Usury is a civil or criminal violation involving charging more than the maximum interest rate allowed by law. The rate of interest legally allowed is governed by state statutes. If a court finds that the rate of interest on a loan is usurious, the interest due becomes void and only the principal of the loan needs to be repaid.
To constitute usury there must be an knowing and consensual obligation of the borrower to return the principal as well as pay an amount greater than lawful interest. The lawful rate of interest will be governed by the country in which the contract was made. Usury is usually only considered a crime if a person is a "loan-shark" (someone in the business of loaning money at usurious rates). Banks and other commercial lenders generally are not subject to anti-usury laws, but are governed by the marketplace and the competitive rates based upon the Federal Reserve's rates for bank loans.
State laws vary, and often contain exceptions for various types of transactions, so local laws should be consulted for applicable requirements. The following is an example of a Virginia usury law:
"Contracts for more than legal rate of interest.
Except as otherwise permitted by law, no contract shall be made for the payment of interest on a loan greater than twelve percent per year.
For statutes which permit payment of interest greater than twelve percent per year, reference is hereby made to Article 6 (§ 6.1-330.60 et seq.), Article 7 (§ 6.1-330.64), Article 8 (§ 6.1-330.65 et seq.), Article 9 (§ 6.1-330.69 et seq.), Article 10 (§ 6.1-330.75 et seq.) and Article 11 (§ 6.1-330.77 et seq.) of this chapter. Further reference is hereby made to Chapter 6 (§ 6.1-244 et seq.) of this title, relating to powers of consumer finance companies; to Chapter 18 (§ 6.1-444 et seq.) of this title, relating to payday lenders; to § 38.2-1806, relating to interest chargeable by insurance agents; to §§ 38.2-4700 through 38.2-4712, relating to interest chargeable by premium finance companies; and to § 58.1-3018, relating to interest and origination fees payable under third-party taxpayer agreements.
In the case of any loan upon which a person is not permitted to plead usury, interest and other charges may be imposed and collected as agreed by the parties.
Those provisions of this chapter providing that a loan or extension of credit may be enforced as agreed in the contract of indebtedness, shall not be construed to preclude the charging or collecting of other loan fees and charges permitted by law, in addition to the stated interest rate, and such other loan fees and charges need not be included in the rate of interest stated in the contract of indebtedness. "
