Several categories of lenders are exempt from state usury laws: federally chartered national banks, state-chartered banks with federal deposit insurance, federal credit unions, most commercial and business lenders, and state-licensed non-bank lenders such as payday and title lenders. Retail sellers offering installment financing also sit outside usury caps in many states under the time-price doctrine. Active-duty service members are the main countervailing exception: a federal 36% cap on most consumer credit applies to them regardless of the lender’s other exemptions.
The practical effect is that most Americans borrow at rates set by the lender’s charter and location, not by the usury cap in their own state.
National Banks and Rate Exportation
A national bank can charge interest at the rate allowed by the state where the bank is located, not the state where the borrower lives.1Office of the Law Revision Counsel. 12 USC 85 – Rate of Interest on Loans, Discounts and Purchases Federal law preempts state usury caps for these institutions, so a bank headquartered in a state with permissive rules can apply those rules to customers nationwide.
The Supreme Court established this in Marquette National Bank v. First of Omaha Service Corp. in 1978, holding that a Nebraska-based bank could charge Minnesota credit card customers the higher rate Nebraska allowed.2Justia U.S. Supreme Court Center. Marquette Nat. Bank v. First of Omaha Svc. Corp., 439 U.S. 299 (1978) That is why major credit card issuers concentrate their operations in states like Delaware and South Dakota, and why a borrower in a state with a 10% cap may still owe 30% on a card issued from elsewhere.
“Interest” for exportation purposes is broader than the periodic rate on the balance. It also covers late fees, insufficient-funds fees, overlimit fees, annual fees, cash advance fees, and membership fees. Appraisal fees, insurance premiums, and document preparation costs are generally excluded.3Federal Register. Federal Interest Rate Authority Where no state rate exists, federal law sets a default ceiling of 7% or 1% above the Federal Reserve discount rate on 90-day commercial paper, whichever is greater.1Office of the Law Revision Counsel. 12 USC 85 – Rate of Interest on Loans, Discounts and Purchases
State-Chartered Banks With Federal Deposit Insurance
State-chartered banks that carry FDIC insurance get parallel authority under 12 U.S.C. 1831d, enacted in the Depository Institutions Deregulation and Monetary Control Act of 1980. The statute expressly preempts state constitutions and statutes so these banks are not disadvantaged compared with national banks.4Office of the Law Revision Counsel. 12 USC 1831d – State-Chartered Insured Depository Institutions and Insured Branches of Foreign Banks
Like a national bank, a state-chartered insured bank charges interest at the rate allowed by the state where the bank sits, not the borrower’s state. Many states have also passed parity laws that let their state banks match any lending powers held by national banks doing business in that state.
The permissible rate is locked in when the loan is made. It doesn’t change if state law shifts later, if the Federal Reserve discount rate moves, or if the loan is sold. The FDIC codified that principle in a 2020 regulation designed to maintain parity with the national bank framework.5eCFR. 12 CFR Part 331 – Federal Interest Rate Authority
Federal Credit Unions
Federal credit unions operate under the Federal Credit Union Act, which sets a default ceiling of 15% per year on most loans.6Office of the Law Revision Counsel. 12 USC 1757 – Powers The NCUA Board can raise that ceiling temporarily when rising market rates threaten credit union safety and soundness, and it has kept a temporary 18% ceiling in place, most recently extending it through March 10, 2026.7NCUA. Permissible Loan Interest Rate Ceiling Extended
Because the ceiling is set by federal law, federal credit unions are exempt from state usury caps. The federal number itself, however, still limits what they can charge. Whether the NCUA extends 18% beyond March 2026 depends on market conditions at that point.
Commercial and Business Loans
Loans for business purposes generally fall outside consumer usury protections. Most states treat corporations, LLCs, and partnerships as sophisticated enough to negotiate their own credit terms, with access to counsel and an understanding of the risk involved.
The rules vary. Some states exempt any loan made to a registered business entity, whatever the size. Others use a dollar threshold and drop the cap once a loan exceeds it, with the threshold ranging from a few hundred thousand dollars to several million depending on the jurisdiction. The exemption may apply only when the borrower is a business, or it may kick in above the threshold for any borrower.
Civil usury caps aren’t the whole picture. Criminal usury statutes may still set an absolute ceiling, often in the 20% to 25% range, and some states exempt large commercial loans from that too.
