Exemptions from usury laws in the United States fall to five main groups: nationally chartered banks and federal savings associations, FDIC-insured state banks, federal credit unions (under their own federal cap rather than state law), state-licensed non-bank lenders like payday and consumer finance companies, and lenders making business loans or first-lien residential mortgages. Tribal lending entities also claim exemption through sovereign immunity, though that claim is often contested. Because these carve-outs cover most consumer lending in the country, the identity of your lender and the type of loan you sign generally matter more than the interest-rate ceiling printed in your state’s code.
National Banks and Federal Savings Associations
National banks hold the strongest exemption in American lending. Under 12 U.S.C. § 85, a national bank can charge interest at the rate allowed by the laws of the state where the bank is located, or 1 percent above the Federal Reserve discount rate on 90-day commercial paper, whichever is higher.1Office of the Law Revision Counsel. 12 US Code 85 – Rate of Interest on Loans, Discounts and Purchases Federal savings associations follow the same preemption framework under OCC regulations.2eCFR. 12 CFR Part 7 Subpart D – Preemption
The Supreme Court cemented this power in 1978 in Marquette National Bank v. First of Omaha Service Corp., holding that a national bank may charge out-of-state credit card customers the interest rate permitted by the bank’s home state, even when that rate exceeds the borrower’s state cap.3Justia US Supreme Court. Marquette Nat. Bank v. First of Omaha Svc. Corp., 439 U.S. 299 (1978) A national bank based in a state with no rate ceiling can export that authority to borrowers in every other state.
On top of the home-state rule, OCC regulations give national banks a “most favored lender” power. A national bank in any state may charge the maximum rate that state permits for any state-chartered or licensed lending institution.4eCFR. 12 CFR Part 7 Subpart D – Preemption – Section 7.4001 If a state allows licensed small-loan companies to charge 36 percent, every national bank in that state can charge 36 percent too, without holding a small-loan license.
When a national bank overcharges, federal law sets the remedy: the borrower can recover twice the amount of interest already paid, but the lawsuit must be filed within two years of the transaction.5Office of the Law Revision Counsel. 12 US Code 86 – Usurious Interest; Penalty for Taking; Limitations Borrowers who don’t catch an overcharge quickly lose the right to recoup it.
State-Chartered Banks With FDIC Insurance
State-chartered banks insured by the FDIC have essentially the same rate-exportation power as national banks, thanks to 12 U.S.C. § 1831d. Congress passed the provision to prevent discrimination against state-chartered insured depository institutions, letting them charge interest at the rate allowed by their home state or 1 percent above the Federal Reserve discount rate, whichever is greater, regardless of any conflicting state constitution or statute.6Office of the Law Revision Counsel. 12 USC 1831d – State-Chartered Insured Depository Institutions and Insured Branches of Foreign Banks
The FDIC reinforced that authority by codifying its own most-favored-lender regulation at 12 CFR § 331.4, which mirrors the OCC rule. A state bank located in a given state may charge interest at the maximum rate that state permits for any state-chartered or licensed lending institution.7eCFR. 12 CFR Part 331 – Federal Interest Rate Authority Where your bank is chartered generally controls your rate, not where you live.
Federal Credit Unions
Federal credit unions operate under a different and tighter regime. The Federal Credit Union Act sets a default interest-rate ceiling of 15 percent per year on any loan.8Office of the Law Revision Counsel. 12 USC 1757 – Powers Federal credit unions cannot export the rate laws of their home state. The 15-percent cap is a hard federal number.
The NCUA Board can raise that ceiling temporarily when market conditions warrant. As of early 2026, the Board extended a temporary 18-percent ceiling through September 10, 2027, and it has renewed similar increases repeatedly over the years. One narrow exception exists: federal credit unions can charge up to 28 percent on payday alternative loans (PALs) under 12 C.F.R. § 701.21(c)(7)(iii), a small-dollar product designed as a cheaper substitute for storefront payday loans.9National Credit Union Administration. Permissible Loan Interest Rate Ceiling Extended
Licensed Non-Bank Lenders
Payday loan companies, pawnshops, and consumer finance firms have no federal charter or FDIC insurance. Their exemption from general usury caps comes from state licensing statutes, often called small loan acts or consumer finance acts, that create a separate set of rules for high-risk, small-dollar credit. In roughly half of states that don’t set a specific cap on payday loan pricing, the average effective APR runs close to 400 percent.
The license is everything. Operating without one typically drops the lender back under general usury law, and loans made at high rates become unenforceable. States impose their own penalties for unlicensed high-rate lending, which can include administrative fines, voiding of the loan contract, and in severe cases criminal prosecution.
Licensing also carries disclosure obligations. Lenders generally must show the borrower the total cost of credit, the APR, and the repayment schedule before the loan closes. The exemption from usury caps was never meant to be a blank check; it was a trade of higher rates for regulatory oversight and transparency.
