Usury Laws: Do They Affect Real Estate Transactions?

Usury laws are designed to protect consumers from predatory lending practices by capping the interest rates that lenders can charge on loans. In the United States, usury laws are enforced at the state level, with each state setting its own maximum interest rate limits. These laws apply to a range of loans, including private loans, commercial loans, agricultural loans, and business loans. While usury laws generally apply to consumer loans, there are some exemptions, such as loans made by licensed real estate brokers and secured by real property.

Real estate brokers can engage in usury by charging their customers excessive fees or commissions or lending money to their customers at excessively high-interest rates. This predatory lending practice can make it difficult for homebuyers to pay off their loans, leading to high consumer debt levels.

Usury laws and predatory lending

Usury laws are in place to protect consumers from predatory lending and high-interest rates. Predatory lending is defined by the FDIC as "imposing unfair and abusive loan terms on borrowers". Predatory lenders often charge unreasonably high-interest rates and require significant collateral, and they target vulnerable consumers who are less likely to understand more traditional forms of financing. Payday loans, subprime mortgages, and car title loans are some of the most common types of predatory lending.

Usury laws set a limit on how much interest can be charged on loans, but they do not apply to all loans. For example, credit cards are exempt from usury laws, and in some states, payday lenders are also exempt. Usury laws are enforced at the state level in the United States, and interest rate limitations vary from state to state. For example, Pennsylvania considers interest above 25% as criminal usury, while New Jersey's general usury limit is 30% for individuals and 50% for corporations.

The first usury laws were enacted in the 18th century by American colonies, which set the interest rate cap at 8%. Today, usury laws continue to protect investors and consumers from predatory lending practices. However, the effectiveness of usury laws is often debated, as financial institutions can find ways to circumvent the limits.

To combat predatory lending, some states have banned or put laws in place to prevent it. Additionally, the Consumer Financial Protection Bureau (CFPB) has taken steps to strengthen payday loan user protections, such as requiring lenders to determine a borrower's ability to repay and restricting aggressive collection tactics.

Usury laws by state

Usury laws are interest rate laws designed to prevent lenders from charging excessively high rates on loans. These laws are enforced by individual states in the US, and they vary from state to state. Each state sets its own maximum allowable interest rates for different types of loans and financial transactions.

Here's a breakdown of usury laws by state:

• Alabama: Code of Alabama, Title 8, Chapter 8, Section 8-8-1
• Alaska: Alaska Statutes, Title 45, Chapter 45, Section 45.45.010
• Arizona: Arizona Revised Statutes, Title 44, Chapter 1, Article 3, Section 44-1201
• Arkansas: Allows higher rates under certain circumstances
• California: California Financial Code, Division 4, Chapter 1, Usury, Section 1; General usury limit for non-consumers is more than 5% above the Federal Reserve interest rate
• Colorado: Colorado Revised Statutes, Title 5, Article 12, Section 5-12
• Connecticut: Connecticut General Statutes, Title 37, Chapter 657, Section 37-4; Has stricter usury regulations with lower interest rate caps
• Delaware: Delaware Code, Title 6, Chapter 23, Subchapter II, Section 2301; No limits on fees and interest that can be charged on consumer lending
• Florida: General usury limit of 12%
• Georgia: Official Code of Georgia, Title 7, Chapter 4, Article 2, Section 7-4-2
• Hawaii: Hawaii Revised Statutes, Chapter 478, Section 478-2
• Idaho: Idaho Code, Title 28, Chapter 22, Section 28-22-104
• Illinois: Illinois Compiled Statutes, Chapter 815, Act 205, Section 205/4
• Indiana: Indiana Code, Title 24, Article 4.5, Chapter 3, Section 24-4.5-3-201
• Kansas: Kansas Statutes, Chapter 16, Article 20, Section 16-201
• Kentucky: Kentucky Revised Statutes, Chapter 360, Section 360.010; General usury limit is either more than 4% greater than the Federal Reserve rate or 19%, whichever is lower
• Louisiana: Louisiana Revised Statutes, Title 9, Chapter 3, Subchapter B, Part V, Section 9:3500; Interest rate is based on a sliding scale
• Maine: Maine Revised Statutes, Title 9-A, Chapter 43, Subchapter 2, Section 432
• Massachusetts: Massachusetts General Laws, Chapter 107, Section 3; Interest rate for usury judgments can be either 12% or 18%
• Michigan: Michigan Compiled Laws, Chapter 438, Section 438.31; Usury judgments interest rate is set at 1% above the five-year T-note rate
• Minnesota: Minnesota Statutes, Chapter 334, Section 334.01
• Mississippi: Mississippi Code, Title 75, Chapter 17, Section 75-17-1; Commercial loans above $5,000 have no usury limit
• Missouri: Missouri Revised Statutes, Chapter 408, Section 408.030
• Montana: Montana Code, Title 31, Chapter 1, Part 1, Section 31-1-107; General usury limit is above 6% greater than the prime rate of New York City banks
• Nebraska: Nebraska Revised Statutes, Chapter 45, Section 45-101.03
• Nevada: Nevada Revised Statutes, Chapter 99, Section 99.04; No usury limits
• New Hampshire: New Hampshire Revised Statutes, Title XXXIII, Chapter 336, Section 336:1
• New Jersey: New Jersey Statutes, Title 31, Chapter 1, Section 31:1-1; General usury limit is 30% for individuals and 50% for corporations
• New Mexico: New Mexico Statutes, Chapter 56, Article 8, Usury, Section 56-8-3
• New York: New York Banking Law, Article 9, Section 5-501; Stricter usury regulations with lower interest rate caps
• North Carolina: North Carolina General Statutes, Chapter 24, Section 24-1
• North Dakota: North Dakota Century Code, Chapter 47-14, Section 47-14-05
• Ohio: Ohio Revised Code, Title I, Chapter 1343, Section 1343.01
• Oklahoma: Oklahoma Statutes, Title 14A, Section 266
• Oregon: Oregon Revised Statutes, Chapter 82, Section 82.010; General usury limit for loans below $50,000 is either 12% or 5% over the discount rate
• Pennsylvania: Pennsylvania Consolidated Statutes, Title 201; Interest above 25% is considered criminal usury
• Rhode Island: Rhode Island General Laws, Title 6, Chapter 26, Section 6-26-1; General usury limit is 21% or the interest rate charged for T-Bills plus 25%, whichever is greater
• South Carolina: South Carolina Code, Title 34, Chapter 31, Section 34-31-20
• South Dakota: South Dakota Codified Laws, Title 54, Chapter 3, Section 54-3-1.1; Chosen by many financial institutions due to freedom regarding interest rates
• Tennessee: Tennessee Code,

