Usury

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Usury

Usury is lending money at an interest rate that is unreasonably high or exceeds the maximum allowed by law. Historically, the term once referred to charging any interest at all, but today it commonly denotes excessive interest rates or rates that violate statutory caps.

Key points

  • Usury involves charging interest considered excessive or illegal under applicable law.
  • Laws against usury are primarily state-based in the United States and vary widely.
  • Religious traditions (notably Judaism, Christianity, and Islam) historically opposed or restricted interest-bearing loans.
  • Usury protections aim to limit predatory lending practices such as abusive payday loans.
  • Certain financial products, like credit cards, are treated differently under U.S. law.

Historical and religious background

Early legal restrictions on interest emerged in places such as 16th‑century England. Religious teachings in Judaism, Christianity, and Islam historically opposed or tightly restricted interest-taking, shaping social expectations about fair lending. Over centuries the strict prohibition relaxed in many societies, evolving into limits on excessive interest rather than a ban on interest itself.

How usury laws work

In the U.S., usury rules are set by individual states and can depend on:
* the type and size of the loan,
* whether the lender is a bank or a nonbank institution, and
* whether a written agreement exists.

States may cap annual percentage rates (APRs) or set formulas for maximum permissible rates. Some states explicitly regulate small‑dollar and payday loans; others prohibit them. Not all loans are covered by state usury laws in the same way — exemptions and preemption rules can apply.

A notable federal-level development: the U.S. Supreme Court’s 1978 decision in Marquette National Bank of Minneapolis v. First of Omaha Service Corp. allowed nationally chartered banks to apply the interest rate rules of their home state to out‑of‑state customers, which influenced how credit card rates are regulated. As a result, many credit card interest arrangements are not constrained by the borrowing‑state’s usury caps.

Predatory lending and payday loans

Predatory lending refers to loan terms that are unfair, deceptive, or abusive and that often target borrowers with limited access to traditional credit. Common features include very high interest rates, excessive fees, or onerous collateral requirements. Payday loans — short‑term, small‑amount loans with steep fees and APRs — are frequently cited as predatory and are either capped or banned in many jurisdictions.

High interest rates on consumer credit (including credit cards and small‑dollar loans) are a major contributor to household debt burdens.

Penalties for violating usury laws

Penalties vary by state and may include:
* requiring the lender to forfeit interest and return funds to the borrower,
* imposition of statutory damages or additional fees against the lender,
* civil liability and damages,
* in some cases, criminal penalties.

Enforcement and remedies depend on the governing statute and whether courts find a contract unconscionable or illegal.

Example

A borrower needs $8,000 and accepts a loan charging 18% per month. If the state’s usury law caps permissible interest at 9% per month, the lender’s rate would be unlawful and subject to state remedies such as refunding interest and additional penalties.

Common questions

  • Is usury a crime?
    It can be a crime or a civil violation depending on state law and the circumstances. Remedies and penalties vary.

  • What is the current usury rate?
    There is no single national usury rate. Each state sets its own limits and calculation methods. Some states use a fixed cap; others tie the cap to market indicators.

  • Do usury laws apply to private loans?
    Yes. Most loans made outside regulated banking institutions are subject to state usury laws unless a specific exemption applies.

How to protect yourself

  • Read and keep copies of all loan agreements; verify the APR and fee schedule.
  • Compare offers from multiple lenders and favor reputable institutions.
  • Beware of loans with unusually high rates or complex fee structures (common with payday lenders).
  • Check your state’s usury statutes or consult a consumer‑protection attorney if you suspect illegal interest charges.
  • Report suspected predatory lending to state regulators or consumer protection agencies.

Understanding state laws and loan terms is essential to avoid excessive borrowing costs and to identify unlawful lending practices.