Understanding State Usury Laws & Legal Interest Rate Caps (2026)

Usury is the practice of charging an illegal or exorbitant rate of interest on a loan or credit transaction. Every US state maintains statutory or constitutional provisions setting interest rate ceilings to protect borrowers from predatory lending.

Usury statutes distinguish between standard legal interest (the default rate applied when a written agreement does not specify an interest rate) and maximum contractual interest (the highest rate parties can agree to in writing).

Interest rate caps on private, non-bank personal loans vary substantially across states:

• California: Governed by the California Constitution (Article XV, Section 1). Personal, family, or household loans are capped at 10% per annum. For business or real estate loans, the cap is 5% plus the Federal Reserve discount rate.

• New York: New York General Obligations Law § 5-501 sets the civil usury cap at 16% per year. Charging more than 25% constitutes criminal usury under N.Y. Penal Law § 190.40.

• Texas: Texas Finance Code Chapter 303 establishes a default ceiling of 18% per year, which can float up to 28% for certain commercial transactions.

• Florida: Florida Statutes Chapter 687 sets the general usury limit at 18% per year for loans up to $500,000. Loans exceeding $500,000 are capped at 25%. Charging over 25% constitutes criminal usury.

Not all lending transactions are bound by general usury caps. Common statutory exemptions include:

• Federally Chartered Banks & Credit Unions: Protected under the National Bank Act (12 U.S.C. § 85) and federal preemption doctrine.

• Corporate & LLC Borrowers: Many states (such as New York and Delaware) prohibit corporate entities or limited liability companies from asserting a defense of civil usury.

• Real Estate Broker-Secured Loans: In California, loans arranged or negotiated by licensed real estate brokers and secured by real property are constitutionally exempt from usury limits.

The consequences of violating state usury laws are severe. Depending on the jurisdiction, penalties include:

• Forfeiture of All Interest: The lender is stripped of the right to collect any interest, and all payments made are applied exclusively to reduce principal.

• Treble Damages: In states like Texas and California, the borrower may recover three times the amount of usurious interest paid, plus reasonable attorney fees.

• Complete Loan Invalidation: In severe cases, courts may void the underlying note entirely, releasing the borrower from all principal repayment obligations.

To ensure enforceability, every promissory note or loan agreement should include an explicit Usury Savings Clause stating that: "In no event shall the interest rate charged hereunder exceed the maximum rate permitted by applicable law, and any excess amounts collected shall be credited toward principal."