If you have a loan with Loan Funder LLC and have defaulted, a recent court decision may help you stop your foreclosure and even recover money. Denbeaux Law recently won a major case in the New Jersey District Court against Loan Funder LLC for charging borrowers a default interest rate so extreme that it “shocked the conscience of the court.”
Even though Loan Funder’s 45% default interest rate technically fell within New Jersey’s legal limit for commercial loans, the court found it unfair and ruled in our client’s favor. The case is expected to move to the New Jersey Supreme Court, where it could redefine how these predatory interest rates are treated across the state.
In this article, we’ll break down what default interest is, what Loan Funder was doing, and how this ruling can potentially help you stop commercial foreclosure and get compensated financially for damages caused by predatory lending.
If you have defaulted on a commercial loan and feel that your default interest rate is unreasonably high, you may have grounds to sue your lender. Contact us today for a free consultation to learn how we can help.
What Is Default Interest?
To understand how we won the case against Loan Funder and how you may be able to win a case against your lender, it’s important to understand the meaning of the default interest rate.
When you take out a loan, your agreement may include something called a default interest rate, which is a higher rate lenders can charge if you miss payments or default on your loan. The idea is that this additional interest compensates the lender for any risk or inconvenience caused by the late payments. It is meant to make the situation fair, not punish the borrower, which is why lawyers consider the additional interest a “remedy.”
That said, there is a limit to what lenders can charge in a default and it is based on what the actual cost of a borrower’s default might be. The reason for this is because of the New Jersey state constitution, which mandates a freedom to contract. A contract that includes punitive terms on a default is prohibited because it interferes with the freedom of contract, which is the freedom to make and break a contract.
Anything beyond reasonable ‘stipulated damages’ for a default interest is a penalty and prohibited.
At the time of writing this article, New Jersey’s criminal usury law caps the default interest rate on commercial leases at 50% and on individual consumer loans at 30%. These higher limits for commercial loans are based on the assumption that businesses are more “sophisticated” and able to understand and negotiate loan terms. However, in practice, many business owners who need funding have no choice but to take out commercial loans, even if they aren’t “sophisticated.” Loan Funder knows this and exploits it.
Loan Funder closes loans that they know violate the law. And if you are struggling with a high interest rate default commercial loan, you may be being preyed upon by a sophisticated hedge fund company behind Loan Funder known as ROC 360.
Loan Funder LLC’s Predatory Lending Practices
LoanFunder LLC is a private lender that provides small commercial loans, typically to small business owners operating under LLCs. This is done intentionally as a core part of their business model, which relies on exploiting small business owners.
Hidden in their loan agreements is a default interest rate clause that says if you miss a payment, your rate jumps to 45%. While that contractual rate is predatory, it falls below New Jersey’s 50% cap for commercial loans. So, by keeping their rates just under the limit, Loan Funder can argue the terms are technically legal.
Loan Funder purposely targets small business owners because they require commercial loans, allowing them to charge a higher default interest rate. The higher interest rate caps were intended for “sophisticated” businesses with resources and bargaining power, not individuals running small businesses who don’t have the same leverage as large corporations.
Loan Funder is using the classification of a commercial loan as a loophole to charge predatory rates to small business owners, knowing many will be able to recover once they fall behind.
The Case Against Loan Funder LLC
While the 45% default interest rate Loan Funder was charging was technically legal, we argued that legality alone is not enough. The rate was unfair in practice and exploited small business owners who were never the intended audience of these laws. To challenge Loan Funder’s predatory default interest rate, we made two core arguments:
45% Interest Is Not A Remedy
The first argument we made was that a 45% default interest rate is, in reality, not a “remedy” but a penalty.
Default interest is supposed to make things fair to the lender after a missed payment. It is meant to compensate for risk or inconvenience, not to punish the borrower or to make recovery impossible. But that’s exactly what happens with a default interest rate of 45%. Although their default interest rate clause was technically legal, in practice, 45% interest makes it incredibly hard, if not impossible, to catch up on payments. This is especially true for small business owners being held to the same standards as large corporations.
Loan Funder Violated New Jersey’s Consumer Fraud Act
Our second argument focused on how Loan Funder’s practices are intentionally predatory and, as such, violate New Jersey’s Consumer Fraud Act. To support this, we made two key points.
First, even if something is technically legal, it can still be considered misleading if, in practice, it is unfair to the borrower. Loan Funder included a standard default interest rate that functions as a penalty, but presented it as a normal and enforceable part of the loan.
Second, even though these loans are labeled “commercial,” Loan Funder’s borrowers are primarily small business owners operating through LLCs, not large, sophisticated companies. The “commercial” label is being used to justify higher interest rates.
This reflects a broader predatory pattern in Loan Funder’s loans. They rely on terms that are technically legal but incredibly misleading, and they target small business owners to exploit a loophole and charge higher default interest rates. That’s why this goes beyond a contract issue and into consumer fraud.
The Court’s Decision On Loan Funder LLC’s Default Interest Rate
After hearing the arguments, the court agreed with Denbeaux Law. The judge found that the 45% default interest rate was not a fair remedy and served as punishment. In fact, it was so extreme that he said it “shocked the conscience of the court.”
The court also recognized that many borrowers operating through LLCs are just individuals running small businesses. They should not be held to the same standards as large, sophisticated companies with greater resources.
The court further found that Loan Funder’s practices violated the Consumer Fraud Act. As a result, borrowers may be entitled to treble damages, meaning they can recover three times the amount they were overcharged. For example, if Loan Funder collected $100,000 in interest that should not have been charged, the borrower may be entitled to recover $300,000. For borrowers facing high default interest rates, this ruling creates a pathway to recover damages from these lenders.
Speak With A Commercial Foreclosure Lawyer About Your Options
If you have a loan with Loan Funder LLC and are facing commercial foreclosure, you may be entitled to significant compensation, including triple damages under the New Jersey Consumer Fraud Act, so it’s important to act quickly.
Even if your lender is not Loan Funder, if your current default interest rate is unreasonably high, you may also have grounds for a case.
At Denbeaux & Denbeaux, we handle commercial foreclosure defense across New Jersey. Our attorneys can review your loan agreement, identify whether your lender is acting unlawfully, and help you build a clear plan to address your situation head-on. Contact us today for a free consultation to learn how we may be able to help.
