Even though most states set statutory limits on interest rates, they are not always enforceable because consumers frequently agree to rates higher than the limit (thus waiving those protections). So from a practical standpoint, legal interest rate limits actually are little more than general guidelines. Regardless, California's interest rate limit for sales contracts is 12 percent, and 7 percent for interest rates on judgments.
What Is Usury?
Usury is the act of lending money at an interest rate that is considered unreasonably high or that is higher than the rate permitted by California law. Usury first became common in England under King Henry VIII, and originally pertained to charging any amount of interest on loaned funds. Over time it evolved to only mean charging excess interest, but in some religions and parts of the world charging any interest is considered illegal.
Exceptions To The Usury Laws In California
Numerous exceptions apply, based generally on who is making or arranging the loan. Most banks and similar institutions are exempt from the law. Also, loans arranged by real estate brokers that are secured by real property are also exempt from the law. If an exemption applies, there is no limit under California law.
The basics of California interest rates laws are listed in the table below. See Consumer Protection Resources for more information.
| Legal Maximum Rate of Interest | Loan/forbearance of any money, goods, or things in action, or accounts after demand-7% or contract rate (Const. XV §1) contract rate shall not exceed 12% (Civil Code §1916-1) |
| Penalty for Usury (Unlawful Interest Rate) | Contract or agreement for greater than 12% shall be null and void as to any agreement to pay interest (Civil Code §1916-2); debtor may recover treble amount paid; willful violation-guilty of loan-sharking, a felony and punishable by imprisonment in state prison for not more than 5 yrs. or county jail for not more than 1 yr. (Civil Code §1916-3) |
| Interest Rates on Judgments | Set by legislature at not over 10% rate; in absence of setting of such rate, rate of interest is 7% (Const. Art. XV §1) |
| Exceptions | Incorporated insurer (Ins. §1100.1); licensed broker-deals (Corp. §25211.5); indebtedness issued pursuant to corporate securities law (Corp. §25116); licensed business and industrial development corporation (Fin. §31410); state and national banks acting as trustees (Fin. §1504); foreign banks (Fin. §1716); bank holding companies; state and federal savings and loans (Fin. §7675) |
Note: State laws are constantly changing -- contact a California consumer protection attorney or conduct your own legal research to verify the state law(s) you are researching.
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Have Questions About Your Consumer Rights? Find a Local Attorney
When you make a big purchase, especially an automobile or even a house, there are a lot of numbers and rates thrown around and it can get really confusing. If you suspect your rights as a consumer have been abridged, your best option is to speak with a local attorney. Find a California banking and finance lawyer near you.
