals it from judicial investigation, the statute would become a dead letter. Courts, therefore, perceived the necessity for disregarding the form, and examining into the real nature, of the transaction. If that be in fact a loan, no shift or device will protect it.".

California: Boerner v. Colwell Co., 21 Cal.3d 37, 145 Cal. Rptr. 380, 577 P.2d 200 (1978):

• Although the constitutional and statutory provisions dealing with usury speak only in terms of a "loan" or a "forbearance" of money or other things of value,[7] the courts, alert to the resourcefulness of some lenders in fashioning transactions designed to evade the usury law, have looked to the substance rather than the form of such transactions in assessing their effect and validity, and in many cases have struck down as usurious arrangements bearing little facial resemblance to what is normally thought of as a "loan" or a "forbearance" of money. (See, e.g., Burr v. Capital Reserve Corp. (1969) 71 Cal.2d 983 [80 Cal. Rptr. 345, 458 P.2d 185] (sale-leaseback); Rochester Capital Leasing Corp. v. K & L Litho Corp. (1970) 13 Cal. App.3d 697 [91 Cal. Rptr. 827] (sale-leaseback); Golden State Lanes v. Fox (1965) 232 Cal. App.2d 135 [42 Cal. Rptr. 568] (assignment of lease, sublease with agreement to repurchase).)[8] In all such cases the issue is whether or not the bargain of the parties, assessed in light of all the circumstances and with a view to substance rather than form, has as its true object the hire of money at an excessive rate of interest. (Burr, supra, at p. 989.) The existence of the requisite intent is always a question of fact. (Id.)

California: Golden State Lanes v. Fox (1965) 232 Cal.App.2d 135, 142 [42 Cal.Rptr. 568]:

• [7] A contract in the form of a sale with an option to repurchase is treated as a loan where the contract is simply a cloak to cover up a scheme to collect usurious interest. (Rosemead Co. v. Shipley Co., 207 Cal. 414 [278 P. 1038].)
  
  [8] Substance is more important than form, and the name with which excessive payments are labeled or the guise under which they are exacted is immaterial if in truth they are for the forbearance of money. (Thomas v. Hunt Mfg. Corp., 42 Cal.2d 734, 740 [269 P.2d 12].) A case is not judged by what the parties appear to be or represent themselves to be doing, but by the transaction as disclosed by the evidence. (Terry Trading Corp. v. Barsky, 210 Cal. 428 [292 P. 474].)
  
  [9] "The conscious and voluntary taking of more than the legal rate of interest constitutes usury and the only intent necessary on the part of the lender is to take the amount of interest which he receives; if that amount is more than the law allows, the offense is complete." (Thomas v. Hunt Mfg. Corp., 42 Cal.2d 734, 740 [269 P.2d 12]; Martin v. Kuchler, 212 Cal. 536 [299 P. 52]; Maze v. Sycamore Homes, Inc., 230 Cal.App.2d 746 [41 Cal.Rptr. 338].)

District of Columbia: Browner v. District of Columbia, 549 A.2d 1107 (D.C. 1988):

• The controversy in this case arose out of a number of transactions in 1981 and 1982 between the appellants and several homeowners who were in financial difficulty and were facing imminent foreclosure on their homes. The Corporation Counsel charged that these transactions were loans at an interest rate that exceeded 6 per cent. The appellants claimed that, rather than making loans, they were purchasing homes, leasing them back, and providing the former homeowners with an option to repurchase.

***

• The trial judge found that the various homeowners who testified for the government contacted the defendants in response to these advertisements, seeking loans to save their homes, which were threatened with foreclosure. Instead of receiving loans, however, they were presented with and signed papers ostensibly conveying their property to Ms. Walker with a lease back and an option to repurchase within a year.
  
  Although the transactions were denominated sales, the homeowners testified that they never intended to sell their property. Moreover, there was evidence that the appellants described the transactions to their clients as loans, and sometimes assured those clients who raised questions about what they were signing that the characterization of a transaction as a sale in the documents was solely a technicality, effected for the purpose of accommodating an accountant. In any event, most of the homeowners were understandably upset about their financial difficulties and the prospect of losing their homes, and even those with some years of college were less than diligent in reading what they were signing or otherwise protecting their own interests.
  
