Federal Usury Laws: Rate Caps, Preemption, and Penalties

There is no single federal usury law that caps interest on consumer loans across the board. Federal usury laws in the United States are a patchwork: a rate rule for national banks that lets them export their home state’s ceiling nationwide, a 36% cap for active-duty servicemembers, a 15% ceiling (temporarily 18%) for federal credit unions, statutory rates for federal student loans, and preemption of state limits on residential mortgages. Everything outside those buckets falls back on state usury law.

The National Bank Act and Rate Exportation

The most important federal rule on interest rates is Section 85 of the National Bank Act. A national bank may charge interest at the rate allowed by the state where the bank is located, and “located” means the state on the bank’s charter, not the state where the borrower lives.¹

The Supreme Court settled the point in Marquette National Bank v. First of Omaha Service Corp. (1978). A Nebraska-based national bank could charge Minnesota credit card customers the rate allowed under Nebraska law, even though Minnesota’s cap was lower.² The consequences reshaped consumer credit. Banks moved their card operations to states with no usury cap or very high ones, then lent nationwide at those rates. It’s why most major card issuers are chartered in places like Delaware and South Dakota, and why your own state’s 18% or 24% cap doesn’t apply to the card in your wallet.

Section 85 is a rate authority, not a rate ceiling. It tells a national bank which state’s limit governs; the actual number comes from that state.

The 36% Cap for Active-Duty Servicemembers

The Military Lending Act is the closest thing to a broad federal interest rate cap in current law. It limits the Military Annual Percentage Rate to 36% on covered consumer credit extended to active-duty servicemembers, their spouses, and certain dependents.³

The MAPR is deliberately broader than a standard APR. It includes finance charges, credit insurance premiums, fees for add-on products sold with the loan, and application or participation fees, so a lender can’t shift costs into side charges to stay under 36%.⁴

The MLA also bars several practices on covered credit: mandatory arbitration clauses, allotments from military pay for repayment, and prepayment penalties.³ Coverage has boundaries. Residential mortgages, vehicle purchase loans secured by the vehicle, and loans secured by the personal property being purchased are excluded.⁴ The statute targets unsecured credit, payday loans, and similar products.

The Federal Credit Union Interest Rate Ceiling

Federal credit unions are one of the few lender types with a direct federal rate ceiling written into their governing statute. The Federal Credit Union Act caps the rate at 15% per year on the unpaid balance, inclusive of all finance charges.⁵

The NCUA Board can raise the ceiling to 18% temporarily when money-market conditions threaten credit union stability, and it has done so repeatedly. The 18% temporary ceiling is currently extended through September 10, 2027.⁶ Payday alternative loans can go up to 28% under separate NCUA rules.

This cap only reaches federally chartered credit unions. State-chartered credit unions follow their own state’s lending law.

Federal Student Loan Rates

Federal student loan rates are set by statutory formula, not by market negotiation or state usury caps. Each academic year’s rate equals the high yield of the 10-year Treasury note at the final auction before June 1, plus a fixed add-on that varies by loan type. Once the loan is disbursed, the rate is fixed for the life of the loan.

For loans first disbursed between July 1, 2025 and June 30, 2026:

Direct Subsidized and Unsubsidized Loans for undergraduates: 6.39%
Direct Unsubsidized Loans for graduate and professional students: 7.94%
Direct PLUS Loans for parents and graduate students: 8.94%

Those numbers come from a 10-year Treasury yield of 4.342%.⁷

Statutory caps limit how high the formula can push the rate: 8.25% on undergraduate loans, 9.50% on graduate unsubsidized loans, and 10.50% on PLUS loans.⁷ Private student loans are not governed by this formula; they follow the general federal and state rules that apply to whichever lender made them.

Federal Preemption of State Mortgage Rate Caps

State usury caps do not apply to residential mortgages. The Depository Institutions Deregulation and Monetary Control Act of 1980 preempts any state constitution or statute that would cap the interest rate on a federally related first-lien residential mortgage originated after March 31, 1980. The preemption displaces both civil and criminal state usury laws for these loans and reaches virtually every bank and savings institution, because it applies to any lender with federally insured deposits.⁸

States were given a window to opt out and reassert their own limits. Most did not. Colorado opted out in 2023, reasserting its usury limits on loans made in the state. For borrowers everywhere else, a mortgage lender faces no state interest rate ceiling.

