CO Code § 5-12-103 (2021)
2021 Colorado Code|Title 5 - Consumer Credit Code|Article 12 - Interest- General Provisions|§ 5-12-103. Greater Rate May Be Stipulated

  The parties to any bond, bill, promissory note, or other instrument of writing may stipulate therein for the payment of a greater or higher rate of interest than eight percent per annum, but not exceeding forty-five percent per annum, and any such stipulation may be enforced in any court of competent jurisdiction in the state, except as otherwise provided in articles 1 to 6 of this title. The rate of interest shall be deemed to be excessive of the limit under this section only if it could have been determined at the time of the stipulation by mathematical computation that such rate would exceed an annual rate of forty-five percent when the rate of interest was calculated on the unpaid balances of the debt on the assumption that the debt is to be paid according to its terms and will not be paid before the end of the agreed term.    The term “interest” as used in this section means the sum of all charges payable directly or indirectly by a debtor and imposed directly or indirectly by a lender as an incident to or as a condition of the extension of credit to the debtor, whether paid or payable by the debtor, the lender, or any other person on behalf of the debtor to the lender or to a third party.    The public policy of this state does not limit or prohibit contracting, agreeing, or stipulating in advance for the payment of interest on interest or compound interest.    No law or public policy of this state limiting interest on interest, the adding of deferred interest to principal, or the compounding of interest shall apply to any promissory note secured by any mortgage or deed of trust or to one secured by a mortgage or deed of trust where periodic disbursement of part of the loan proceeds is made by a lender over a period of time as established by the mortgage or deed of trust, or over an expressed period of time, or ending with the death of the debtor, including, but not limited to, promissory notes secured by mortgages or deeds of trust having provisions for adding deferred interest to principal or otherwise providing for the charging of interest on interest.    This section shall not apply to a commercial credit plan as defined in section 5-12-107 (8) and extensions of credit made pursuant thereto, unless the bond, bill, promissory note, instrument, or other written agreement evidencing the plan expressly states that it is subject to this section.     History. Source: L. 71: R&RE, p. 852, § 1. C.R.S. 1963: § 73-12-103. L. 72: P. 292, § 6. L. 75: (1) amended, p. 257, § 3, effective July 1. L. 79: (2) amended and (3) and (4) added, p. 317, § 1, effective July 1. L. 81: (4) amended, p. 396, § 33, effective June 8. L. 96: (5) added, p. 407, § 12, effective July 1. History. Source: L. 71: R&RE, p. 852, § 1. C.R.S. 1963: § 73-12-103. L. 72: P. 292, § 6. L. 75: (1) amended, p. 257, § 3, effective July 1. L. 79: (2) amended and (3) and (4) added, p. 317, § 1, effective July 1. L. 81: (4) amended, p. 396, § 33, effective June 8. L. 96: (5) added, p. 407, § 12, effective July 1.    COLORADO COMMENT   This section was amended to correspond to the usury limitations of Section 18-15-104 of the Colorado Criminal Code. This section now provides for a ceiling on interest of forty-five percent. (This same ceiling was added to Section 5-3-605 .)   ANNOTATION   Law reviews. For note, “Colorado Interest Law”, see 34 Dicta 398 (1957). For article, “The Revolution in Consumer Credit Legislation”, see 45 Den. L.J. 679 (1968). For article, “Colorado Usury”, see 11 Colo. Law. 2557 (1982). For article, “Collecting Pre- and Post-Judgment Interest in Colorado: A Primer”, see 15 Colo. Law. 753 (1986). For article, “An Update of Appendices from Collecting Pre- and Post-Judgment Interest in Colorado”, see 15 Colo. Law. 990 (1986). For article, “Colorado Usury: The Sequel - Parts I and II”, see 23 Colo. Law. 565 and 829 (1994).   Annotator's note. Since § 5-12-103 is similar to repealed § 73-1-3, C.R.S. 1963, § 73-1-3, CRS 53, CSA, C. 88, § 3, and laws antecedent to CSA, C. 88, § 3, relevant cases construing those provisions have been included in the annotations to this section.   There is no question regarding the authority of the general assembly to make the provision in this section that a rate of interest is a matter of contract which parties may evidence in writing. Wigton v. Elliott, 49 Colo. 115 , 111 P. 713 (1910).   This section does not operate to preclude the general assembly from subsequently restricting interest rates by legislation. Waddell v. Traylor, 99 Colo. 576 , 64 P.2d 1273 (1937).   Parties are at liberty under this section to stipulate for such rate of interest as they may see fit. McKay's Estate v. Belknap Sav. Bank, 27 Colo. 50 , 59 P. 745 (1899).   National banks in Colorado have equal rights with others to collect interest upon loans at any agreed rate. Rockwell v. Farmers' Nat'l Bank, 4 Colo. App. 562, 36 P. 905 (1894).   National banks may make the rate dependent upon the happening of a contingency, if they so elect. McKay's Estate v. Belknap Sav. Bank, 27 Colo. 50 , 59 P. 745 (1899).   Contingent amounts of interest cannot be considered when determining whether a contractual rate of interest is usurious. Beeler v. H & R Block of Colo., Inc., 487 P.2d 569 (1971); Uniwest Mortg. Co. v. Dadecor Condos., Inc., 877 F.2d 431 (5th Cir. 1989).   Nonpayment of principal or interest when due. It is competent for the parties to agree upon an increased rate contingent upon nonpayment of either principal or interest when due. McKay's Estate v. Belknap Sav. Bank, 27 Colo. 50 , 59 P. 745 (1899); In Re Wood Family Interests, Ltd., 135 B.R. 407 (Bankr. D. Colo. 1989 ).   