Glossary · Legal and regulation
Usury law
Also called Usury
A usury law caps the interest rate that may be charged on a debt. In the US, each state sets its own ceiling and its own exemptions.
Usury laws set the maximum interest that can be charged. In the US they are state law, so the ceiling, and which transactions it applies to, differ from state to state. Many states exempt business or commercial transactions, or larger amounts, from their general limits.
For invoices, the question is whether a late-payment charge counts as interest for usury purposes. Some states treat it as interest, others as a separate fee, and the answer can change the rate you may write into your terms.
Consequences of breaking a usury law range from losing the excess interest to forfeiting all interest, so check the law of the state that governs your contract before setting a high late rate.
Example
A supplier’s terms charge 1.5% a month (18% a year) on overdue invoices. In a state whose cap on agreed rates is 15%, that clause risks being unenforceable, so the supplier sets its rate at 15%.