  While the "sales" saved the homes from immediate foreclosure, they left the homeowners in an extremely precarious position. The homeowners were required to pay a monthly "rent" which was generally at least twice their former mortgage payment. In addition, in order to redeem their property after one year, they had to repay the money RAW had expended to make current the mortgage arrearages and other debts, as well as all costs incurred by RAW in conveying the property to Ms. Walker. If the homeowners were unable to make all of these payments, they lost the homes which they had asked appellants to help them save, equity and all.
  
  
  ***
  
  The principal contested issue, both in the trial court and on appeal, was whether the purported sales were really sham transactions that masked loans. There is overwhelming support in the record for the judge's resolution of that question in the affirmative. Each of the homeowners was drawn to the appellants by advertising which promised the availability of "money to lend" to stop imminent foreclosure. When the homeowners asked for the loans which they believed that the advertisements were describing, and then posed questions about the form of the transactions, the appellants couched their answers to these questions in language which confirmed to the complainants that they were receiving the very loans for which they had come. The appellants often simply calmed the inquiring homeowners' fears by pretending that it was usual practice, perhaps required by the accountant, to sign instruments transferring title to the homes. The trial court credited the homeowners' testimony and gave a comprehensive and persuasive explanation for having done so. An appellate court may not disregard the reasoned resolution of issues of credibility on the part of the trier of fact.
  
  Moreover, if the transactions were in fact sales, as appellants contend, they were surely most extraordinary ones. When a homeowner sells his home, which is usually his most valuable possession, one would expect at least some measure of bargaining over the sales price. Here, there was none. In each instance, what the appellants characterize as the "sales" price bore no relation whatever to the value of the equity.
  
  It is absurd to suggest that Mrs. Carroll would knowingly sell her home, in which she had an equity of more than $36,500.00, for $8,100.00. None of the "sellers" had placed his or her home on the market or expressed the slightest interest in selling it.
  
  Each "seller" remained in possession after the purported sale, and appellants were indeed depicting their service as one that would enable their clients to "save" their homes from foreclosure. Although the transaction also lacked one of the common characteristics of a loan—an evaluation of the borrower's credit—no such investigation was needed because the home itself, which in each case was worth far more than the amount expended by the appellants, served as their security. It was therefore altogether reasonable for the trial judge to find that the depiction of each of these transactions as a sale and lease back was a transparent sham which masked an unlawful loan.
  
  Although the term "loan sharking" may convey an image of armed toughs who leave the broken knee-caps of victimized borrowers in their wake, statutes like our Loan Sharking Act reach the "white collar" violator as well as his gangland counterpart. As Chief Judge Cooke stated in his thoughtful concurring opinion about usuary laws[18] in Hammelburger v. Foursome Inn Corp., supra, 54 N.Y.2d at 591-92, 446 N.Y.S.2d at 926, 431 N.E.2d at 287 (1981):
  
  
  Two aspects of criminal usury are abhorrent to public policy. First, the excessive interest charged is considered repulsive to our values. It is nothing more than a thoroughly unscrupulous exploitation of another's vulnerability. Society will not condone one person's taking unfair advantage of another's weaker position (see, e.g., Barnard v. Gantz, 140 N.Y. 249, 35 N.E. 430 [undue influence]; Restatement, Contracts 2d § 177). Second, the exaction of criminally excessive interest is, in the public's mind, inextricably linked with violent methods of collecting delinquent debts. 
  
  
  * * * * * *
  
  It should be noted that in criminalizing these usurious practices, the Legislature was not only concerned with the stereotypical loan shark accompanied by a strong-arm enforcer. The Legislature specifically recognized that the criminal usurer often "conduct[s] his business wholly within the law" (as it then existed), taking advantage of legal loopholes and relying on reputation rather than actual intimidation to collect loans (N.Y. Legis.Ann., 1965, p. 48). Thus, it can only be concluded that the Legislature intended to penalize those usurious lenders who operate "under high-sounding business names, with offices and other trappings of legitimacy" (id.). 
  