Licensed Non-Bank Lenders and Retail Installment Sellers
Payday lenders, title lenders, and pawnbrokers operate under state licensing regimes that often carve them out of general usury statutes. These specialized licenses can permit rates that translate to triple-digit annual percentages, provided the lender meets its regulator’s disclosure and conduct requirements.
Federal law doesn’t cap the rate for these lenders, but the Truth in Lending Act requires them to disclose the annual percentage rate, total finance charges, and payment terms before closing. High-cost home mortgages carry extra warnings, including an explicit notice that the home secures the loan and can be lost on default.
Retail sellers such as auto dealerships and furniture stores get a separate exemption through the time-price doctrine. Under that doctrine, the gap between a cash price and a higher price for goods paid over time isn’t treated as interest on a loan; it’s simply a different price for the same product. Because the transaction is structured as a credit sale rather than a loan, the finance charges can exceed limits that would apply to a straight cash loan, and many states allow these retail installment contracts to bypass usury rules entirely.
Bank-Fintech Partnerships
Online lenders that aren’t themselves banks can’t claim federal preemption directly. Many partner with a chartered bank instead: the bank originates the loan using its own rate authority, then sells or assigns the loan to the fintech that services it.
The legal backbone of these arrangements is the valid-when-made doctrine. If a loan’s rate is lawful when the bank makes it, it stays lawful after transfer to a non-bank. The OCC codified that for national banks in a 2020 rule,8Federal Register. Permissible Interest on Loans That Are Sold, Assigned, or Otherwise Transferred and the FDIC issued a parallel rule for state-chartered banks.5eCFR. 12 CFR Part 331 – Federal Interest Rate Authority
These partnerships face challenges under the “true lender” doctrine. Courts look at which party has the real economic interest in the loan: who funds it, who bears the default risk, and who designed the product. If the non-bank partner is the actual lender, the bank’s preemption doesn’t carry over, and the loan must comply with the borrower’s state usury laws. Congress used the Congressional Review Act in 2021 to overturn an OCC rule that would have set a uniform federal test for identifying the true lender,9OCC. Acting Comptroller Statement on the Vote to Overturn OCC True Lender Rule so courts continue to decide these cases individually.
The Service Member Exception
The Military Lending Act caps the Military Annual Percentage Rate at 36% on most consumer credit extended to active-duty service members and their dependents.10Office of the Law Revision Counsel. 10 USC 987 – Terms of Consumer Credit Extended to Certain Members of the Armed Forces and Their Dependents This cap overrides the federal preemption that otherwise lets banks export higher rates.
The 36% MAPR captures more than the stated rate. It also includes finance charges, credit insurance premiums, and fees for add-on products sold with the loan.11Consumer Financial Protection Bureau. Military Lending Act Covered products include:
- Payday loans, deposit advance products, tax refund anticipation loans, and vehicle title loans
- Overdraft lines of credit, though traditional overdraft services are excluded
- Installment loans, except loans specifically intended to finance a vehicle or personal property purchase when secured by that property
- Credit cards, added by a 2015 expansion of the Department of Defense’s implementing rule
Residential mortgages and purchase-money loans secured by the vehicle or personal property being bought are excluded from MLA coverage.10Office of the Law Revision Counsel. 10 USC 987 – Terms of Consumer Credit Extended to Certain Members of the Armed Forces and Their Dependents
When an Exempt Lender Still Goes Too Far
Exemption from state caps doesn’t mean no ceiling at all. A national bank that knowingly charges above the rate federal law permits forfeits all interest on the loan, not just the excess. A borrower who has paid the unlawful interest can sue to recover twice that amount, within two years of the violation.12Office of the Law Revision Counsel. 12 USC 86 – Usurious Interest; Penalty for Taking; Limitations
A federal credit union that knowingly overcharges forfeits all interest on the loan, and the borrower can recover the full amount of interest paid, within the same two-year window.6Office of the Law Revision Counsel. 12 USC 1757 – Powers
For a lender that isn’t exempt and violates a state cap, penalties vary widely by state. Common outcomes include forfeiture of all interest, voiding of the loan contract (sometimes including the obligation to repay principal), civil damages with statutory penalties or attorney’s fees, and criminal charges when the rate crosses the state’s criminal usury threshold. State statutes of limitations for usury actions differ, so the two-year federal deadline applies only to claims against national banks and federal credit unions.