Usury
The practice of charging illegally high or excessive interest rates on a loan.
What is Usury?
Usury is the practice of lending money at interest rates deemed excessively high or prohibited by law. Historically, usury referred to any interest charged on a loan, but the modern legal definition focuses on rates that exceed statutory maximums. In the United States, usury laws are primarily regulated at the state level, with each state setting maximum interest rates for different loan types. Federal law complicates enforcement: under the National Bank Act and Depository Institutions Deregulation and Monetary Control Act of 1980, federally chartered banks can export the interest rate laws of their home state nationwide, effectively preempting many state usury limits for credit cards. Payday loans, with effective APRs of 300–400%, have been the subject of intense usury debates, prompting consumer protection rules from the CFPB and interest rate caps in some states.
Example
A payday lender charges a $15 fee for a two-week $100 loan, implying an annual percentage rate of approximately 391%. In states without a specific payday lending rate cap, this may be legal. In states such as Illinois, which capped payday loan rates at 36% APR, the same loan would constitute usury under state law.