  "White collar" loan sharking is often characterized by the use of labels designed to mask the character of the transaction, but courts do not allow themselves to be hoodwinked by such disguises. See, e.g., Schneider v. Phelps, 41 N.Y.2d 238, 243, 391 N.Y.S.2d 568, 571, 359 N.E.2d 1361, 1364-65 (1977) (under statute which contained an exemption for loans to corporations, court may pierce the corporate veil to avoid evasion by lenders who arranged for borrowers to incorporate). Indeed, in addressing the very kinds of arrangements at issue here, the courts have held that a transaction which is a sale in form is to be treated as a loan when this more accurately reflects the substance of the arrangement. As the court stated in one such case, Long v. Storms, 50 Or.App. 39, 49, 622 P.2d 731, 738 (1981),
  
  
  the undisputed evidence shows that defendants were financially distressed at the time of the transaction, that the purported sale price was substantially less than the fair market value of the property, that defendants remained in possession of the property, that plaintiff did not obtain an appraisal on the property until after the purported conveyance, and that there was no bargaining between the parties as to the consideration recited in the deed.... Finally, the form of the transaction was a deed absolute in form accompanied by an option to repurchase. That plaintiff did not require defendants to fill out a credit application does not persuade us that the transaction was a sale, not a loan. Plaintiff knew that defendants were financially distressed and had been unable to obtain a loan. Further, he had defendants' house as security. The sum of these facts squares clearly with our conclusion that the transaction between the parties constituted a loan with a security interest.
  
  Accord: Moran v. Kenai Towing and Salvage, Inc., 523 P.2d 1237, 1243 (Alaska 1974); Kawauchi v. Tabata, 49 Haw. 160, 413 P.2d 221, 232 (1966); Cannon v. Seattle Title Trust Co., 142 Wash. 213, 216-217, 252 P. 699, 700-701 (1927).
  
  The foregoing authorities involve civil proceedings, which might arguably be thought inapplicable to the construction of a criminal statute.[19] The decisions interpreting criminal enactments which prohibit the kind of conduct at issue in this case, however, likewise eschew form to reach the substance of the transaction. In McWhite v. State, 143 Tenn. 222, 226, 226 S.W. 542, 543 (1921), which involved a criminal prosecution under Tennessee's usury laws, the court, in holding that a purported assignment of future wages masked a secured usurious loan, stated that it is "well settled by our cases that in all transactions of this character the court will disregard the form of the matter, and will look to its real substance." Accord: People v. J.M. Adams & Co., 112 Cal.App.Supp. 769, 295 P. 511, 512 (1931). We therefore hold that the criminal character of these proceedings does not defeat coverage under the Loan Sharking Act.
  
  Appellants contend that the homeowners, some of whom were comparatively well educated, signed documents clearly identifying the arrangements in question as sales and leasebacks, and that under these circumstances the trial judge erred in finding that the transactions were loans. Although it is true that, viewed from the calm and detached perspective of an appellate tribunal, the actions of the complainants might well be described as improvident, that is not a defense to the instant charges.
  
  The class of persons protected by laws proscribing usury and loan sharking consists, essentially by definition, of individuals who, as a result of their financial plight, have improvidently made agreements so unconscionable that their enforcement is unwarranted. As the New York Court of Appeals explained in Schneider v. Phelps, supra, 41 N.Y.2d at 243, 391 N.Y.S.2d at 571, 359 N.E.2d at 1365.
  
  
  The purpose of usury laws, from time immemorial, has been to protect desperately poor people from the consequences of their own desperation. Law-making authorities in almost all civilizations have recognized that the crush of financial burdens causes people to agree to almost any conditions of the lender and to consent to even the most improvident loans. Lenders, with the money, have all the leverage; borrowers, in dire need of money, have none.
  
  Although the present prosecutions were brought under the loan sharking statute, the trial judge found that here, as in usury cases, the appellants used their superior economic power to induce desperate individuals who faced imminent foreclosure to sign disguised loan agreements at a rate of interest far in excess of that permitted by law. The lender's transgression in such a situation is not excused by his victim's ill-advised agreement to the oppressive terms offered.
  
  We have considered all of the appellants' remaining contentions and find them to be lacking in merit.[20] Congress and the City Council have prohibited the kinds of exploitive and unconscionable practices, designed to take financial advantage of human desperation, which are reflected in this record. The trial judge correctly identified these practices for what they were, and appellants' convictions must be and each is hereby
  
  AFFIRMED.

