Usury laws are state-specific laws that set limits on interest rates to prevent lenders from imposing unreasonable or predatory rates. While usury laws generally apply to all types of loans, there are exceptions for certain lenders and loan types. For example, in Connecticut, commercial loans of $10,000 or less are subject to the state's 12% usury limit, while larger loans may be exempt. In New Jersey, civil usury laws do not typically apply to commercial loans, but criminal usury laws do, with a limit of 50% interest per year for corporate borrowers. Understanding the specific usury laws in each state is crucial when dealing with commercial loans.
What You'll Learn
Usury laws vary between states
Usury laws vary significantly from state to state, so it is essential to understand the specific laws in the state where the loan is being provided. These laws are in place to ensure consumers are not overcharged for borrowing money and to prevent lenders from imposing unreasonable or predatory interest rates. While usury laws are made by state governments, federal law can take precedence over state law in certain cases, such as with most first lien residential mortgage loans.
In Connecticut, for example, the usury statute sets a 12% interest rate maximum on any loans that are not exempted from the limit by law. Exemptions include any loans made by state or federal banks or credit unions, any mortgages over $5,000, and any business loans over $10,000. However, the statute contains many other specific exemptions for certain types of loans and lenders.
In New Jersey, civil usury laws are not typically applicable to commercial loans, but criminal usury laws do apply. Civil usury rates generally cannot exceed 6% per year, or 16% if there is a written contract specifying an interest rate. Criminal usury rates are set at over 30% for non-corporate borrowers and 50% for corporate borrowers.
Washington State's usury law does not apply to loans made primarily for a commercial, agricultural, investment, or business purpose. However, the law does apply to most first lien residential mortgage loans.
Some states, like South Dakota, do not have any limitations on interest rates as long as they are set by written agreement. Other states, like New Mexico, have a maximum interest rate of 15% only when a rate has not been specifically agreed upon in the written agreement.
The complexity and variation of state usury laws require careful attention to ensure compliance and protect clients' interests.
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Civil and criminal usury laws
Usury laws are in place to prevent creditors or lenders from charging interest rates above the set amounts. These laws vary from state to state, and while civil usury laws may apply to certain types of loans, criminal usury laws may apply to others.
Civil Usury Laws
Civil usury laws in the United States tend to apply to consumer loans rather than commercial loans. In New Jersey, for example, civil usury rates are set at 6% per year, or 16% if there is a written contract specifying an interest rate. In the state of New York, civil usury is defined as charging interest greater than 16% annually, but less than or equal to 24%.
Criminal Usury Laws
Criminal usury is considered a white-collar crime and is usually dealt with through financial penalties. In New York, interest rates of 25% or more are considered criminal usury. In New Jersey, criminal usury rates are set at over 30% for non-corporate borrowers and more than 50% for corporate borrowers.
While civil usury laws may not apply to commercial loans in certain states, criminal usury laws do. In New Jersey, for instance, criminal usury limitations are different for consumer and commercial loans, but the law is clear that corporations, limited liability companies, and limited liability partnerships cannot be charged interest rates that exceed 50% per year.
In Connecticut, the usury statute sets a 12% interest rate maximum on any loans that are not exempted by law. The state's usury law applies to both consumer and commercial loans unless they are specifically exempt. Thus, usury penalties can be applied to commercial loans of $10,000 or less.
Federal law also generally takes precedence over state usury laws for most first-lien mortgage loans.
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Usury laws and commercial paper
Usury laws are state-specific laws that set limits on the interest rates that can be charged for loans to prevent lenders from imposing unreasonable or predatory interest rates. These laws vary significantly from state to state, and it is important to understand the relevant legislation in the state where the loan is being provided. Usury laws apply to various types of loans, including most commercial, agricultural, and business loans.
In Connecticut, for example, there is a 12% interest rate maximum on any loans that are not exempted by law. Exemptions include loans made by state or federal banks or credit unions, mortgages over $5,000, and business loans over $10,000. In 1981, the state removed the cap on commercial loan interest rates, citing the high interest rate environment at the time as a reason.
