Usury is the practice of charging interest on a loan that is unreasonably high or higher than the maximum rate permitted by law. The definition and legal limits vary by jurisdiction; historically, the term at times meant charging any interest at all, while in modern law it usually means charging excess interest above a statutory ceiling.
Key takeaways
– Usury refers to charging interest in excess of what law permits or what is deemed unreasonably high.
– Rules and penalties are set by state law in the U.S.; some loans and lenders (notably nationally chartered banks) may be exempt or able to “export” different rates.
– Usury violations can result in civil remedies (refunds of interest, fees, treble damages) and sometimes criminal penalties.
– Credit cards are often not covered by state usury caps because of federal and court precedents (e.g., Marquette National Bank v. First of Omaha Service Corp.).
– Borrowers and lenders should check state statutes and licensing rules, document terms in writing, and get legal advice when rates or practices look predatory.
Understanding usury (historic and religious context)
– Historical: In medieval and early-modern Europe, many legal systems and religious traditions forbade interest outright. In 16th-century England, laws began limiting interest; the Protestant Reformation helped shift attitudes so charging reasonable interest became accepted while excessive interestto be condemned.
– Religious: Judaism, Christianity, and Islam have historically opposed usury; some interpretations prohibit any interest, others only excessive rates. These traditions influenced social and legal norms about lending.
Usury laws and predatory lending
– Purpose: Usury laws exist to protect borrowers from predatory lending—loans with unfair, abusive, or deceptive terms (e.g., extremely high rates, onerous fees, or rollovers designed to trap borrowers).
– Common targets: Consumers with low income or poor credit, who may be offered payday loans, auto-title loans, or other high-cost small-dollar credit. Some jurisdictions cap APRs for payday loans or ban them entirely.
– Scope: Which loans are covered (and which lenders are subject to caps) depends on state law and the type of lender or loan. Nonbank lenders and private loans are commonly covered; nationally chartered banks and some affiliates may be able to charge out-of-state rates based on federal law and court decisions.
Penalties for usury
Penalties vary by state and by whether the violation is treated civilly or criminally. Common remedies include:
– Return of all interest paid (disgorgement).
– Statutory or treble damages and attorney fees for the borrower.
– Fines and, in some jurisdictions, criminal charges against the lender for willful usury.
– Contract remedies: courts may void the usurious provisions or the entire loan contract.
Because enforcement and remedies differ widely, lenders should verify compliance and borrowers should consult state law or an attorney if they suspect usury.
Example of usury (illustrative)
John has $10,000 in medical bills, borrows $8,000 from a private party who charges 18% per month. If his state’s usury law caps nonbank loans at 9% per month (or an annual equivalent), the lender is charging usury and could face statutory penalties and be required to return interest, pay damages, or face criminal liability depending on local law.
Is usury a crime?
– It can be either a civil violation or a crime depending on jurisdiction and the severity/willfulness of the conduct. Many states treat usury as a civil wrong (with interest refunds and damages), but some impose criminal penalties (misdemeanor or felony) for egregious or intentional violations. Always check the specific state statute.
What is the current usury rate?
– There is no single “current usury rate” nationwide. Each U.S. state sets its own maximum rates and methods for calculating them, often varying by loan type and lender category. For example, North Dakota’s statutory approach ties a cap to Treasury Bill rates with a floor (per its published rule). To find an applicable rate:
• Consult your state’s statutes and department of banking/finance website.
• Check consumer protection agencies (state attorney general) or the Consumer Financial Protection Bureau (CFPB).
• Consult a consumer-law lawyer or a nonprofit legal aid provider.
When did usury become illegal?
– There is no single date when “usury” became illegal. Prohibitions and rate limits evolved over centuries. In the U.S., statutory usury limits developed state by state; the modern shape of protection and exceptions evolved through 19th–20th century law and pivotal cases (e.g., U.S. Supreme Court decisions that affect which institution’s law governs a loan’s rate). Today’s regime is a mix of state statutes, federal preemption for certain national banks, and case law.
Do usury laws apply to private loans?
– Generally, yes: most loans made outside federally regulated banks or credit unions are subject to state usury laws, including many private-person loans. However, the exact coverage depends on state definitions and exemptions. Lenders should check state licensing requirements and statutory rate caps before making private loans.
Practical steps — for borrowers (how to avoid predatory or usurious loans)
1. Know the APR: Always ask for the annual percentage rate (APR) and total cost (principal + fees) over the loan term.
2. Check state limits: Look up your state’s usury statutes and payday-loan limits (state banking or attorney general websites are good starting points). The CFPB and state consumer agencies can help.
3. Prefer regulated lenders: Use banks, credit unions, or licensed companies with clear disclosures. Credit unions often have lower rates and more flexible underwriting.
4. Get terms in writing: Insist on a written contract showing principal, APR, fees, payment schedule, and default remedies.
5. Compare options: Consider personal savings, loans from family/friends (with clear written terms), balance transfers, institutional personal loans, or nonprofit credit counseling.
6. Beware of rollovers and balloon payments: Repeated short-term rollovers or deferred large payments can dramatically increase costs.
7. Document payments: Keep records of payments and communications. If you’re charged an illegal rate, records help an attorney or regulator.
8. Seek help: If you suspect you’ve been charged usurious rates, contact your state attorney general, local legal aid, or a consumer-protection attorney.
Practical steps — for lenders (how to comply and avoid liability)
1. Confirm licensing: Ensure you have the required state license for the type of consumer lending you provide.
2. Check state law for caps and exemptions: Determine which statutory rate applies, including distinctions for consumer vs. commercial loans and bank vs. nonbank lenders.
3. Use clear APR disclosures: Provide the APR and finance charge as required by federal Truth in Lending Act (TILA) and state law.
4. Use legal review: Have loan forms and interest-rate tables reviewed by counsel knowledgeable in state usury and banking law.
5. Avoid deceptive practices: Don’t disguise rate or fees, don’t structure transactions to circumvent rate caps (rent-a-bank schemes can have legal risk), and don’t encourage rollovers.
6. Maintain records: Keep complete documentation of borrower interactions, terms, and compliance steps.
What to do if you suspect usury
– For borrowers: Stop additional payments only after consulting an attorney or legal aid if you fear losing rights. Preserve documents and contact your state attorney general or consumer-protection office. Many states provide private causes of action allowing borrowers to seek refunds and damages.
– For lenders: If you discover a compliance problem, consult counsel and consider corrective measures (refunding excess interest, revising forms, notifying regulators) to limit exposure.
Where to find more information and help
– Investopedia: “Usury” (source piece used for this summary)
– FDIC: materials on predatory lending and consumer protection.
– State department of banking/finance websites and state attorney general offices — for state-specific usury statutes and limits (for example, North Dakota’s published usury rules).
– Consumer Financial Protection Bureau (CFPB) — consumer guides and complaint submission.
– Legal aid and consumer-law nonprofits — for free or low-cost legal help.
Sources
– Investopedia, “Usury.”
– FDIC, “Challenges and FDIC Efforts Related to Predatory Lending.”
– North Dakota.gov, “Usury Rate.”
– Marquette Nat’l Bank of Minneapolis v. First of Omaha Serv. Corp., 439 U.S. 299 (1978) (U.S. Supreme Court decision relevant to which bank’s rate governs out-of-state cardholders).
Editor’s note: The following topics are reserved for upcoming updates and will be expanded with detailed examples and datasets.