Usury in the United States

Usury Definition

An illegal profit required and received by a lender of a sum of money from the borrower; something exacted for the use of money in excess of and in addition to the interest allowed by law; a loan or forbearance of money for a greater rate of interest than that allowed by law. Originally, the word was applied to all interest reserved for the use of money, and in the early ages, taking such interest was not allowed. (This definition of Usury is based on the The Cyclopedic Law Dictionary).

Practical Information

Contracting for or receiving something in excess of the amount of interest allowed by law for the loan or forbearance of money, as in the sale of goods on credit or under the installment plan. In the majority of states, a lender who charges a usurious rate of interest loses his or her rights to collect any interest, although a few states permit the lender to collect the legal rate. In some states, both principal and interest are forfeited. Service charges, investigation fees, and commissions charged by an agent are not usually considered interest and may be added to the legal rate without usury. In some states, the parties to a contract may agree upon a rate of interest higher than the legal rate but within a statutory limit; in a few states, they may agree on any rate. In some states, loans to corporations, but not to individuals, may be made at more than the legal rate. Certain types of loans, such as small personal loans, are not covered by the usury law but are subject to special laws. (Revised by Ann De Vries, 1982)

For other definitions of it, read Usury in the Legal Dictionary here.

Legal Materials

Usury laws prohibit lenders from charging interest rates above a certain level.

You can find a chart of the usury laws for all 50 states in the CCH Consumer Credit Guide (volume 1), in the National Survey of State Laws (under the heading “Interest Rates”) and in the CCH Federal Banking Law Reports (paragraph 64-052). The two CCH sets are available in print and through Intelliconnect.

The usury laws for each state are part of each state’s statutory Code. You can also find them in the CCH Consumer Credit Guide and the CCH Federal Banking Law Reports(paragraph 64-053), both available in print or through Intelliconnect.

IMPORTANT: California has exceptions to its usury laws that are often left out of the books. These include California Corporations Code Section 25116, 25117 and 25118, which exempt qualified securities from the usury laws.

Usury in Foreign Legal Encyclopedias

For starting research in the law of a foreign country:

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Usury in 1899 (United States)

The following information about Usury is from the Cyclopaedia of Political Science, Political Economy, and the Political History of the United States by the Best American and European Writers.

USURY. When every one produced nearly everything that he consumed, and commerce consisted [1043] in almost accidental exchange, loaning was only a friendly service or charitable act. Morality or religion might then have justly branded the greedy man who made a vile use of the distress of his neighbor. But the relations of men to one another increased, and became complicated; in one way or another capital came into existence. Here, a conqueror took violent possession of lands, houses and animals; there, a pirate came to shore loaded with booty; elsewhere, wealth was accumulated by labor and saving. The surplus thus acquired (whether rightly or wrongly) was transformed into capital by the employment which was made of it. For, it is the use for which an object is intended which constitutes it capital. By the force of things the remunerated loan gradually lost part of the reprobation which attached to it, and interest was enabled to establish itself, but not without a struggle. Unfortunately, capital long remained a monopoly, and the loaning of it was necessarily dear, and all the dearer since loans were made in the beginning less by industry than by luxury and dissipation. The capitalist drew from his possessions all that he could; this he had a right to do, a right which, doubtless, he sometimes abused. Hence governments, having been long accustomed to look upon subjects as minors, believed themselves obliged to fix the rate of interest. Since then times have changed; labor has become more general; the sciences have pointed out the means of increasing its products by rendering it more efficient; wealth has accumulated in the hands of many; there is competition among lenders; and now luxury is scarcely ever, and industry almost always, the borrower: yet in certain countries prejudice has preserved a restrictive legislation. This is much to be regretted. The hiring of capital differs in nothing from that of any other object; and its price, too, depends on the action of demand and supply, as do the prices of all objects. In this world all abundant things are cheap, and all rare things dear. Human laws are powerless to modify this natural law, to which we may apply the words, dura lex, sed lex.

-Restrictive laws on the subject of usury can only aggravate the evil which they propose to prevent. Interest is composed of at least two elements: 1, the remuneration of the service rendered by the loan (or, which is the same thing, the compensation which the lender imposes on himself); and 2, insurance against the risk of loss. Solvent and honest borrowers may, by a combination of unfavorable circumstances, find it impossible to return the principal. There are times in which these circumstances become frequent; and if the law prevents the capitalist from insuring himself against loss by his proportionately raising the rate of interest, one of two things will happen: either the capitalist will abstain from giving credit, or he will raise the rate of interest by the addition of a third element, insurance against the risk of punishment.

-A pretense is made to justify the limitation of the rate of interest, by the obligation of protecting the needy person who borrows. Many objections to this immediately present themselves to the mind. 1. If the borrower agrees to pay the price, the reason is that the service rendered him does not seem to him too dear; a man may borrow at 20 or 30 per cent. if he foresees that he can gain 40 per cent. 2. Is the case that of a spend-thrift? You can not prevent him from wasting his fortune; if he does not do it in one way, he will in another. 3. Why not put one’s self at the lender’s point of view also? If the return of the funds he loans seems to him more or less doubtful, why should he not have the right to cover his risk? 4. What difference is there between goods and money? and can not the former be sold legally at any price one wishes? 5. Lastly, admitting that some abuses are inevitable (and where is abuse wanting?), must we interfere with the use which is frequent, nay daily, to reach some abuses which are relatively rare? Are these abuses sufficient to warrant the putting of all those under the guardianship of the law, who for one reason or another desire to borrow? It is of general utility that trade in money should be as free as trade in merchandise; fraud alone should be punished. Moreover, to limit the rate of interest we should know what its normal rate is. But who can fix it? The legal rate is 5 per cent. in France, and 10 per cent. in Algeria. What is the legal rate in Turkey? What was the legal rate at Rome or during the middle ages?

-The arguments we have just given have not escaped legislators, and in many countries the crime of usury has been blotted from the penal code, and gradually it will be blotted from the penal codes of all countries.155 (Compare INTEREST.)

Author of this text: Maurice Block.

Meaning of Usury

In plain or simple terms, Usury means: Charging more interest than the law allows.

Resources

See Also

Interest Rates
Money Rates
State Statutes and Codes

Further Reading

• Information about Usury in the Gale Encyclopedia of American Law.