In New Jersey, civil usury laws, which generally apply to consumers, are not typically applicable to commercial loans. However, criminal usury laws do apply to commercial loans, with interest rates not allowed to exceed 50% per year for corporate borrowers.
Washington State's usury law does not apply to loans made primarily for commercial, agricultural, investment, or business purposes, and interest rates for these loans may exceed the state's usury law.
Massachusetts has no limit on interest rates for commercial loans except for a 20% criminal usury law, which lenders can exceed if they notify the attorney general.
New York has a maximum interest rate of 16% on commercial loans up to $250,000, while Rhode Island's limit is 21%.
It is important to note that usury laws can apply differently to consumer and commercial loans, and there may be exemptions for commercial paper, particularly in the case of small loans.
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Usury laws and interest rates
Usury laws are state-specific laws that place limits on interest rates to prevent lenders from imposing unreasonable or predatory rates. These laws vary significantly from state to state, and it is crucial to understand the legislation in the state where the loan is being provided. While usury laws generally apply to all loan types, they usually exempt institutional lenders such as banks, credit unions, and licensed pawnbrokers.
In Connecticut, for example, the usury statute sets a 12% interest rate maximum on any loans that are not exempted by law. Exemptions include loans made by state or federal banks or credit unions, mortgages over $5,000, and business loans over $10,000. In 1981, the state removed the 18% cap on interest rates for commercial loans over $10,000 made by non-bank entities to corporations. The rationale for this decision was the high market interest rate environment at the time, which made it difficult for lenders to profit from loans.
In New Jersey, civil usury laws generally do not apply to commercial loans. However, criminal usury laws do apply, with rates exceeding 30% for non-corporate borrowers and 50% for corporate borrowers subject to criminal penalties.
Washington State's usury law does not apply to loans made primarily for commercial, agricultural, investment, or business purposes, allowing interest rates on such loans to exceed the state's usury limit.
The application of usury laws to commercial loans can vary depending on the state, with some states imposing restrictions only on smaller sums to limit predatory lending practices. It is essential to review the specific usury laws in the relevant state when drafting a lending instrument to ensure compliance and protect clients' interests.
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Usury laws and loan amounts
Usury laws are state-specific laws that set limits on interest rates to prevent lenders from imposing unreasonable or predatory rates. These laws vary significantly from state to state, and it is crucial to understand the relevant state's laws when dealing with loans or lines of credit. While usury laws generally apply to all types of loans, there are exemptions for certain lenders and loan types.
In Connecticut, for instance, commercial loans of $10,000 or less made by individuals or non-bank companies to corporations are subject to the state's 12% usury limit. However, the law exempts loans made by banks, credit unions, and mortgages over $5,000. In 1981, the state removed the 18% cap on interest rates for commercial loans over $10,000, allowing market forces to govern rates and increase loan availability.
New Jersey's usury laws restrict creditors in the amount of interest they can charge, with civil and criminal usury laws in place. While civil usury laws typically do not apply to commercial loans, criminal usury laws do, with a limit of 50% interest per year for corporations.
Washington State's usury law does not apply to loans made primarily for commercial, agricultural, investment, or business purposes, allowing interest rates to exceed the state's usury limit. Similarly, South Dakota has no maximum interest rate restrictions if the parties agree to the rate in writing, while New Mexico has a maximum rate of 15% only when a specific rate has not been agreed upon.
The applicability of usury laws to loan amounts depends on the state's specific legislation. While some states, like Connecticut, have exemptions for certain loan amounts, others, like New Jersey, differentiate between civil and criminal usury laws and their applicability to commercial loans. Understanding the nuances of each state's usury laws is essential when dealing with loan amounts and interest rate restrictions.
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Frequently asked questions
Usury laws in Connecticut vary depending on the type of loan, the lender, and the borrower. For example, commercial loans of $10,000 or less are subject to the state's general 12% usury limit. However, larger loans may be exempt from this limit.
Civil usury laws in New Jersey are not typically applicable to commercial loans. However, criminal usury laws do apply, with different limits for consumer and commercial loans.
If a loan is made primarily for a commercial, agricultural, investment, or business purpose, the borrower may not claim a defense of usury against the lender. This means that interest rates for these types of loans may exceed Washington State's usury law.