Florida: Bermil Corporation v. Sawyer, 353 So.2d 579 (Fla. 3d DCA 1977):

• Firstly, all three appellants contend that, the "option to repurchase," given in conjunction with the sale, was not an unconditional, enforceable covenant and as such, they, as lenders, could not compel Bermil Corporation, as the borrower, to exercise the option and pay the usurious amount of interest. The option to repurchase being conditional, appellants argue that as a matter of law, the requisite intent to extract a usurious rate of interest at the inception of the transaction was absent and thus, no prima facie case of usury could be established.
  
  Generally, in order to establish a usurious transaction when a sale-option to repurchase is involved, the option must, in fact, be unconditional, compelling the vendor to repurchase the property sold at a sum which, if said sale was determined to be a disguise for a loan, would make the loan usurious. See Mears v. Mayblum, 96 So.2d 223 (Fla. 1957).
  
  As with every generality, however, there is a notable exception, best expressed in a scholarly, well-reasoned opinion from the Supreme Court of Hawaii, cited as Kawauchi v. Tabata, 49 Haw. 160, 413 P.2d 221 (1966). In that case, the court opined that in a transaction whereby a vendee purchases property for an amount much less than that property's value, and contemporaneously executes with the vendor an option to repurchase said property, then notwithstanding the fact that the option is not obligatory on the part of the vendor, a court might, upon a proper allegation of usury, disregard the form of the transaction and look to its substance.
  
  We believe the reasoning in Kawauchi, supra, is sound and can be applied sub judice, for while the option to repurchase was not mandatory, the relative disparity between the sale price of a 40% interest in the shopping center and its true value dictated the exercise of the option. Thus, while the option, in and of itself, was not legally enforceable by the purchaser (appellants), it was economically binding, satisfying to our satisfaction, the "intent to extract usurious interest" requirement as required by the Sharp case, supra. As such, we cannot accept appellants' argument that C.C.C. Investment Corporation and Leeds did not have the intent needed, as a matter of law, to find them guilty of usury.

Florida: Oregrund Ltd. P'ship v. Sheive, 873 So.2d 451 (Fla. 5th DCA 2004):

• There are four essential elements of a usurious transaction: (1) an express or implied loan; (2) a repayment requirement; (3) an agreement to pay interest in excess of the legal rate; and (4) a corrupt intent[5] to take more than the legal rate for the money loaned. Party Yards, Inc. v. Templeton, 751 So.2d 121, 123 (Fla. 5th DCA 2000); Kraft v. Mason, 668 So.2d 679 (Fla. 4th DCA 1996); Bermil Corp. v. Sawyer, 353 So.2d 579 (Fla. 3d DCA 1978). One does not have to specifically charge interest for there to be usury. See American Acceptance Corp. v. Schoenthaler, 391 F.2d 64 (5th Cir.1968) (Florida law).
  
  Courts look to the substance of the transaction to determine whether a transaction is usurious. Party Yards; Kay v. Amendola, 129 So.2d 170 (Fla. 2d DCA 1961). That is, a finding of usury depends on the intent and understanding of the parties. Indian Lake Estates, Inc. v. Special Investments, Inc., 154 So.2d 883 (Fla. 2d DCA 1963). A key issue is the liability of the borrower under the contract's terms, or what may be demanded of a borrower, rather than what is demanded of him. First Mortgage.
  
  A transaction that is either entirely or partially in the form of a sale, may be usurious when the intent is to make a loan of money for a greater profit than allowed by statute. See, e.g., Griffin v. Kelly, 92 So.2d 515 (Fla.1957); American Acceptance. (Florida law). See also Hembree v. Bradley, 528 So.2d 116 (Fla. 1st DCA 1988) (contract may have been a loan disguised as contract for purchase and sale of property). The value of the property as compared with the sum paid is an important factor in determining whether the transaction is a sale or a loan. See, e.g., Kawauchi v. Tabata, 49 Haw. 160, 413 P.2d 221 (1966).
  
