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California Interest Rates Laws

Even though most states set statutory limits on interest rates, they are not always enforceable because consumers frequently agree to rates higher than the limit (thus waiving those protections). So from a practical standpoint, legal interest rate limits actually are little more than general guidelines. Regardless, California's interest rate limit for sales contracts is 12 percent, and 7 percent for interest rates on judgments.

The basics of California interest rates laws are listed in the table below. See Consumer Protection Resources for more information.

Legal Maximum Rate of Interest Loan/forbearance of any money, goods, or things in action, or accounts after demand-7% or contract rate (Const. XV §1) contract rate shall not exceed 12% (Civil Code §1916-1)
Penalty for Usury (Unlawful Interest Rate) Contract or agreement for greater than 12% shall be null and void as to any agreement to pay interest (Civil Code §1916-2); debtor may recover treble amount paid; willful violation-guilty of loan-sharking, a felony and punishable by imprisonment in state prison for not more than 5 yrs. or county jail for not more than 1 yr. (Civil Code §1916-3)
Interest Rates on Judgments Set by legislature at not over 10% rate; in absence of setting of such rate, rate of interest is 7% (Const. Art. XV §1)
Exceptions Incorporated insurer (Ins. §1100.1); licensed broker-deals (Corp. §25211.5); indebtedness issued pursuant to corporate securities law (Corp. §25116); licensed business and industrial development corporation (Fin. §31410); state and national banks acting as trustees (Fin. §1504); foreign banks (Fin. §1716); bank holding companies (Fin. §3707); state and federal savings and loans (Fin. §7675)

Note: State laws are constantly changing -- contact a California consumer protection attorney or conduct your own legal research to verify the state law(s) you are researching.

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