Many state's laws provide that you cannot lend money at an interest rate in excess of a certain statutory maximum. This is a "usury limit." Banks have separate rules. In fact, due to high inflation, in 1980, the federal government passed a special law which allowed national banks (the ones that have the word "national" or the term "N.A." in their name, and savings banks that are federally chartered) to ignore state usury limits and pegged the rate of interest at a certain number of points above the federal reserve discount rate. In addition, specially chartered organizations like small loan companies and installment plan sellers (like car financing companies) have their own rules.
The Truth in Lending Act is a federal law that requires that all terms in a consumer credit transactions be fully explained. It also encompasses all advertisements except for statements made by a salesperson or clerk trying to make a sale. If you need a personal loan and you use your home as collateral for a loan, you generally have the right to cancel the credit transaction within three business days. This is called your "right of rescission," and it is guaranteed by the Federal Truth in Lending Act.
