While most states still have laws limiting the amount of interest a creditor may charge, traditionally called "usury" laws, most consumer waive these protections by agreeing to higher rates. Arizona interest rate laws set the maximum rate at 10 percent, but explicitly allow consumers and creditors to "contract for any rate agreed upon." This means that you must be careful when taking out loans and credit cards, and should read all of the fine print in every contract.
The following table lists the main provisions of Arizona's interest rate laws and a more comprehensive summary follows. See Usury Laws and Limits on Credit Card Interest Rates for a concise overview.
|Legal Maximum Rate of Interest||10% per year; any rate may be agreed and contracted upon (§44-1201)|
|Penalty for Usury (Unlawful Interest Rate)||Forfeit all interest (§44-1202); usurious payments deemed to be made toward principal; if payments exceed principal, judgment may be given in favor of debtor with interest at rate of 10% (§§44-1203, 1204)|
|Interest Rates on Judgments||At allowable rate or as agreed upon as long as not in excess of that permitted by law (§44-1201)|
Purpose of Usury Laws and Limits
The purpose of limits on interest is to protect consumers from predatory lenders. There are many situations in which a person needs money to pay for their immediate needs, and doesn't have that money on hand. Limiting the amount of interest on a loan prevents lenders from taking advantage of people in times of need. For example, you may need $500 to cover your rent for the month. A lender down the street may lend you the money at a 50% interest rate, because they know you don't have any other option. If you have trouble paying the rent, you'll likely also have trouble paying back the loan, and interest, which could cause a snowball effect of fees and higher interest.
Basics of Usury Laws and Limits
Federal laws do not set limits on loan interest rates. This means that it is up to individual states to enact usury laws to protect borrowers from exploitative lenders. However, some court cases prevent the effectiveness of these laws. One Supreme Court case allows national banks to charge borrowers based on the highest interest rate of the bank's home state. This means that although you live in Arizona, some banks may be able to charge higher interest rates because they are based in other states.
Arizona Usury Laws
Arizona's Usury law limits interest rates at 10%. If a bank or lending institution charges more than this interest rate, it will incur penalties. The creditor will have to apply all usurious interest payments towards the principal of the loan. If the payments exceed the principal amount, the creditor will have to refund the debtor with a 10% interest rate.
State laws are constantly changing, which means that you should speak with an attorney who has up to date information on credit practices and interest rates. If you would like to know more about usury laws, or if you would like to speak with a legal professional about your situation, there are many attorneys throughout Arizona with consumer protection experience who may be able to help.
Contact a qualified attorney.