Usury laws and private loans

Usury laws apply to private loans, which are loans made between individuals and private lending institutions. These differ from commercial or governmental loans.

Usury laws are in place to protect consumers from excessive interest rates on loans, credit cards, payday loans, and personal loans. They govern the interest charged on a loan and set a limit on how much interest can be charged.

Usury is the practice of charging excessively high-interest rates on loans, often taking advantage of those in dire need of funds. The term "usury" first became common in England under King Henry VIII, referring to any amount of interest charged on loaned funds. Over time, it evolved to mean charging excessively high interest.

In the United States, usury laws are enforced at the state level, with each state setting its own laws and usury rate caps. For example, in California, the maximum interest rate for a loan secured by real property is 10% per year. In New Jersey, the maximum rate allowed is 50% for corporations and 30% for other borrowers.

It is important to note that usury laws do not apply to all loans. For instance, in California, loans made by licensed lenders or brokers are exempt from usury laws. Additionally, certain types of loans, such as commercial loans, government loans, and small loans, may be exempt from usury laws in some states.

To avoid usury, it is crucial to understand the usury laws in your state and seek legal advice when necessary.

Who is exempt from usury laws?

The applicability of usury laws varies across states, and certain exemptions are provided for specific loan types. Here is a list of exemptions from usury laws:

• Credit cards: Credit card companies are often exempt from usury laws and can charge higher interest rates than other lenders. This is because they assume more risk by not requiring collateral for the loan.
• Small loans: Many states have small loan exemptions, allowing lenders to charge slightly higher interest rates on loans below a specific amount.
• Commercial loans: Commercial loans are often more complex and involve higher-risk transactions, so usury laws may not apply to them.
• Government loans: Loans provided by government agencies or bodies are typically exempt from usury laws.
• Loans from a tax-qualified retirement plan: In Washington state, usury laws do not apply to loans permitted under applicable federal laws and regulations from a tax-qualified retirement plan to a participant or beneficiary under the plan.
• Certain interest charged by broker-dealers: In Washington, broker-dealers registered under the federal Securities and Exchange Act of 1934 are not subject to the maximum interest rate if the underlying loans they make can be fully repaid at the borrower's option and are subject to Federal Reserve Board regulations.
• First lien residential mortgage loans: Federal law generally takes precedence over state usury laws for most first lien mortgage loans. However, this exemption does not apply to private lenders or sellers who make isolated transactions or first lien purchase money loans.
• Second mortgages and home equity loans: Licensed consumer loan companies can offer second mortgages and subordinate lien home equity loans on residential properties at interest rates exceeding the state's usury law.
• Lease-purchases on personal property: In Washington, lease-purchase agreements for personal property are exempt from the state's usury law.
• Loans insured by the federal government: State usury laws do not apply to loans insured, provided, or guaranteed by U.S. government agencies, such as FHA or VA loans.
• Loans from specific lenders: Certain lenders, such as "creditors" who make or invest in residential real estate exceeding a particular threshold and originate "high-interest mortgages," are exempt from state usury laws.

It is important to note that usury laws and exemptions vary across different states, and individuals and businesses must be aware of the specific regulations in their state to avoid legal complications.

Penalties for breaking usury laws

Usury laws are enforced by individual states rather than at a federal level. As such, the penalties for violating usury laws vary by jurisdiction. However, fines, penalties, and even imprisonment may be imposed. In rare situations, the loan itself may be declared null and invalid.

In addition to usury statutes, other regulations such as consumer protection or fair lending legislation may apply to predatory lending instances. Penalties for breaking these regulations may include monetary fines, restitution to the aggrieved borrower, and, in certain situations, criminal prosecution.

The Truth in Lending Act (TILA) is an example of a federal usury law. It compels lenders to publish a loan's annual percentage rate (APR), including the interest rate and additional fees and charges. Before the loan is provided, the APR must be communicated to the borrower. If a lender charges a rate higher than this, they would be breaking the law and could face penalties.

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