  A sale-option transaction may be considered a loan when the loan is unconditional and compels the vendor to repurchase the property for an amount that, if the loan was disguised as a sale, the "return" or profit would be usurious. Bermil Corp. v. Sawyer, 353 So.2d 579 (Fla. 3d DCA 1978) (option to repurchase not mandatory, but relative disparity between sale price and true value dictated option be exercised).
  
  
  ***
  
  Whether There Was a Repayment Obligation. Although there was no specific written obligation for appellants to repurchase the property, we reject appellees' argument that this precludes a finding that no repayment or repurchase requirement existed in this case. Instead, we agree with the third district in its holding in Bermil, where it found that the economic facts surrounding the transaction were such that repayment was required. The form of the transaction can be disregarded even though the repurchase option is technically conditional. Bermil. As in Bermil, a fact-finder could determine that the transactions in this case were economically binding on appellants to repurchase due to the gross disparity between the $600,000.00 proceeds given to appellants and the value of the property interest appellants conveyed to appellees.
  
  Initially, appellants conveyed a property interest to appellees that exceeded $1.7 million in value.[7] Appellants were initially allowed to repurchase the one-half interest for $1.2 million in the first year or $1.8 million in the second. After the Amendment, appellants' property interest exceeded $3 million in exchange for a "$600,000 investment." The value of the property interest appellees received initially was almost three times their "investment" and after the Amendment, five times[8] the amount of their loan. These values could support the conclusion that appellants were obligated to repurchase the property or suffer a tremendous economic loss.
  
  Whether There was an Agreement For a Return Greater Than Legal Rate. Appellees argue that the Amended Option is open indefinitely, and thus a "due" date cannot be determined, which is necessary in order to calculate an interest rate. Any interest rate calculated would vary and could be reduced to non-usurious rates, depending on the number of years the "loan" was outstanding and the price for which the tract sold. They conclude usury cannot be established unless a specific rate of interest has been charged. They are incorrect. As to the latter argument, one does not have to specifically charge interest for there to be usury. American Acceptance.
  
  
  ***
  
  Pursuant to the initial option, appellees would have received double the amount of their investment, $1.2 million, within one year, and triple the amount, $1.8 million, within two years. This equates to an interest rate which is calculable and which exceeds the permissible amount in section 687.071.[9]
  
  Nor did the execution of the Amendment alter the usurious nature of this transaction. It is well settled that when a usurious contract is renewed by a new or substituted contract, usury follows and becomes a part of the second contract.[10] Shorr; Carter; Coral Gables. Moreover, delay in enforcement of a usurious contract does not purge it of its vices. Shorr; Carter; Coral Gables.
  
  In this case, it cannot be concluded as a matter of law that a new contract was freely entered into by the parties. An Amendment to the land trust was executed by appellees, in which they deleted the requirement that the option be exercised in two years in exchange for appellants transferring the remaining one-half interest in the tract to them. If the original transaction was usurious, the taint was not removed with the Amendment.
  
  
  ***
  
  In sum, we find that the allegations in the complaint are sufficient to plead a cause of action in usury, and for the related relief of quiet title[11] and civil theft.[12] We find nothing in the record to justify the dismissal of Count VII, which alternately pleaded for a declaration of the deed to be a mortgage, section 697.01, Blanco v. Novoa, 854 So.2d 672 (Fla. 3d DCA 2003), Smith v. Potter, 406 So.2d 1231 (Fla. 5th DCA 1981); or for cancellation of the deed, Leonard v. Howarth, 153 So.2d 743 (Fla. 2d DCA 1963). Accordingly, we reverse the trial court's orders and remand for further action consistent with this opinion.

Georgia: Clay v. Oxendine, 285 Ga.App. 50, 645 SE2d 553 (Ga. App. 2007):

• Notwithstanding appellants' suggestion, however, the terms of their written lease with customers are not talismanic in this context.
  
  
  [W]hether a given transaction is a purchase . . . or a loan of money . . . depends, not upon the form of words used in contracting, but upon the real intent and understanding of the parties. No disguise of language can avail for covering up usury, or glossing over an usurious contract. The theory that a contract will be usurious or not, according to the kind of paper bag it is put up in, or according to the more or less ingenious phrases made use of in negotiating it, is altogether erroneous. The law intends that a search for usury shall penetrate to the substance. 
  
