2015-10-13
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Lenders of money may not charge more than a specified maximum rate of interest. This rate varies among the states from 12 percent to 18 percent a year that are common maximums.
The exact rate of interest agreed upon by borrower and lender in a particular loan is the contract rate of interest. This rate may not legally exceed the maximum rate. Lending money at a rate higher than the maximum rate is usury. The penalty for usury is generally that the lender cannot collect some or all of the interest, but the borrower must still repay the principal.
Sometimes a person borrows money for which interest is charged but no exact rate is stated. The rate to be paid is the legal rate of interest, which is specified by state statute.
Usury laws generally do not apply to the carrying charges added to the price of goods sold on credit. This is because the debtor is buying goods and not borrowing money. However, a minority of states regulate such charges as interest. They do this on the theory that the store — in effect — borrows money and relends it to the customer-debtor to finance the credit sale.
Many states permit licensed loan companies and pawnbrokers to charge a small loan rate of interest. This rate is typically 36 percent a year. The overhead cost per dollar loaned is high, and presumably the risk of loss from defaults is also high. This concession is made to protect people against criminal loan sharks, who illegally charge extremely high rates.
Agreements That Involve Illegal Gambling, Wagers, and Lotteries
Gambling is either forbidden or regulated by the state. Gambling involves an agreement with three elements: payment to participate; a chance to win, based on luck rather than on skill; and a prize for one or more winners. A wager, one of the most common forms of gambling, is a bet on any event which depends on chance or uncertainty.
Unless specifically permitted by law, the winners in illegal gambling agreements cannot enforce payment of their winning through court action.