Usurious interest rate enforceable at maximum allowable rate. If a note has a higher interest rate than is allowed by this section, it will be invalid to the extent that the interest rate is usurious, but it will still be enforced at the maximum allowable rate. Becker v. Mktg. & Research Consultants, Inc., 526 F. Supp. 166 (D. Colo. 1981 ); Brown v. Fenner, 757 P.2d 184 (Colo. App. 1988); Concord Realty v. Cont'l Funding, 776 P.2d 1114 (Colo. 1989).   Parties to contract are free to set rate of interest by mutual agreement. Martinez v. Cont'l Entrs., 730 P.2d 308 (Colo. 1986).   The parties to a note unquestionably have the right to stipulate that a larger rate should be paid upon the failure to pay a smaller one when due; such stipulation may be enforced in any court of competent jurisdiction. McKay's Estate v. Belknap Sav. Bank, 27 Colo. 50 , 59 P. 745 (1899); In Re Wood Family Interests, Ltd., 135 B.R. 407 (Bankr. D. Colo. 1989 ).   Stipulation in a promissory note of an increased rate of interest after maturity is not a penalty. Godsmark v. Bennett's Estate, 52 Colo. 198 , 120 P. 151 (1912).   Rather, a stipulation for interest after maturity of a note is regarded as damages for breach of contract. Browne v. Steck, 2 Colo. 70 (1873).   The parties may stipulate that a larger rate be paid so long as the rate bears a reasonable relation to the current rate of interest. Browne v. Steck, 2 Colo. 70 (1873).   The rate of interest agreed upon in writing must be allowed according to the terms of an agreement until the entry of judgment. McKay's Estate v. Belknap Sav. Bank, 27 Colo. 50 , 59 P. 745 (1899).   When, at the place of contract, the rate of interest differs from that of the place of payment, the parties may stipulate for either rate, and the contract will govern, the parties having the right of election as to the law of which place their contract is to be governed. McKay's Estate v. Belknap Sav. Bank, 27 Colo. 50 , 59 P. 745 (1899).   Where no evidence is introduced of the current rate of interest, the party's stipulation may be accepted. Browne v. Steck, 2 Colo. 70 (1873).   If rate specified greatly exceeds the real value of money it will be disallowed as a penalty. Under this section the parties may determine the value of the use of money before it falls due, and their estimate of its value, after it falls due, is the true measure of damages, until it is shown to be incorrect. Since the law seeks to indemnify the plaintiff for the loss he has suffered by the breach of contract, the rate fixed by the parties affords a just rule of indemnity. If, however, the rate of interest specified in the contract greatly exceeds the real value of the money, it is a penalty for the nonpayment of the principal sum, rather than a just recompense for detaining it, and will not be allowed. Browne v. Steck, 2 Colo. 70 (1873).   Such a provision is waived by the acceptance of interest at the original rate after maturity. Godsmark v. Bennett's Estate, 52 Colo. 198 , 120 P. 151 (1912).   Furthermore, when interest becomes due it represents an indebtedness which the interested parties may then make the subject of a new contract by stipulating in writing when and how it shall be paid and what rate of interest it shall bear until paid, inasmuch as after interest becomes due, it may, by agreement, be turned into principal and bear interest. Hochmark v. Richler, 16 Colo. 263 , 26 P. 818 (1891); Wigton v. Elliott, 49 Colo. 115 , 111 P. 713 (1910), distinguishing Denver Brick & Mfg. Co. v. McAllister, 6 Colo. 261 (1882).   Such an arrangement is not compounding interest. Wigton v. Elliott, 49 Colo. 115 , 111 P. 713 (1910).   Compound interest contracted for in advance is, in general, not recoverable. Hochmark v. Richler, 16 Colo. 263 , 26 P. 818 (1891).   Such a contract is per se unlawful. Hochmark v. Richler, 16 Colo. 263 , 26 P. 818 (1891).   The fact that compound interest is provided for does not, however, render the entire contract usurious and void; rather upon grounds of public policy, simply decline to enforce payment of the interest upon interest. Hochmark v. Richler, 16 Colo. 263 , 26 P. 818 (1891).   A promise for such made after interest has accrued is legal. A promise to pay compound interest made after instead of before the interest to be compounded has accrued is legal and enforceable. Hochmark v. Richler, 16 Colo. 263 , 26 P. 818 (1891).   Though compound interest is allowable only when there is a definite agreement for such. Tarabino Real Estate Co. v. Tarabino, 109 Colo. 425 , 126 P.2d 859 (1942).   Moreover, “instrument of writing” must express mutuality of contract. This section clearly implies that the “instrument of writing” referred to must be one expressing mutuality of contract. Cobb v. Stratton's Estate, 56 Colo. 278 , 138 P. 35 (1914).   A will is not within section. A will does not rest on contract relations, and is therefore not an instrument into which a stipulation between the parties for interest, as contemplated by this section, could be injected. Cobb v. Stratton's Estate, 56 Colo. 278 , 138 P. 35 (1914).   Hence, no interest is allowed on legacies. Since there is nothing in this section, either express or implied, providing for interest on legacies, none is allowable. Cobb v. Stratton's Estate, 56 Colo. 278 , 138 P. 35 (1914).   To compute the effective interest rate for the purpose of this section, the rate must be calculated by determining the total per annum rate of interest that a borrower is subjected to during a given extension of credit. A forbearance must be totaled then annualized using only that time frame as the annualization period. Such includable interest must then be combined with any interest that continued to accrue pursuant to the original loan terms to determine the effective rate of interest subject to the 45 percent ceiling. Blooming Terrace No. 1, LLC v. KH Blake St., 2019 CO 58, 444 P.3d 749.