Usury Laws and Limits on Credit Card Interest Rates

Usury laws limit the interest a lender may charge on a debt. The usury rate sets the maximum interest that lenders can charge, protecting borrowers from excessively high or "usurious" interest rates.

Usury limits play a crucial role in regulating the rate of interest for various types of loans, including consumer loans, real estate financing, payday loans, personal loans, and business loans. Interest rates often vary by jurisdiction and 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.

State Usury Laws

The term "usury" describes 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 limit the amount of interest on loans. However, at least one U.S. Supreme Court decision, federal statute, and some state laws have significantly weakened these laws over the years.

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.

Interest Rates and the Credit CARD Act

Federal law doesn't mandate a maximum interest rate for credit cards, but credit card companies must follow specific federal rules. One of these rules is the Credit Card Accountability, Responsibility, and Disclosure Act of 2009 (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, a company must give a 45-day notice period before implementing changes such as interest rate increases or other modifications to credit card terms. 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.

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

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