Is Bitfinex technically usury & illegal?

[Kazu]

-> Federal law in US currently hard-caps interest rates for military personnel at 36%
-> Most states have some sort of a cap for other loans as well, though some of these are absurdly high.
-> Many high-cost loans like Cash Advances etc.... are not currently available in the following states: Arkansas, Connecticut, Georgia, Kentucky, Maryland, New Jersey
New York, North Carolina, Pennsylvania, Vermont, West Virginia, District of Columbia, and in many of the other states, they need explicit licensing.

I've seen Bitfinex loans at huuumongous interest rates, like 300%+ APR.

So isn't Bitfinex's "we are now regulated" statement a load of crap? Maybe they can be regulated as a Bitcoin exchanger, but their lending exchange seems clearly illegal.

[1713944052]

1713944052

[01BTC10]

Interest is fixed by the market participant. This is a peer-to-peer driven loan market.
They are not operating from the US.
They should ban US traders so they don't have to worry about US interference.

[Kazu]

There are usury caps in Australia, UK, France, lots of countries.

I only list US because I know more details.

[01BTC10]

You are probably technically right. Even here in Canada those interest rate are illegal.

[gog1]

I'm not sure usury about lending out USD.  But assuming BTC is treated like security / commodity, I don't think there's a cap on the rate charged.  Interest rate charged can exceed 50% annualized when shorting hard-to-borrow stock.

http://www.reuters.com/article/2011/11/14/us-groupon-shortsellers-idUSTRE7AD2E820111114

[Kazu]

I'm not sure usury about lending out USD.  But assuming BTC is treated like security / commodity, I don't think there's a cap on the rate charged.  Interest rate charged can exceed 50% annualized when shorting hard-to-borrow stock.

http://www.reuters.com/article/2011/11/14/us-groupon-shortsellers-idUSTRE7AD2E820111114

Wow, thank you for this information! It does make sense now that I think about it.

However I think this is sort of ready for abuse. Is there some kind of rule that shortselling has to be covered in some way? Otherwise, whats to stop somebody from 'lending' a stable security at a higher-than-rate-cap interest rate, the borrower selling that stable stock for USD, spending that USD, and then having to re-buy that stable security later with USD? That seems functionally equivalent to just lending the USD in the first place, assuming the security doesnt change in value much. Would that be legal?

[Kazu]

Holdup: But I can borrow USD from Bitfinex.

Are they arguing that they are out-of-state and thus don't have to follow state's usury laws? Even if they argue that, they are still violating the 36% interest rate cap for members of the US Army.

[01BTC10]

Is it different for civilian?

[Kazu]

Is it different for civilian?

Yes. Interest rates for military personnel are hard-capped by the US Federal Government at 36% APR, anything above that is criminal usury. Everyone else can write a contract for whatever APR they agree upon, however it still must comply with your state's usury laws.

Now here comes the fun part:

Say theoretically I'm based in one state, where there is a higher usury cap, than in your state. I loan to you, at an interest rate, which happens to be higher than the usury cap in your state, but not higher than the usury cap in my own state. Also, say I were to put a section in the contract, like google does:

Terms, and your relationship with Google under the Terms, shall be governed by the laws of the State of California without regard to its conflict of laws provisions. You and Google agree to submit to the exclusive jurisdiction of the courts located within the county of Santa Clara, California to resolve any legal matter arising from the Terms. Notwithstanding this, you agree that Google shall still be allowed to apply for injunctive remedies (or an equivalent type of urgent legal relief) in any jurisdiction.

Does this work? If so, I should probably tell Bitfinex to stick that somewhere in their terms, as they are out of the USA entirely and thus don't have any usury cap (at least, not that I'm aware of) entirely. 

[gog1]

A lot of things with bitcoin is in legal grey area.  Mining is legal but exchanging it for fiat would require license (according to the FINCEN interpretation).  Are mining pools legal then?  There are so many questions.  Coinlenders, is it legal?  If not, are we in trouble for putting up the link in our signature?

Bitfinex, if you are uncomfortable and think they are potentially illegal, at risk or regulatory shutdown - having your money seized, or even worse, personal criminal / civil liability, then i would refrain from using their platform.  Otherwise, it's a great platform to put your money to work and earning high interest. 

Bitfinex is in HK, which inherit most of UK laws, and usury laws were repealed in UK in 19th century.  Their bank account is in China, so good luck with enforcing US laws.

