How do small installment loans not have to adhere to usury laws?

UPDATED: Jan 2, 2012

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How do small installment loans not have to adhere to usury laws?

I have seen these companies charge as much as 144% APR or 72% on a 6 month loan of $250. Are they licensed by the state? Is there a maximum interest? Note that these are not payday loans; these are signature or small installment loans. How would one acquire a license to lend like this?

Asked on January 2, 2012 under Business Law, Oklahoma


FreeAdvice Contributing Attorney / FreeAdvice Contributing Attorney

Answered 11 years ago | Contributor

All states have statutes preventing usury with respect to loans which are a forbearance for the use of money over a certain period of time. Some states have laws where a higher interest rate beyond that allowed by the usury laws is allowed in real estate transactions brokered by a licensed real estate agent.

As to credit cards and high interest rates for them, technically they are not loans per se in that the amount charged on a credit card can be paid off monthly by the owner of the credit card. As such, a credit card is not a forbearance for the use of money. It essentially is a finance charge which is exempt from state's usury laws.

In many circumstances the high rate of interest charged by the companies is in violation of the usury laws of many states.


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