Usury laws limit the interest rate or finance charges that lenders may impose on borrowers. Their purpose is to protect consumers from excessively high borrowing costs and from lending practices that can trap people in cycles of debt. In the United States, usury rules are primarily set and enforced at the state level; there is no single nationwide usury cap that applies to all lenders and loan types.
Key Takeaways
• Usury means charging interest that is unreasonably high or higher than the rate permitted by law.
– States set most usury rules; however, national banks and many credit card issuers can “export” the interest rate allowed by the state where they are chartered (Marquette National Bank v. First of Omaha).
– Some states allow very high or effectively no caps (Delaware, South Dakota, Nevada), while others have strict limits (Pennsylvania treats interest above 25% as criminal usury; New Jersey limits are 30% for individuals and 50% for corporations).
– Federal and state agencies—including the CFPB and state attorneys general—can investigate and take action when lenders use deceptive or abusive tactics. (Sources: Investopedia summary and original sources listed below.)
How Usury Laws Work (and Why They Vary)
• State control: Each state decides its maximum lawful interest rates (and fees that count as interest). These limits can vary by loan type (consumer loans, small-business loans, payday loans, etc.), borrower category, and lender type (banks, nonbank lenders, payday lenders, etc.).
– Interest-rate exporting: A Supreme Court decision, Marquette National Bank v. First of Omaha (1978), allowed nationally chartered banks to apply the interest rate permitted in the state where the bank is chartered to borrowers nationwide. This led many banks and credit card issuers to incorporate in states with permissive or no caps (e.g., Delaware and South Dakota). (Justia; Delaware Journal of Corporate Law)
– Federal role: Historically limited on usury caps, but federal agencies (like the Consumer Financial Protection Bureau, CFPB) enforce consumer protection laws and can target abusive, deceptive, or predatory practices even when interest rates themselves are not capped federally.
Examples of Usury Laws by State (selected examples)
• Delaware: Eliminated consumer interest limits under the Financial Center Development Act (1980s), making it attractive for financial firms.
– South Dakota: Also permissive; many credit card issuers incorporate there.
– Nevada: No state usury limits for many consumer credit products.
– Pennsylvania: Interest above 25% may be prosecuted as criminal usury.
– New Jersey: General usury limit is 30% for individuals and 50% for corporations. (World Population Review; Delaware Journal of Corporate Law)
Important: Legal and Practical Limits Aren’t the Same
• Even if a state allows high interest, federal consumer-protection law and agency enforcement can still limit deceptive, misleading, or abusive practices. For example, the CFPB and the New York Attorney General sued Credit Acceptance Corporation in 2023 for allegedly hiding auto-loan costs and steering borrowers into high-cost loans. (CFPB press release)
– Lenders may also be subject to contract, truth-in-lending, and state consumer protection statutes that regulate disclosures, fees, and collection practices.
Legislation and Policy Developments
• Marquette National Bank v. First of Omaha (1978): Enabled banks to charge the interest rate allowed by their state of incorporation to out-of-state borrowers. (Justia)
– Delaware Financial Center Development Act (FCDA): Attracted financial institutions by removing many state interest-rate restrictions. (Delaware Journal of Corporate Law)
– 2023 proposal: U.S. Senators including Elizabeth Warren and Bernie Sanders introduced the Empowering States’ Rights to Protect Consumers Act to restore states’ power to limit consumer loan interest rates and curb high-cost lending. (Senator Whitehouse press release)
What Is Predatory Lending?
Predatory lending refers to unfair, deceptive, or abusive loan practices that impose unreasonable or harmful loan terms on borrowers. According to the FDIC, predatory lending includes imposing unfair and abusive loan terms, charging excessive fees, or requiring unsuitable collateral. Predatory practices may coexist with legally allowed high interest, or they may be illegal regardless of the interest rate when they involve deception or coercion. (FDIC)
When Were Usury Laws First Enacted in the United States?
