Maximum Interest Rates and Usury Laws by State
Learn what usury is and how to avoid it. View our by State guide of interest rate and usury laws so that you can successfully lend or borrow.
What Is Usury?
Not a new concept, usury laws were enacted long ago to protect consumers from predatory lenders. Historically, predatory lenders tend to target borrowers that have limited access to traditional forms of funding - i.e., they target the desperate and then take advantage of them by charging very high rates. Today, many view payday loan providers as predatory lenders.
Usury occurs when money is lent at a rate that is higher than the rate permitted by law or at a rate that is considered unreasonably high. All States and the District of Columbia have laws governing the legal interest rate permitted, including what constitutes usurious lending.
Exceptions to Maximum Interest Rates
Further complexity is seen when States allow higher interest rates for larger amounts. Or higher rates for consumer revolving credit (AKA credit cards.) That is because credit cards are typically issued by national banks which are not under the jurisdiction of the State’ own usury laws. Too bad! Other common exceptions are for pawn brokers and payday lenders. So far, they seem to avoid penalty under usury laws.
Each State really is its own animal though with some regulations around agricultural loans or business loans or student loans or even loans specifically for real estate building buying or remodeling.
Interest Rates on Judgments
Not all States agree as to what interest rate is considered usurious. In fact, some do not limit interest rates in situations where the two parties agree to the terms in writing. The “in writing” part is important. It is not uncommon for people to transact loans verbally without a stated interest rate or other terms. States take these scenarios into account as well in the event that the arrangement sours and ends up in a court of law for resolution. In those instances, all States have a stated default interest rate for “judgments.”
I'm Confused!
So when does the maximum interest rate apply? Generally, for loans between individuals or corporations. But again, there are exceptions in many States.
Check out the usury laws for your State below. This may clear up any questions you have or, in some cases, create even more due to some extreme complexity. When in doubt, always consult with local legal representation in your State.
Interest Rates & Usury Laws by State
Ohio Chapter 1343.01
Oklahoma Section 266
Oregon Statute 82.010
Pennsylvania Statute 201
Rhode Island Statute 6-26-01
South Carolina Section 34-31-20
South Dakota Statute 54-3-1.1
Tennessee Statute 47-14-103
Texas Section 302.001
Utah Statute 15-1-1
Vermont Statute 41a
Virginia Statute 6.2-301
Washington Code 19.52.010
Washington DC Statute 28-3301
West Virginia Statute 47-6-5
Wisconsin Statute 138.04
Wyoming Statute 40-14-106
Stay Out of Jail
Whether you are the borrower or the lender, you want to be sure to avoid entangling yourself in a loan that violates usury laws. While the outcome may be perfectly acceptable to both parties, usury is an offense that can be criminally prosecuted. Some State laws can result in not only the forfeiture of all interest collected by a lender if the courts deem that the loan included a usurious rate, but that the offending party pay restitution in the amount of double or even triple the interest amount collected.
And, yes, some States also have the option to throw the lender in prison under felony charges. Let’s just call that reverse debtors prison!
Prison for violating usury laws? I’m not interested!
When obtaining a loan, read through all of the fine print. If something doesn’t look right ask questions. If you’re not satisfied with the answer, have an outside attorney read the contract first. Don;t ever sign up for anything you aren’t completely comfortable with!
If you’re a lender, be sure to familiarize yourself with your State’s maximum interest rate laws. Second, be sure to avoid any extra “new required” payments or fees as the loan progresses. Those can also be counted as usurious activity!
A common mistake is to verbally agree to a loan which can result in miscommunication of the terms and, very frequently, nonpayment of the loan amount. Use a loan agreement contract that both parties sign documenting the loan terms. This will help keep the arrangement legal and aid in successful repayment of the loan amount.