Several categories of lenders are exempt from state usury laws. National banks, state-chartered banks with federal deposit insurance, and federal credit unions operate under federal interest rules that preempt state caps. Licensed non-bank lenders, retail sellers offering installment financing, and lenders extending credit to businesses also fall outside standard usury protections in most states. The one group with stronger protection running the other direction is active-duty service members, who get a federal 36% ceiling that overrides these exemptions.
National Banks
A federally chartered 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 This is called interest rate exportation, and it is the reason most major credit card issuers operate out of Delaware and South Dakota. Those states place few or no limits on bank interest, so cards issued from there can carry those rates nationwide.
The Supreme Court confirmed the rule in Marquette National Bank v. First of Omaha Service Corp. in 1978, holding that a Nebraska bank could charge Minnesota cardholders the higher rate Nebraska permitted.2Justia U.S. Supreme Court Center. Marquette Nat. Bank v. First of Omaha Svc. Corp., 439 U.S. 299 (1978) If your state caps interest at 10% and the bank on your card is based in a state with no cap, 30% is legal.
“Interest” for this purpose covers more than the periodic rate on your balance. It includes late fees, insufficient-funds fees, overlimit fees, annual fees, cash advance fees, and membership fees. Appraisal fees, insurance premiums, and document preparation costs generally sit outside that definition.3Federal Register. Federal Interest Rate Authority
State-Chartered Insured Banks
State-chartered banks that carry FDIC deposit insurance have parallel authority under 12 U.S.C. 1831d, enacted in the Depository Institutions Deregulation and Monetary Control Act of 1980. The statute preempts state constitutions and statutes so that state banks do not sit at a competitive disadvantage against national banks.4Office of the Law Revision Counsel. 12 USC 1831d – State-Chartered Insured Depository Institutions and Insured Branches of Foreign Banks
The mechanics work the same way as for national banks. The state where the bank is located sets the permissible rate, and the borrower’s home state cannot lower it. Many states also have internal parity laws that let their banks match any lending power granted to a national bank operating in the same state.
The rate is fixed at the moment the loan is made. Later shifts in state law, changes in the Federal Reserve discount rate, or a sale of the loan to another entity do not change what is permissible. The FDIC codified that principle in a 2020 rule.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 market rates threaten safety and soundness, and it has kept a temporary 18% ceiling in place, most recently extended through March 10, 2026.7NCUA. Permissible Loan Interest Rate Ceiling Extended
Because the ceiling comes from federal law, state usury caps do not apply to federal credit unions. The federal ceiling itself is the limit. Whether the NCUA extends the 18% figure past March 2026 will depend on market conditions at that point.
Commercial and Business Loans
Loans for business purposes generally fall outside consumer usury protections. Most legislatures treat corporations, LLCs, and partnerships as sophisticated enough to negotiate their own credit terms, with legal counsel available and profit-generating uses for the money.
The specifics vary. Some states exempt any loan made to a registered business entity. Others use a dollar threshold, so any loan above a set size, regardless of borrower type, drops out of the usury framework. Those thresholds range widely by jurisdiction, from a few hundred thousand dollars to several million.
A separate criminal usury statute may still set an absolute ceiling even where civil caps do not apply, typically somewhere in the 20% to 25% range. Some states exempt the largest commercial loans from even that.
Licensed Non-Bank Lenders and Retail Sellers
Payday lenders, title lenders, pawnbrokers, and other specialized finance companies operate under state licensing regimes that often carve them out of the general usury statute. A license permits rates that would otherwise be unlawful, in exchange for regulatory oversight and disclosure requirements. In some states, licensed payday rates translate to triple-digit annual percentages when expressed on an APR basis.
Federal law does not cap these rates, but the Truth in Lending Act requires the lender to disclose the APR, total finance charges, and payment terms before the loan closes. High-cost home mortgages carry additional warnings, including notice that the home secures the loan.
A different route out of the usury statute exists for retail sellers. Under the time-price doctrine, the difference between a cash price and a higher price payable over time is treated as a pricing choice rather than interest on a loan. Because the transaction is structured as a credit sale, an auto dealer or furniture store can charge finance charges that a cash lender could not. Many states allow retail installment contracts to sit entirely outside their usury laws.
Bank-Fintech Partnerships
An online lender that is not itself a bank cannot claim federal preemption of state usury caps. Many fintech companies work around this by partnering with a chartered bank. The bank originates the loan using its federal rate authority, then sells or assigns the loan to the fintech that services it.
The legal foundation is the valid-when-made doctrine: if the rate was lawful at origination, it remains lawful after the loan is transferred. The OCC codified this 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 banks.5eCFR. 12 CFR Part 331 – Federal Interest Rate Authority
These arrangements have a limit. Courts apply a “true lender” analysis when they suspect the bank is a pass-through rather than the real economic actor. The test looks at who funds the loan, who bears the default risk, and who designed the product. If the non-bank partner is the true lender, the bank’s preemption falls away and state usury law controls. The OCC finalized a rule in 2020 that would have set a bright-line test based on which party was named in the agreement or funded the loan, but Congress overturned it in 2021 under the Congressional Review Act.9OCC. Acting Comptroller Statement on the Vote to Overturn OCC True Lender Rule Courts now handle these cases individually, with no uniform federal standard.
A related arrangement involves online lenders partnering with Native American tribes and claiming sovereign immunity. Courts have rejected many of these when the tribe’s role is nominal and a non-tribal company supplies the capital, designs the product, and keeps most of the profits.
The Exception That Runs the Other Way: Active-Duty Service Members
Every exemption above has one hard limit. The Military Lending Act imposes a 36% cap on the Military Annual Percentage Rate for most consumer credit extended to active-duty service members and their dependents, and it overrides the federal preemption that lets banks export higher rates.10Office of the Law Revision Counsel. 10 USC 987 – Terms of Consumer Credit Extended to Certain Members of the Armed Forces and Their Dependents
The 36% MAPR takes in more than the stated interest rate. It also captures finance charges, credit insurance premiums, and fees for add-on products.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 not covered
- Installment loans, except purchase-money loans secured by the vehicle or personal property being bought
- Credit cards, added by a 2015 expansion of the Department of Defense’s implementing rule
Residential mortgages and purchase-money loans secured by the item financed sit outside 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 a Lender Charges More Than the Law Allows
A national bank that knowingly charges more than federal law permits forfeits all interest on the loan, not just the excess. A borrower who has already paid can sue for twice the interest paid, but the suit has to be filed 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 in the same situation forfeits all interest, and the borrower can recover the interest paid (not double) within the same two-year window.6Office of the Law Revision Counsel. 12 USC 1757 – Powers
State-law penalties for usury vary. 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 ceiling. In the harshest cases, courts have refused to enforce any part of the loan, principal included, when the lender deliberately targeted an unsophisticated borrower. State statutes of limitations for usury claims vary by jurisdiction; the two-year deadline above is a federal rule that applies only to claims against national banks and federal credit unions.