  Pope v. Marshall, 78 Ga. 635, 640(2), 4 S.E. 116 (1887). See also BankWest, 266 Ga.App. at 776(1), 598 S.E.2d 343.[6] As such, we do not consider appellants' claims in a vacuum, but rather must look at the totality of the circumstances in analyzing whether appellants' "sale/leaseback" arrangement was a sham transaction to disguise an illegal payday loan scheme.
  
  Regardless of the written provisions of the sale/leaseback contracts, the state presented evidence establishing that appellants' sale/leaseback arrangements contained the same salient features of a payday loan transaction that violates OCGA § 16-17-1 et seq. and GILA. An audit supervisor from the Commissioner's Office explained the practice and economic structure of payday lending, and three of appellants' customers provided affidavits describing the transactions that they engaged in with the appellants' businesses.
  
  Consistent with the practice of payday lending, the customers were required to apply for an advancement of funds by providing the name of their employers and length of employment, their salary and paydates, checking account information, a recent pay stub, and bank statements. The customers also provided a check or electronic debit authorization in the amount of the principal amount advanced to them plus interest.
  
  Following the advancement of funds, the customers' first payment was due within two weeks. The customers could be released from the agreement by paying the principal amount advanced to them plus a 25% to 27% fee, amounting to an APR of 650% to 702%. If the customers were unable to do so, then they were required to renew the transaction term for another two-week period by paying another 25% to 27% fee. None of these payments was applied to the principal amount owed. If the customers failed to make a required payment, their checks were cashed or an electronic debit from their bank account was made immediately thereafter.
  
  At the same time, the state presented evidence that the component of the transaction involving the sale and lease of personal property was nothing more than a sham. In this respect, the state pointed to appellants' records which reflect that the same cell phone and power pack were "sold" and listed on the "sale/leaseback" documents submitted by numerous different customers during the same time period, and these same items were assigned different values to correspond with the "sale" or loan amount. Other "sale/leaseback" documents of record also show that the value assigned to the personal property leased back to the customer was not based on an actual appraised market value, but rather was made to directly correspond to the loan amount approved for the customer. For example, in one of its transactions, appellants assigned an astronomical value of $450 to a can opener and coffee maker to correspond with the amount the customer was loaned. Finally, several of appellants' customers explained that the bill of sale stated something other than the transaction that they actually agreed to, and that they only signed the "sale/leaseback" documents because they needed the money.
  
  Based on this combined evidence, the state met its burden of proving that appellants were engaged in illegal payday lending.

Hawaii: Kawauchi v. Tabata, 413 P.2d 221 (Hawaii 1966):

• Since the right of redemption may not be waived, the form of the instruments cannot control the case if in reality the transaction was a mortgage. See Annots., 79 A.L.R. 937; 129 A.L.R. 1435, 1473; 154 A.L.R. 1063. As was said in Hess v. Paulo, 38 Haw. 279, 286: "* * * [N]either artifice nor form nor superficial declaration of intention will successfully obscure the true nature of the transaction." It is here that the court erred. In finding it to be the intention of all parties[7] that the transaction should constitute a sale subject only to an option to repurchase, the court put undue emphasis on the form of the transaction. We do not doubt that the parties intended the form of words that was used, and intended thereby to cut plaintiff off from all rights unless he exercised his option within the three-year period. But will the court permit this purpose to be accomplished? We must enforce not only the policy against renunciation beforehand of the right of redemption but also the statute against usury.[8]
  
  As well explained in Fiedler v. Darrin, 50 N.Y. 437, 443:
  
  "* * * [O]ne who deliberately and intentionally secures to himself $1,650 at the end of four months, in return for a present advance of $1,500, cannot avoid the consequences of the act by testifying that he did not intend to take usury; that is, that he intended to give the transaction a different name from that which the law gives it, and call that a purchase and sale which the law calls a loan of money, secured by mortgage. * * *"
  
  And as stated in Cannon v. Seattle Title Trust Co., 142 Wash. 213, 252 Pac. 699, 700:
  
  "* * * Where there has been a sale absolute in form and an option to repurchase given, and the claim of usury is made, the form of the transaction will be disregarded and its substance will control. * * *"
  