Usury laws date back to colonial America. The first U.S. usury statutes were enacted in the 18th century by American colonies, commonly setting interest caps around 8%. Over time, states modified their laws to reflect changing economic and political priorities. (Americans For Fairness in Lending)
How Does the CFPB Help Prevent Usury and Abusive Lending?
• Authority: The Consumer Financial Protection Bureau (created by the 2010 Consumer Financial Protection Act) enforces federal consumer financial protections and issues guidance targeting abusive conduct in consumer financial markets.
– Enforcement: The CFPB can investigate and take enforcement action against lending practices that are deceptive, abusive, or otherwise unfair—even where statutory interest caps don’t apply. For example, the CFPB joined a 2023 action with the New York Attorney General against a major auto lender for allegedly misrepresenting loan costs and trapping borrowers in high-cost loans. (CFPB)
– Consumer tools: The CFPB also publishes guidance, consumer education, and a complaint portal where consumers can report problematic lenders. (CFPB guidance and complaint tools)
Practical Steps for Consumers (How to Protect Yourself)
1. Know the full cost (APR), not just the headline rate.
• APR includes interest plus certain fees and is the best single number for comparing loans.
2. Get written, clear disclosures before you sign.
• Ask for the loan contract and a Truth-in-Lending disclosure that lists the APR, fees, payment schedule, and total cost.
3. Research the lender’s charter and incorporation state.
• National banks and many credit-card issuers apply the interest rules of their state of incorporation; knowing that can explain why rates are high.
4. Compare multiple offers.
• Check credit unions, community banks, and online lenders. Credit unions often have lower rates.
5. Avoid rollovers and repeated refinances.
• Extending or refinancing high-cost loans can trap you in repeat fees and longer repayment.
6. Use state and federal resources.
• Contact your state department of banking or consumer protection office to learn your state’s usury laws and file complaints. File complaints with the CFPB for suspected abusive or deceptive practices.
7. Seek assistance before defaulting.
• Contact nonprofit credit counselors, legal aid, or a consumer-advocacy group if you’re struggling. Don’t ignore collection calls—seek negotiated repayment or hardship programs.
8. Report suspected predatory behavior.
• Report to your state attorney general and the CFPB. If a lender used deceptive or abusive practices, enforcement agencies can investigate.
The Bottom Line
Usury laws are designed to cap exploitative interest rates, but the landscape in the U.S. is complex: states set most rules, and federal court decisions and state-by-state incorporations have allowed many lenders to charge high rates legally. Even when high rates are permitted, federal consumer-protection agencies like the CFPB and state attorneys general can act against deceptive, abusive, or predatory lending practices. Consumers can protect themselves by comparing APRs, seeking clear disclosures, shopping multiple lenders, and using state and federal complaint channels when they encounter abusive or misleading lending.
Sources and Further Reading
• Investopedia summary page on Usury Laws
– World Population Review, “Usury Laws By State.”
– CFPB, “CFPB and New York Attorney General Sue Credit Acceptance for Hiding Auto Loan Costs, Setting Borrowers Up to Fail.”
– Justia, “Marquette Nat. Bank v. First of Omaha Svc. Corp., 439 U.S. 299 (1978).”
– Delaware Journal of Corporate Law, “Delaware’s 1981 FCDA Preview.”
– Press release, Senator Sheldon Whitehouse, “Whitehouse, Colleagues Introduce Bill to Shield Americans from Sky-High Credit Card Interest Rates.”
– FDIC, “Predatory Lending Resources.”
– Americans for Fairness in Lending, “The History of Usury.”
– CFPB guidance, “CFPB Issues Guidance to Address Abusive Conduct in Consumer Financial Markets.”
Editor’s note: The following topics are reserved for upcoming updates and will be expanded with detailed examples and datasets.
• Look up the current usury/interest-rate cap for your state and for common loan types (installment loans, payday loans, credit cards).
– Help compare specific loan offers if you provide the APRs and fees.