Usury
What Is Usury?
Usury refers to the practice of charging excessively high interest rates on a loan, often beyond the legal limits established by state or national law. Many governments regulate lending by setting usury laws, which cap the maximum interest rate lenders are allowed to charge borrowers.
These laws are designed to protect consumers from predatory lending practices and unfair loan terms.
Usury laws can vary depending on:
- The type of loan
- The borrower (consumer vs business)
- State regulations
- Whether the lender is a bank or nonbank financial institution
Why It Matters
Usury protections help prevent borrowers from becoming trapped in high-cost debt that is difficult to repay.
Without limits on interest rates, lenders could charge extremely high fees, making loans far more expensive than borrowers expect.
Usury laws aim to:
- Protect consumers from predatory lending
- Promote fair lending practices
- Maintain financial stability in credit markets
How Usury Works
States typically set a maximum interest rate that lenders can charge.
Example: If a state sets a usury cap of 36% APR, lenders cannot legally charge borrowers interest rates above that limit for certain loan types.
However, some lenders operate under special rules or exemptions, which can affect how interest limits apply.
Usury vs Predatory Lending
Usury → Charging interest rates above legal limits
Predatory Lending → Unfair lending practices that exploit borrowers
While related, predatory lending may involve tactics beyond just high interest rates.
FAQs About Usury
Are usury laws the same in every state?
No. Interest rate limits vary by state.
Do banks have to follow usury laws?
Yes, but federal regulations may allow banks to follow the rules of their home state.
Are payday loans considered usurious?
Some payday loans may exceed traditional interest caps depending on state law.
Related Terms
