Definition
The practice of usury involves lending at exorbitant interest rates.
Analysis
Usury refers to the lending of money at rates higher than any reasonable person would be willing to pay. Loan sharks engage in illegal lending at rates as high as 200% APR. They use threats of physical harm or blackmail in order to ensure collection of the debt plus interest.
State usury laws are designed to protect residents from loans with predatory interest rates. The power of usury laws varies widely from state to state. Many fringe banking outlets charge interest rates that exceed usury limits.
Payday loans are predatory loans that are legal in many states. Many states allow exemptions from usury laws to payday lenders as an attempt to prevent desperate residents from borrowing from loan sharks. A number of state legislatures, including North Carolina and Georgia have recently closed the loophole that allowed payday lenders to operate in their states.
The generally accepted usury law cap sets maximum interest that can be charged at 36%. Most states have usury laws that ban interest rates above 36% APR (excluding payday lending and refund anticipation loans), but some states have usury law limits that are higher or lower than 36% APR.
