Usury Laws and Limits on Credit Card Interest Rates

Federal law doesn't mandate interest rate limits for credit cards. But, credit card companies must follow certain federal rules. One of these rules is the Credit Card Accountability, Responsibility, and Disclosure Act of 2009 (Credit CARD Act).

Some states have usury laws. These laws limit the interest a lender may charge on a debt. But, federal court decisions and statutes have virtually exempted credit card companies from this rule. This is because credit card companies can charge customers, regardless of their state, the interest rates allowed by the company's home state.

This means there are no limits on credit card interest rates in practice. So, the best way to protect yourself as a borrower is to stay informed about your federally guaranteed rights to interest rate disclosures and other protections.

See FindLaw's Financial Consumer Protection section for more related information.

Interest Rates and the Credit CARD Act

In consumer lending and credit card regulations, the Credit CARD Act imposes restrictions on interest rates without explicitly setting a maximum rate. While the legislation does not limit the interest rate, it mandates that credit card companies, as financial institutions, notify cardholders in advance of any rate increases.

The Federal Reserve Bank oversees these regulations. It ensures transparency in the creditor-consumer relationship. Under the act, the company must give a 45-day notice period before implementing changes such as interest rate increases or other modifications to credit card terms. And if a creditor proposes changes, the cardholder has the right to cancel the credit card agreement without it being a "default." The credit card company can adjust the monthly minimum payment within certain limitations in such cases. See "Credit Card Rules and the CARD Act" for details.

State Usury Laws

The term "usury" dates back to the Roman Empire. It described everything from the blatant exploitation of borrowers to any cash loan that incurs interest. Today, a "usury limit" is a statutory limit on how much interest a lender may charge.

Most states have usury laws that set limits on interest rates for loans. But, these laws have been significantly weakened over the years by at least one U.S. Supreme Court decision, federal statute, and some state laws.

In the 1978 case, Marquette National Bank v. First of Omaha Service Corp., the Court unanimously held that nationally chartered banks may charge the highest rate allowed in the bank's home state. This is why many banks are in states like Delaware and South Dakota, which have very liberal or nonexistent usury laws. So, even if you live in a state with a very low usury limit, it typically has no bearing on the interest you pay on your credit card.

State usury laws were further eroded with the passage of the Depository Institutions Deregulation and Monetary Control Act of 1980 (DIDMCA). This federal law allowed all federally insured banks to charge out-of-state customers the highest rate possible in the bank's home state. After DIDMCA became law, most state legislatures passed laws allowing local banks to charge as much interest as out-of-state banks.

Limits on Interest Rates for Loans

Usury limits play a crucial role in regulating interest rates for various types of loans. This includes consumer loans, real estate financing, payday loans, and business loans. The usury rate sets the maximum interest rate that lenders can charge. This protects borrowers from excessively high interest rates. These limits vary by jurisdiction. They depend on factors such as the type of loan, the loan amount, and the terms outlined in the loan agreement. While usury laws aim to shield consumers from predatory lending practices, they may have different applications for various types of loans. Borrowers should know these regulations. Seek legal guidance if you suspect you face high interest rates surpassing the permissible usury limits.

Getting Legal Help

Legal help is crucial for those seeking information about their rights under usury laws. Consult your local consumer protection agency or a consumer protection attorney near you for comprehensive guidance. An attorney can provide insights into the specific usury laws applicable in your state. They can also offer legal advice on potential courses of action if credit card interest rates exceed legal interest rate limits.