Usury laws are regulations governing the amount of interest that can be charged on loans & credit cards. These laws are not enforced–why??? Usury laws specifically target the practice of charging excessively high rates on loans by setting caps on the maximum amount of interest that can be levied. These laws are designed to protect consumers.
Breaking Down Usury Laws
In the United States, individual states are responsible for setting their usury laws. Though this type of financial activity could fall under the Constitution’s commerce clause, Congress has not traditionally focused on exploitation. The government does consider the collection of banking through violent means a federal offense.
Ways Lenders circumvent Usury Laws
Credit card companies typically have the benefit of being able to charge interest rates that are allowed by the state where the company was incorporated rather than follow the usury laws that apply in the states where borrowers live.
Nationally chartered banks similarly can use the highest interested allowed by the state where the institution was incorporated. By incorporating in states such as Delaware or South Dakota, such lenders have historically benefited from greater leeway allowed by those states’ relaxed usury laws.
Delaware, in particular, is frequently chosen as the state of incorporation for many financial institutions because of the freedom allowed regarding the charging of interest rates. About half of the domestic credit business in the U.S. market is conducted by companies that incorporated in Delaware, though they may maintain their operational headquarters in other states.
There is some debate on the effectiveness of usury laws because decisions by the U.S. Supreme Court and legislation gave financial institutions the capacity to circumvent the limits. The high court’s decisions in the case of Marquette National Bank v. First of Omaha Corp. allowed credit companies to charge customers who were out of state at the same interest rates the companies could charge in the states where they were incorporated.
Delaware’s introduction of the Financial Center Development Act, which largely eliminated limits in the state on fees and interest that can be charged on consumer lending, further amplified the desire among financial institutions to move there. Banks simply had to establish subsidiaries or meet other terms for incorporation in the state to benefit from the law and thereby circumvent usury laws in other states. In response to this activity, some other states changed their usury laws to grant locally-based financial institutions the ability to charge interest rates on a par with out-of-state lenders.
Interest Rates and the Credit CARD Act
While the Credit CARD Act does not limit the rate of interest, the legislation does require that credit card companies provide cardholders with advance notice of any rate increases. Specifically, they must provide you with a 45-day notice before they can increase your interest rate, change certain fees, or make other significant changes to the terms of your credit card.
Also, when card companies try to change the terms that apply to a cardholder, they must first allow cardholders to cancel their credit card agreement. Should the cardholder choose to do so, such cancellation cannot be considered a “default,” but the credit card company may increase your monthly minimum payment (subject to some limitations). See “Credit Card Rules and the CARD Act” for details.
Since interest rate limits are virtually unregulated (and usury laws have been superseded by federal and some state laws), make sure you read the fine print, understand your federal disclosure rights, and choose credit cards wisely.
Interest Rates Laws in Maryland
The following table highlights the main provisions of Maryland’s interest rate laws.
| Legal Maximum Rate of Interest | 6% (Const. Art. III §57); up to 8% in a written agreement (Com. Law §12-103) |
| Penalty for Usury (Unlawful Interest Rate) | Forfeit 3 times excess of interest and charges collected or $500, whichever is greater (Com. Law §12-114) |
| Interest Rates on Judgments | 10%; money judgment may carry contract rate until originally scheduled maturity date (Cts. & Jud. Proc. §11-106, 107, 301) |
| Exceptions | Mortgage secured loans (Com. Law §12-103); unsecured loans secured by other than savings (Com. Law §12-103); installment loans not secured by real property (Com. Law §12-103); open-end retail accounts (Com. Law §12-506); installment sales contract for motor vehicles and other consumer goods (Com. Law §12-609, 610) |
Obviously the best way to avoid getting into financial trouble with a high-interest credit card is to avoid credit card debt before it begins. And your best strategies for avoiding debt are using your credit cards responsibly and paying off your entire balance as soon as you can. That’s often easier said than done. Should you find yourself in significant credit debt, you may still have some consumer protections under federal law.
Maryland Interest Rate Laws: Related Resources
Comprehending the terms of service for credit card agreements or loans can be difficult. If you would like legal assistance regarding a credit card or interest rate matter, you can also contact a Maryland consumer protection attorney. You can also visit FindLaw’s section on Usury Laws and Limits on Credit Card Interest Rates for more information and resources on this topic.
Sources: Investopedia