Details on State Interest Rate Laws

State Interest Rate Limits at a Glance

Every state has very specific limits on the amount of interest that may be charged on consumer debts, ranging anywhere from 5 to 15 percent. But because of broad exceptions and loopholes, most consumer contracts include interest rates that are above the statutory limit. And if the consumer expressly agrees to an interest rate higher than the state limit, a very common occurrence with credit card applications, they effectively waive these limits.

See FindLaw's Financial Consumer Protection section for more articles and resources, including Usury Laws and Limits on Credit Card Interest Rates .

Despite their limited impact on actual rates paid by borrowers, state interest rate limits vary quite a bit:

  • Arizona: 10 percent per year; any rate may be agreed and contracted upon
  • Illinois: Determined by the laws applicable at the time the contract is made
  • Florida: Determined by comptroller of state by averaging the discount rate of the Federal Reserve Bank of New York for the preceding year and adding 5 percent to the averaged federal discount rate
  • Iowa: 5 percent unless another rate is agreed upon in writing
  • Virginia: 8 percent unless contract specifies

Overall, it appears that the more rural the state, the lower the limits.

Exceptions to Statutory Interest Rate Limits

There are myriad exceptions to state interest rate limits, which may be based on the type of lender or borrower, loan amount, the nature of the contract, or the matter that is the subject of the contract. Effectively, legal interest rates are no more than general guidelines for all transactions rather than the specific limits placed on them. Many states have so many exceptions that it is often necessary to find a different rate for every conceivable situation.

Illinois' statutory limit, for instance, does not apply to short-term loans; installment loans; pawnbrokers; agricultural development loans; reverse mortgages; and loans under the Consumer Installment Loan Act. In Virginia, meanwhile, exemptions include revolving credit accounts (mainly credit cards); state or national banks; savings and loans; credit unions; loans secured by a mortgage or deed of trust; and installment credit plans.

The main exception to these laws, however, stems from a 1978 U.S. Supreme Court ruling that allows most banks to "import" the highest rate allowed in their home state. So a bank located in a state with very little or no limit may charge a customer in a different state that same rate.

What is Usury?

Usury is an unconscionable and exorbitant rate or amount of interest which exceeds those permitted by law. There is a great variety of statutory remedies for usury. A few states classify usury as a crime punishable by prison time. The majority of states provide for economic remedies such as forfeiture of all interest paid, recovery of double the usurious amount, payment of a fine, or making the contract unenforceable. Some states even specify that banks or savings and loans pay penalties. North Dakota has one of the more extreme usury penalties: it requires payment of all interest plus 25 percent of the principal.

Be sure to contact a consumer protection attorney in your state if you believe you have been charged an illegally high interest rate.

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