Usury
What Is Usury?
Usury is the practice of charging very high or unreasonable interest rates on money loaned. State governments set in place strict usury laws that limit the amount of interest that a lender can require.
If you are planning to lend or borrow money using a promissory note or loan agreement it is important to understand these rules. Not doing so can carry serious legal penalties, can cause your lending legal documents to be rendered invalid, and may place your capital at risk.
What Are the Main Usury Laws?
At a state level, local governments will set the maximum interest rate that can be charged on a loan. This is done to avoid placing unfair burdens on borrowers and to minimize the harm caused by predator lenders.
At the very least, each state sets a maximum legal rate of interest that can be charged by lenders. This can be as little as 5% or can be higher than 20% depending on the type of loan, how often interest is charged, and the amount of money being borrowed.
It is important to remember that usury laws do not only cover loaned money. They also apply to any capital where interest is charged against the principal. This might also be the case for a security deposit stored under the terms of a residential lease agreement or a mortgage, for example.
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What Are the Consequences of Usury?
Usury is illegal and can have serious consequences. In many cases, fines or the seizure of the unlawfully acquired interest are the results of a conviction. However, sufficiently serious misdemeanors carry jail time.
Also important to remember that committing usury can seriously damage the validity of your legal contracts. This won’t only lead to the legal consequences mentioned above but could also cause the documents securing your loans to be voided, making it harder to pursue any debts you are owed.
Are There Any Exceptions to Usury Laws?
Yes, there can sometimes be exceptions to state usury laws. A major example of this is that lenders and financial entities that were incorporated out of state may charge up to the maximum interest rate of the state they are registered in.
This is a benefit usually utilized by credit card companies that have national customer bases. This is also true for federally chartered banks. For this reason, many financial organizations choose to incorporate in South Dakota or Delaware.
Furthermore, some charges bearing interest may be exempt from usury laws. This includes:
- Late fees
- Loans offered by pawnbrokers
- Payday loans from licensed lenders
- Real estate loans secured by a lien on a property
Helpful Resources:
What Is Usury?
Usury is the practice of charging very high or unreasonable interest rates on money loaned. State governments set in place strict usury laws that limit the amount of interest that a lender can require.
If you are planning to lend or borrow money using a promissory note or loan agreement it is important to understand these rules. Not doing so can carry serious legal penalties, can cause your lending legal documents to be rendered invalid, and may place your capital at risk.
What Are the Main Usury Laws?
At a state level, local governments will set the maximum interest rate that can be charged on a loan. This is done to avoid placing unfair burdens on borrowers and to minimize the harm caused by predator lenders.
At the very least, each state sets a maximum legal rate of interest that can be charged by lenders. This can be as little as 5% or can be higher than 20% depending on the type of loan, how often interest is charged, and the amount of money being borrowed.
It is important to remember that usury laws do not only cover loaned money. They also apply to any capital where interest is charged against the principal. This might also be the case for a security deposit stored under the terms of a residential lease agreement or a mortgage, for example.
Get a Free Loan Agreement Template
What Are the Consequences of Usury?
Usury is illegal and can have serious consequences. In many cases, fines or the seizure of the unlawfully acquired interest are the results of a conviction. However, sufficiently serious misdemeanors carry jail time.
Also important to remember that committing usury can seriously damage the validity of your legal contracts. This won’t only lead to the legal consequences mentioned above but could also cause the documents securing your loans to be voided, making it harder to pursue any debts you are owed.
Are There Any Exceptions to Usury Laws?
Yes, there can sometimes be exceptions to state usury laws. A major example of this is that lenders and financial entities that were incorporated out of state may charge up to the maximum interest rate of the state they are registered in.
This is a benefit usually utilized by credit card companies that have national customer bases. This is also true for federally chartered banks. For this reason, many financial organizations choose to incorporate in South Dakota or Delaware.
Furthermore, some charges bearing interest may be exempt from usury laws. This includes:
- Late fees
- Loans offered by pawnbrokers
- Payday loans from licensed lenders
- Real estate loans secured by a lien on a property
Helpful Resources: