EFAs are likely subject to usury laws because what?

• A. Interest is charged
• B. They are unsecured
• C. They are not regulated
• D. They use a nominal payment option

Answer: (A)

Usury laws are designed to limit the cost of borrow­ing by setting maximum interest rates on loans. The key factor that brings a financing arrangement under those laws is the charging of interest or a finance charge. If EFAs involve paying interest, they fall under usury rules and must comply with those rate limits and disclosure requirements. If no interest or finance charge is involved, usury laws typically don’t apply, regardless of whether the loan is secured, unregulated, or uses a nominal payment option. The essential point is the presence of interest or a finance charge, which is why this option is the best answer.