The Military Lending Act Override
One group of borrowers is protected against every exemption above. Under the Military Lending Act (10 U.S.C. § 987), no creditor may charge a covered member of the armed forces or their dependent more than 36 percent on covered consumer credit.10Office of the Law Revision Counsel. 10 USC 987 – Terms of Consumer Credit Extended to Members and Dependents The cap applies to payday loans, vehicle title loans, credit cards, installment loans, and most other consumer credit products.11Consumer Financial Protection Bureau. Military Lending Act (MLA) A “covered member” is anyone on active duty under orders for more than 30 days, including active Guard and Reserve members. The calculation uses a Military Annual Percentage Rate that folds in finance charges, credit insurance premiums, and fees that might sit outside a normal APR. Any loan term violating the MLA is void from the beginning.
Residential Mortgage Loans
The federal government removed state usury caps from most home loans in 1980. Under 12 U.S.C. § 1735f-7a, state laws limiting interest rates, discount points, or finance charges do not apply to any loan secured by a first lien on residential real property, cooperative housing stock, or a residential manufactured home, provided the loan was made after March 31, 1980.12Office of the Law Revision Counsel. 12 US Code 1735f-7a – State Constitution or Laws Limiting Rate or Amount of Interest, Discount Points, Finance Charges, or Other Charges This is the statute usually called DIDMCA preemption.
The key phrase is “first lien.” Second mortgages, home equity loans, and home equity lines of credit secured by a junior lien do not get automatic federal preemption and remain subject to whatever state interest-rate cap applies. Loans insured or guaranteed by the Federal Housing Administration or the Department of Veterans Affairs carry their own separate exemptions, with agency guidelines that override state usury limits.
Commercial and Business Loans
Usury laws were built to protect consumers, and most states don’t extend that protection to business borrowers. Many states exempt commercial loans outright, and others lift the usury ceiling once a loan exceeds a certain dollar threshold, commonly in the range of $250,000 to $500,000. This is what makes possible the financing structures businesses routinely rely on: bridge loans at double-digit rates, mezzanine debt with equity kickers, and merchant cash advances priced as factor rates rather than interest.
The exemption has limits. Some states maintain a separate criminal usury threshold that applies even to business loans, and rates above that ceiling can trigger felony charges regardless of the borrower’s sophistication. Lenders also need to document the business purpose carefully. Disguising a personal loan as a business loan to dodge usury protections can void the contract entirely and expose the lender to penalties.
Tribal Lending Operations
Some online lenders operate through entities organized under the authority of a Native American tribe, claiming tribal sovereign immunity to avoid state usury laws and licensing requirements. The theory is that a tribal enterprise functions as an “arm of the tribe” and shares the tribe’s immunity from state regulation.
Courts evaluate these claims by looking at the real relationship between the tribe and the lending operation. Factors include whether a judgment against the entity would reach tribal assets, how much control the tribal government exercises, whether the entity was organized for governmental or purely commercial purposes, and whether it holds property in its own name.13Internal Revenue Service. Tribal Business Structure Handbook Several tribal lending operations have lost their immunity claims after judges applied a “predominant economic interest” test and found that a non-tribal company funded the loans, bore the default risk, and retained nearly all the profit. Immunity is not automatic, and borrowers charged rates far above their state cap by a tribal-affiliated lender should not assume the defense will hold up.
What Happens When Loans Are Sold or Serviced by Non-Banks
A bank can originate a loan at a rate that would be usurious for a non-bank lender, then sell that loan. Whether the rate survives the sale has been one of the most contested issues in consumer finance in recent years.
The OCC answered it for national bank loans with its “valid-when-made” rule at 12 CFR § 7.4001(e): interest on a loan permissible under 12 U.S.C. § 85 is not affected by the sale, assignment, or other transfer of the loan.14eCFR. 12 CFR 7.4001 – Charging Interest by National Banks The FDIC adopted a parallel rule at 12 CFR Part 331 for state-chartered bank loans.7eCFR. 12 CFR Part 331 – Federal Interest Rate Authority If the rate was legal when the bank made the loan, it stays legal for the buyer.
Those rules were regulators’ answer to the Second Circuit’s 2015 decision in Madden v. Midland Funding, which held that a non-bank debt buyer was not entitled to National Bank Act preemption simply because it purchased a loan a national bank originally made.15Justia Law. Madden v. Midland Funding LLC, No. 14-2131 (2d Cir. 2015) The decision suggested state usury laws could snap back the moment a loan left a bank’s hands, and the valid-when-made rules were written to shut that door.
Fintech Partnerships and the True Lender Problem
Many online lending platforms don’t hold bank charters. They partner with a chartered bank that technically originates the loan, then immediately purchases or services it. The bank’s charter supplies the usury exemption; the fintech company provides the technology, marketing, and underwriting. Critics call this “rent-a-bank” lending.
The OCC issued a “true lender” rule in 2020 that would have deemed the bank the lender whenever it was named in the loan agreement or funded the loan, but Congress repealed the rule in 2021 under the Congressional Review Act.16Office of the Comptroller of the Currency. Acting Comptroller Statement on the Vote to Overturn OCC True Lender Rule Without a federal bright-line test, courts use a fact-intensive inquiry that weighs which entity funds the loan, bears the risk of default, services the account, and keeps most of the profit. If the fintech company checks most of those boxes, a court can declare it the true lender, strip away the bank charter’s preemption, and subject the loans to state usury limits. Borrowers dealing with a fintech platform charging rates well above their state’s cap should not assume the bank partnership automatically makes the rate legal.