Fintech “Rent-a-Bank” Arrangements and True Lender Challenges

Rate exportation created an obvious workaround for non-bank lenders. A fintech company that couldn’t legally charge 30% in a borrower’s state can partner with a national bank chartered in a permissive state. The bank originates the loan on paper and immediately sells it to the fintech, which services it. The loan carries the bank’s home-state rate.

Two federal rules back these arrangements. In 2020 the OCC issued a “valid-when-made” rule confirming that a permissible interest rate stays permissible after a national bank sells or assigns the loan.⁹ The FDIC issued a parallel rule for the banks it supervises.

Courts have pushed back through the “true lender” doctrine. When the non-bank partner does the underwriting, bears the default risk, services the loans, and keeps nearly all the profit, a court may find the bank was never the real lender. If the bank isn’t the true lender, its preemption rights don’t travel with the loan, and the borrower’s home-state usury cap applies. Courts weigh the totality of the circumstances: who funds the loans, who bears the economic risk, who sets the underwriting criteria, and who profits. No single factor is decisive, and no published test has settled the question.

Penalties for Charging Illegal Interest

When a national bank charges more than Section 85 allows, the consequences are severe. The bank forfeits the entire interest on the loan, not just the excess. A borrower who already paid the illegal interest can sue to recover double the amount paid, and the suit must be filed within two years of the usurious transaction.¹⁰

At the extreme end, federal criminal law reaches predatory lending through RICO. A loan is an “unlawful debt” under RICO when its interest rate is at least twice the enforceable rate under state or federal law.¹¹ Collecting on unlawful debts as part of a pattern of racketeering activity carries up to 20 years in prison. The provision targets loan sharking operations rather than mainstream lenders, but it remains the harshest federal answer to usury.

Where State Usury Law Still Governs

Federal law addresses specific lenders and specific borrowers. Everything else runs on state usury caps: non-bank consumer lenders operating within a single state, most private lending, and any credit not swept in by preemption or exportation. State caps on general consumer loans range roughly from 5% to 45%, depending on the loan amount, duration, and whether it’s secured. If your lender is a state-licensed finance company rather than a national bank, federal credit union, or MLA-covered creditor, your state’s law is the one that sets the ceiling.

Federal disclosure law still reaches those loans even when federal rate law doesn’t. The Truth in Lending Act requires every creditor to disclose the annual percentage rate and the total finance charge in a standardized format, but TILA does not tell lenders how much interest they can charge.¹² Knowing the rate is legal is a separate question from knowing what the rate is.

1
Office of the Law Revision Counsel. 12 US Code 85 – Rate of Interest on Loans, Discounts and Purchases
2
Legal Information Institute (LII). Marquette National Bank of Minneapolis v First of Omaha Service Corp
3
Office of the Law Revision Counsel. 10 US Code 987 – Terms of Consumer Credit Extended to Members and Dependents: Limitations
4
Consumer Financial Protection Bureau. Military Lending Act (MLA)
5
Office of the Law Revision Counsel. 12 US Code 1757 – Powers
6
National Credit Union Administration. Permissible Loan Interest Rate Ceiling Extended
7
Federal Student Aid (FSA) Knowledge Center. Interest Rates for Direct Loans First Disbursed Between July 1, 2025 and June 30, 2026
8
eCFR. 12 CFR Part 190 – Preemption of State Usury Laws
9
Office of the Comptroller of the Currency (OCC). Permissible Interest on Loans That Are Sold, Assigned, or Otherwise Transferred: Final Rule
10
Office of the Law Revision Counsel. 12 USC 86 – Usurious Interest; Penalty for Taking; Limitations
11
Treasury.gov. Title 18 United States Code – Chapter 96 – Racketeer Influenced and Corrupt Organizations
12
Office of the Comptroller of the Currency (OCC). Truth in Lending