Usury

Full definition

Usury is one of the oldest concepts in lending law, appearing in ancient codes and religious texts that prohibited excessive interest. In modern U.S. law, usury is a state-law concept: each state sets its own maximum interest rates for different loan categories, and lending above those caps is illegal. State variation: Interest rate caps differ dramatically by state and loan type. Some states (e.g., Arkansas, North Carolina) have strict usury caps of 17-18% that apply to most consumer loans. Others (e.g., Texas, Delaware, South Dakota) have minimal or no usury limits for many loan types, which is why many national banks and lenders are chartered in or operate out of those states. Federal preemption (Marquette and Depository Institutions Act): A landmark 1978 U.S. Supreme Court decision (Marquette National Bank v. First of Omaha) held that nationally chartered banks could export the interest rate of their home state to borrowers in any other state. Congress extended similar rights to state-chartered banks in 1980. This federal preemption effectively allows banks chartered in low-cap states to lend nationwide at rates that might be usurious in the borrower's home state. Online lender bank partnerships: Many online lenders partner with chartered banks specifically to leverage this federal preemption (the 'rent-a-bank' model). The bank technically originates the loan; the fintech then purchases it. This structure is legally contested, with some courts and regulators challenging it as an attempt to evade state usury laws. Practical impact for borrowers: Most federally chartered banks and large online lenders are not limited by your state's usury cap. However, state-only licensed lenders operating within your state are subject to your state's rate limits. Check your state's maximum APR if you are concerned a lender's rate is illegal. Military exception: The Military Lending Act (MLA) imposes a federal 36% Military Annual Percentage Rate (MAPR) cap on virtually all consumer loans made to active-duty service members and their dependents, regardless of what a state's usury law or federal preemption would otherwise allow.

• Military Lending Act