  Accord: Wilcox v. Moore, 354 Mich. 499, 93 N.W.2d 288; Britz v. Kinsvater, 87 Ariz. 385, 351 P.2d 986, 990; Milana v. Credit Discount Co., 27 Cal.2d 335, 163 P.2d 869, 871-72; Ferguson v. Sutphen, 8 Ill. 547, 567; Heytle v. Logan, 1 A.K. Marsh. (8 Ky.) 529; Monroe v. Foster, 49 Ga. 514, 519; Ringer v. Virgin Timber Co., 213 Fed. 1001, 1008 (E.D. Ark.). But see Stark v. Bauer Cooperage Co., 3 F.2d 214, 217 (6th Cir.).
  
  A separate instrument (here the lease with option to repurchase) is a defeasance if it grants an absolute right to a reconveyance upon payment, is contemporaneous with the deed, and the two together constitute security for a debt. 1 Jones, Mortgages, §§ 294-96 (8th ed.).
  
  
  ***
  
  In Heytle v. Logan, supra, 1 A.K. Marsh. (8 Ky.) 529, 531, a usury case, the court put the matter very well, saying: "From the case before us, nothing is more plain, if such contracts are free from the operation of the [usury] statute, than the ease with which the law may be evaded. For it is only so to scale the interest with the value of the property received, as to induce the re-purchase of the property, in order to save, by the payment of the interest exacted, the greater injury in the loss of the property."
  
  Particularly when a question of usury is involved it would be most unrealistic to lay down any absolute requirement that the borrower must be personally liable in order for the transaction to be a mortgage. The result would be to provide a ready avenue of escape from the requirements of the usury law. The absence of personal liability is a factor indicative of a conditional sale but one which nevertheless may be and in this case is outweighed by other circumstances.
  
  
  ***
  
  We conclude that the true nature of the transaction was a loan, and that the finding to the contrary was "clearly erroneous" and reversible under H.R.C.P., Rule 52(a), for the reasons we have stated.[15] Were we to hold otherwise our usury statute would be emasculated.

Minnesota: Miller v. Colortyme, Inc., 518 NW2d 544 (Minn. 1994):

• We are asked to decide whether "rent-to-own" transactions (also known as "rental-purchase" transactions) are consumer credit sales under the Consumer Credit Sales Act, Minn.Stat. §§ 325G.15 and 325G.16 (1992), and if they are consumer credit sales, whether they are subject to the interest rate limitations of the general usury statute, Minn. Stat. § 334.01 (1992). The court of appeals held that rent-to-own agreements entered into by respondents are not consumer credit sales and are not usurious. We reverse and remand.
  
  
  ***
  
  The purpose of the usury law is to protect consumers by limiting the amount of interest which can be charged on a credit sale or loan. The first two common law elements of usury serve merely to clarify what transactions are subject to interest rate limitations. By defining rent-to-own transactions in the CCSA as "consumer credit sales" for all purposes, the legislature has established that consumers who enter into rent-to-own transactions are to benefit from the same protections as consumers who purchase goods through ordinary installment sales, even though rent-to-own consumers do not actually incur any debt and do not have any obligation to repay a principal amount. Consequently, the first two common law elements of usury are met by operation of statute.
  
  The legislature's decision to treat rent-to-own transactions as credit sales recognizes that although these transactions purport to be short-term leases, they operate in substance much like ordinary installment sales. Consumers who purchase goods through rent-to-own agreements may not incur debt, but they still implicitly pay interest in return for the ability to pay for goods over time. Moreover, rent-to-own customers may not have an absolute obligation to repay a principal amount, but their situation is analogous to that of ordinary buyers on credit in that they must either forfeit possession of a good or continue paying for it. See supra, note 2.
  
  In addressing the scope of the usury statute, we look through the form to the substance of a transaction. Rathbun, 300 Minn. at 235, 219 N.W.2d at 649.[6] "There is no shift or device on the part of the lender to evade the [usury] law under or behind which the law will not look to ascertain the real nature and object of the transaction." Adjustment Service Bureau, Inc. v. Buelow, 196 Minn. 563, 567, 265 N.W. 659, 661 (1936).
  