[urwhatuknow]

Guys

Bitfinex offers a unique platform where people can borrow and lend money and cryptocurrencies from each others.
The borrower can take a loan that is made by the lender with a limit of 60 days and keep it only for 1 hour if he wishes to do so.
This create an extremely flexible market, but of course has to come with a price.
Lending money for a year at 100% is not the same as lending money for an hour at 1.1 basis point (1 basis point is 1/100 of a percentage point).
Interest rates spike up and down and are a direct function of the underlying asset they are used for.
If Bitcoin goes up 5% a day for a week the interest on money will skyrocket, if it goes down 5% a day for a week it will go very low.
The opposite applies for rates on Bitcoins lent, they go bananas when the BTC plunges and are very low when it's up.
For example now BTC VIR is at 5% a year, with about 85% of the bitcoins offered which are not taken (that is almost nobody wants to short BTC in this moment)
Last but not least, the fact that some people are lucky to borrow for a few hours at very high rates doesn't mean at the end of the year they will totalize such high returns.
If I'm able to run for 100 meters faster than a marathon champion, it doesn't mean I will be able to outrun him for the whole marathon.
What counts, and also what the law is talking about is the A.P.R., that is the annual percentage rate.
Extrapolating it to an hour or a day doesn't mean anything.
Neither practically nor legally.

I hope this helps

Giancarlo
Bitfinex Team

[rufusBTC]

If Bitcoin goes up 5% a day for a week the interest on money will skyrocket, if it goes down 5% a day for a week it will go very low.

I wonder why that is   Could you explain?

For example now BTC VIR is at 5% a year, with about 85% of the bitcoins offered which are not taken (that is almost nobody wants to short BTC in this moment)

When are you going to get out of "beta"? And is it going to change anything? But it seem like some big money is already putting their trust in you.

[theonewhowaskazu]

Guys

Bitfinex offers a unique platform where people can borrow and lend money and cryptocurrencies from each others.
The borrower can take a loan that is made by the lender with a limit of 60 days and keep it only for 1 hour if he wishes to do so.
This create an extremely flexible market, but of course has to come with a price.
Lending money for a year at 100% is not the same as lending money for an hour at 1.1 basis point (1 basis point is 1/100 of a percentage point).
Interest rates spike up and down and are a direct function of the underlying asset they are used for.
If Bitcoin goes up 5% a day for a week the interest on money will skyrocket, if it goes down 5% a day for a week it will go very low.
The opposite applies for rates on Bitcoins lent, they go bananas when the BTC plunges and are very low when it's up.
For example now BTC VIR is at 5% a year, with about 85% of the bitcoins offered which are not taken (that is almost nobody wants to short BTC in this moment)
Last but not least, the fact that some people are lucky to borrow for a few hours at very high rates doesn't mean at the end of the year they will totalize such high returns.
If I'm able to run for 100 meters faster than a marathon champion, it doesn't mean I will be able to outrun him for the whole marathon.
What counts, and also what the law is talking about is the A.P.R., that is the annual percentage rate.
Extrapolating it to an hour or a day doesn't mean anything.
Neither practically nor legally.

I hope this helps

Giancarlo
Bitfinex Team

I 100% agree that what you are doing is morally good & correct. I don't object to it one bit and in fact am willing to tell the Bitcointalk forum community that your site pretty much constitutes the single safest Bitcoin investment opportunity on the net that I'm aware of right now. I am merely worried about the legal ramifications, that's all.

[kuusj98]

Hmm, I think almost every company is breaking a law in whatever country.
E.g. What is legal in the Netherlands doesn't nessesarily have to legal in the United Kingdom.

[Mik]

There are usury caps in Australia, UK, France, lots of countries.

I only list US because I know more details.

Obviously NOT in UK!
i.e. Payday loans APRs up to 5,853% (Wonga)

-> http://www.dailymail.co.uk/news/article-2347021/5-853--Wonga-annual-rate-Payday-firms-1-600-rise-leads-calls-tighter-regulation.html)

[theonewhowaskazu]

There are usury caps in Australia, UK, France, lots of countries.

I only list US because I know more details.

Obviously NOT in UK!
i.e. Payday loans APRs up to 5,853% (Wonga)

-> http://www.dailymail.co.uk/news/article-2347021/5-853--Wonga-annual-rate-Payday-firms-1-600-rise-leads-calls-tighter-regulation.html)

I know, payday loans avoid the usury cap in many countries/states. For example, in California, you are maxed out at 10% APR, unless you register with a specific agency, in which case you can charge 36% interest, unless you're making  a loan for $2500+ (and you're regulated), in which case there is no usury cap.

Then, the US Federal Government imposes a law on all of its states that mandate that individual states can't cap the interest on certain national banks and credit unions.

The whole thing is dumb if you think about it, because it means that I as an individual can't earn what that-big-bank-over-there can, simply because its a bank and I'm an individual, but thats the way it works.