July 2016

Usury laws, or laws that restrict predatory lending to consumers, are administered by the attorney general of each state in the United States. Each state has different laws governing the disbursement of loans and fees. California has some of the most consumer friendly usury laws. However, it is important to understand what is actually considered a “signature loan” when it comes to usury. According to Bankrate.com, signature loans are generally considered unsecured personal loans and their use is declining.

California Usury Laws

The State of California stipulates that any loan agreement that does not guarantee real estate cannot exceed 10% interest. For example, if you went to your credit union or bank branch in California for a five-year $ 1,000 loan, the monthly payment could not exceed $ 21.25 per month. Home improvement loan contracts cannot exceed five percent of the San Francisco Reserve Bank discount rate or the 10 percent fixed threshold.

Real estate purchase loans

If the funds from a loan agreement are used to purchase a new home, California usury laws do not apply. Therefore, a local bank or lender can determine a rate and payment based on a borrower’s creditworthiness. While there are other state laws that limit the percentages and fees charged on these accounts, the General Usury Act imposing a 10% threshold will not affect these accounts. These usury laws also do not apply to pawn shops.

Credit Cards and Retail Accounts

Credit card loans and retail accounts through department stores or other merchants are also not limited by the state of California usury laws. Additionally, many credit card accounts are headquartered in other business-friendly states where loan restrictions are relaxed. Again, some state restrictions on consumer financing may apply to credit cards, but the central usury law does not apply to general Visa and Mastercard credit card accounts.

Rate limits

The banking sector has successfully remained relatively independent from government intervention. Therefore, it is the consumer’s responsibility to carefully consider all loan offers before accepting any debt. Banks and lending institutions are not often used to granting traditional signature loans – which are governed by state usury laws – so it is important to review the fine print of all loan offers, especially revolving credit accounts.