Quick answer: Usury laws are state statutes that cap the maximum annual percentage rate (APR) lenders can charge on consumer loans. These caps vary widely by state and loan type, with some states allowing rates above 36 percent and others capping rates at 12 percent or lower.
Key Takeaways
- Usury laws exist in most states but vary from no cap to hard limits of 6 to 36 percent APR depending on loan size and lender type.
- National banks under 12 U.S.C. section 85 may export the usury cap of their home state to borrowers nationwide, a doctrine called “interest rate exportation.”
- Loans that exceed a state cap may be void or subject to penalties including forfeiture of all interest and potential criminal charges under state law.
- The Military Lending Act 10 U.S.C. section 987 caps APR at 36 percent for covered borrowers on active duty regardless of state usury laws.
💰 How do state usury laws cap personal loan APR?
A usury law sets the maximum interest rate a lender can charge. These statutes are found in state codes, not federal law. For example, New York General Obligations Law section 5-501 caps civil usury at 16 percent simple interest per year for most consumer loans. California Financial Code section 22303 allows licensed lenders to charge higher rates on loans under $2,500 but caps loans between $2,500 and $5,000 at 24 percent plus the federal funds rate.
Some states have no general usury cap. Utah, South Dakota, and Delaware repealed or never enacted strict consumer loan caps, which is why many online lenders and credit card issuers charter banks in those states. Other states like Arkansas cap consumer loans at 17 percent under Arkansas Constitution Article 19, section 13. The National Conference of State Legislatures tracks these caps, and they change periodically through legislation.
Check the specific statute for your state and loan size. Small loans under $2,500 often fall under separate installment loan statutes with different caps than larger personal loans. Some states exempt certain lender types like credit unions or pawn brokers from the general usury cap.
📊 Which states have the strictest and loosest usury caps?
| State Example | Cap Type | Maximum Rate |
|---|---|---|
| Arkansas | Constitutional cap | 17% APR |
| Colorado | Statutory cap | 36% APR (all consumer credit under C.R.S. 5-2-201) |
| New York | Civil and criminal | 16% civil, 25% criminal under NY General Obligations Law 5-501 |
| South Dakota | No general cap | No statutory maximum for most consumer loans |
| Texas | Varies by lender type | 10% default, up to 18% for licensed lenders under Texas Finance Code 302.001 |
Colorado Revised Statutes 5-2-201 sets a 36 percent all-in APR cap that includes fees, effectively banning payday and high-cost installment loans. This law took effect in 2019 and applies to all consumer credit regardless of lender type. Other states like Montana and Nebraska have similar 36 percent caps. On the other end, Delaware Code Title 5 section 943 allows licensed lenders to charge rates well above 36 percent on small loans.
Constitutional caps like Arkansas are harder to change than statutory caps. Lenders cannot lobby to raise a constitutional rate limit without a statewide ballot measure. Statutory caps can be amended by the legislature. Some states adjust caps annually based on economic indexes or the federal funds rate.
⚠️ What happens if a lender charges above the state usury cap?
A loan that exceeds the usury cap may be void or partially void. In many states, the borrower can sue to recover all interest paid, plus attorney fees. For example, under California Civil Code section 1916-2, a usurious loan forfeits all interest and the borrower can recover treble the amount of interest paid if the lender acted willfully.
Criminal usury is a separate offense. New York Penal Law section 190.40 makes it a felony to knowingly charge more than 25 percent per year on a loan. Conviction can result in jail time and fines. Most states treat usury as a civil matter, but some still have criminal penalties for egregious overcharges.
Lenders often structure loans to stay just below the cap or rely on federal preemption. If a court finds the loan usurious, the lender may lose the right to collect any interest and in some states must refund all interest already collected. The principal remains due unless the statute explicitly voids the entire contract.
🔍 How does federal preemption affect state usury laws?
National banks chartered by the Office of the Comptroller of the Currency can export the usury law of their home state to borrowers in all 50 states under 12 U.S.C. section 85. This is called interest rate exportation. A national bank headquartered in Delaware can charge a Delaware-compliant rate to a borrower in New York, even if that rate exceeds New York law.
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 clarified that state attorneys general can enforce federal consumer protection laws against national banks but cannot override federal preemption of state usury caps. The FDIC has similar rules for state-chartered banks under 12 U.S.C. section 1831d.
Online lenders often partner with a Utah or Delaware-chartered bank to originate loans, then buy the loan from the bank after origination. Courts have challenged this “rent-a-bank” structure. In 2020, the Office of the Comptroller of the Currency issued a final rule under 12 C.F.R. 7.1031 stating that interest on a loan is determined by the bank at origination and does not change when the loan is sold. Critics call this the “true lender” debate. The CFPB and state regulators continue to scrutinize these arrangements.
For federal credit unions, 12 U.S.C. section 1757 caps loans at 15 percent APR with exceptions for certain credit card and overdraft products. State-chartered credit unions follow state law unless their state grants a higher cap.
📝 How can you confirm your state’s usury cap before borrowing?
Start with your state banking or financial services regulator. Each state publishes a consumer information page listing maximum rates for different loan types. For example, the California Department of Financial Protection and Innovation and the New York Department of Financial Services both provide rate cap summaries. These pages cite the specific statute.
Read the loan agreement disclosure box. The Truth in Lending Act 15 U.S.C. section 1638 requires lenders to disclose the APR in writing before you sign. Compare that disclosed APR to your state cap. If the APR exceeds the cap and the lender is not a national bank or federally chartered credit union, the loan may be illegal under state law.
For personal loans, check whether the lender is state-licensed. Most states require non-bank lenders to hold a consumer finance or installment loan license. Unlicensed lenders operating in states with licensing requirements may be subject to additional penalties beyond usury violations. You can verify a lender’s license on your state regulator’s website.
If you believe a lender violated your state’s usury law, file a complaint with your state attorney general and the Consumer Financial Protection Bureau at consumerfinance.gov/complaint. Include the loan agreement and payment history. The CFPB forwards complaints to the appropriate regulator. You may also consult a consumer law attorney about a private lawsuit under your state’s usury statute.
❓ Frequently Asked Questions
Can a lender charge any rate they want if my state has no usury cap?
Even in states with no usury cap, lenders must follow federal laws like the Truth in Lending Act and cannot engage in unfair or deceptive practices under the Federal Trade Commission Act. Licensed lenders in those states still face oversight from state regulators.
Do usury laws apply to credit cards?
National banks issuing credit cards can export their home state’s rate under 12 U.S.C. section 85, so most credit cards follow the law of the bank’s charter state rather than the cardholder’s state. State usury caps typically do not apply to national bank credit cards.
What is the Military Lending Act rate cap?
The Military Lending Act 10 U.S.C. section 987 caps APR at 36 percent for covered borrowers on active duty and their dependents, regardless of state usury law. This federal cap includes all fees and applies to payday loans, auto title loans, and personal installment loans.
Can I sue if my loan exceeds the state usury cap?
Yes, most state usury statutes allow borrowers to sue for damages including forfeiture of interest and sometimes treble damages. Consult a consumer law attorney and file a complaint with your state attorney general and the CFPB.
✅ The Bottom Line
State usury laws protect borrowers by capping the maximum APR on personal loans, but these caps vary widely and national banks can export their home state’s higher cap to borrowers nationwide. Always compare the disclosed APR in your loan agreement to your state’s cap and verify the lender’s license before you sign.
If you want to estimate the total cost of a loan under different rates, use the loan calculator to see how APR affects your monthly payment and total interest. For more on APR disclosure requirements, visit the glossary.
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