  Having determined that the first two elements of the common law usury test are met by operation of statute, we turn to whether the district court was correct in determining that respondents intentionally charged an excessive amount of interest.
  
  Under Minn.Stat. § 334.01, the interest for any legal indebtedness generally shall be no greater than six percent.[7] DEF acknowledges the large disparity between the cost of purchasing goods through its rent-to-own agreements and the value of the goods sold, but alleges that there is a factual issue with respect to whether it charged excessive interest, because the total value of goods and services (e.g., free delivery and maintenance) provided by DEF is disputed. We disagree. While there is some question as to the total value of services provided by DEF, DEF offered virtually no evidence to the district court as to the value of such services. Based on the record, we agree with the district court that no reasonable fact finder could conclude that the difference between the total payments required under the contracts and the value of the goods and services extended amounts to as little as six percent of the total payments. The district court properly concluded that DEF charged an excessive amount of interest as a matter of law.
  
  DEF also argues that it did not have the requisite intent necessary to satisfy a usury claim because it acted in good faith and did not intend to violate the law. To be guilty of violating the usury law, a lender need only intend to charge a rate that is in fact usurious. It matters not whether the lender knows he is violating the usury law. Citizen's Nat'l Bank of Willmar v. Taylor, 368 N.W.2d at 919. DEF does not claim that it intended to collect less money than is stated on the contracts, and therefore, as a matter of law DEF had the requisite intent.
  
  Because no genuine issue of material fact exists as to whether DEF intentionally charged an excessive rate of interest, the district court properly granted summary judgment for appellants on their usury claim.

Nebraska: Lloyd v. Gutgsell, 124 NW 2d 198, 126 NW 2d 224 (Neb. 1963):

• This court has in the past refused to apply the so-called "clean hands" doctrine in usury cases against the borrower as a participant in a usurious transaction, on the theory that the borrower is in vinculis and not in pari delicto to the lender as regards the usury. State ex rel. Beck v. Associates Discount Corp., 162 Neb. 683, 77 N.W.2d 215.
  
  This is not a new doctrine. It is found in the early English and American cases. In 1781, Lord Mansfield, in summing up to the jury in Lowe v. Waller, 2 Doug. 735, told it: "* * * the statute of usury was made to protect men who act with their eyes open; to protect them against themselves."
  
  This case and other English cases embracing the same point were followed in an opinion written by Chief Justice Marshall, in Scott v. Lloyd (1835), 9 Pet. 418, 34 U.S. 418, 9 L.Ed. 178. Chief Justice Marshall analyzed the English usury cases, some of which were in the form of sales rather than the loan of money, and concluded: "Yet, it is apparent, that if giving this form to the contract will afford a cover which conceals it from judicial investigation, the statute would become a dead letter. Courts, therefore, perceived the necessity of disregarding the form, and examining into the real nature of the transaction. If that be, in fact, a loan, no shift or devise will protect it." That is and has been the rule in this jurisdiction. To hold otherwise would make usury statutes a hollow mockery.

Footnotes

(1) Norman Fetter, Handbook of Equity Jurisprudence, (1895) p. 23. See also, Walter v. Balogh, 619 N.E.2d 566 (Ind. 1993):

• In commenting on the maxim that "equity regards substance rather than form," Pomeroy had this to say:
  
  
  "The principle involved in the maxim ... which is one of great practical importance, pervades and affects to a greater or less degree the entire system of equity jurisprudence, ... . In fact, it is only by looking at the intent rather than at the form, that equity is able to treat that as done which in good conscience ought to be done. ... The two principles act together and aid each other, and it is by their universality and truth that much of equity jurisprudence which is peculiar and distinctive, in contrast with the law, has been developed. Equity always attempts to get at the substance of things, and to ascertain, uphold, and enforce rights and duties which spring from the real relations of parties. It will never suffer the mere appearance and external form to conceal the true purposes, objects, and consequences of a transaction." 2 POMEROY, EQUITY JURISPRUDENCE § 378 (5th Ed. 1941).

(2) Pratt v. Ballman-Cummings Furniture Co., 549 SW 2d 270, 261 Ark. 396 (Ark. 1977), quoting Rath v. Rath Packing Company, 257 Iowa 1277, 136 N.W.2d 410 (Ia. 1965).