RealTown Words

The act of charging a rate of interest in excess of that permitted by law. Some states have set a specific interest limit, charging more than what would be usury, while others have what is known as a floating interest rate, usually pegged each month at a certain percent above a fluctuating economic indicator, such as the interest rate on long-term Treasury notes or Federal Reserve discount rates. A lending contract that charges a usurious interest rate may be void or voidable in certain states. Deliberately charging or receiving usurious interest rates on loans is known as loan sharking, a crime that may be considered either a misdemeanor or a felony. In some states, the penalty for usury is that the lender is not entitled to any interest and must apply all interest collected to reduce the principal balance of the loan.

Certain transactions are exempt from state usury laws, such as VA and FHA transactions. Under the federal Depository Institutions Deregulation and Monetary Control Act of 1980, the federal government preempted state usury ceilings for federally related conventional residential first mortgage loans unless a state enacts overruling legislation.