New York State Maximum Interest Rate Laws

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Nearly every business and individual engages in lending or borrowing at some point. Thus, it is relevant information that there exist rules setting maximum rates of interest lenders can lawfully charge borrowers. These limits, know by the esoteric-sounding moniker of “usury laws,” can seem somewhat abstruse to the uninitiated. This article will provide an overview of New York’s usury laws for readers to gain a basic knowledge of how usury law works to protect borrowers.

Maximum Allowable Rates

A useful starting point to understanding New York State’s usury structure is that there are two usury rates relevant to most loans. The first is the civil usury rate of 16%. Borrowers to loans charging rates in excess of 16% can plead usury as an affirmative defense in a nonpayment action, or potentially bring their own suit to invalidate the loan. The second rate is the criminal usury rate of 25%. In addition to being a defense to nonpayment claims, lenders found to have charged an interest rate in excess of 25% can be criminally prosecuted. Violation of the criminal usury rate is a Class E felony punishable by up to four years imprisonment, with potential for additional penalties if the lender’s conduct is found to be part of a scheme or business of making usurious loans.


The rules seem straightforward enough at this point; lenders can’t collect interest over 16%, and interest over 25% may subject the lender to criminal liability. Things start to get interesting when factoring in the exceptions. The first major one to consider is that for incorporated entities – corporations, limited liability companies, and the like, the defense of civil usury is usually not available. So, loans made to these entities can lawfully include interest at a rate up to 25%. The same goes for loans over $250,000 but not exceeding $2.5 million made to individuals. Lenders can charge an interest rate up to the 25% criminal limit. All loans, whether to business entities or to individuals, in a principal amount over $2.5 million are totally exempt from either the criminal or the civil limits.

The purpose of usury protections is generally to shield borrowers from being taken advantage of by lenders. Exempting high denomination loans and those made to businesses recognizes that these types of borrowers are less in need of the somewhat paternalistic usury safeguards. They are likely sophisticated enough to understand the consequences of whatever agreements they reach with lenders.

Chartered banks have their own exceptions under the New York State Banking Law which generally limits the penalties suffered for issuing a usurious loan to forfeiture of interest and excludes banks from criminal liability.

Another even wonkier exemption applies just to loans secured by collateral under Article 9 of New York’s Uniform Commercial Code. Loans in this category over $100,000 made for business purposes are exempt from the usury limitations as long as the interest rate is no more than 8% over the prime rate (3.25% as of this writing) when the interest accrues.

Rules by Judicial Interpretation

One source of relief for lenders, and bane to borrowers, is that “default interest” is generally not subject to the usury limitations. Default interest is a loan mechanism where if a borrower defaults on their obligations, the interest rate on the outstanding balance increases, often well in excess of the civil and criminal usury limits. Courts have found that these jacked up rates are treated differently than ordinary interest and not subject to the usury limitations.

In contrast to courts’ so-called usury savings clauses in loan agreements are not looked upon favorably. These clauses are included in an attempt to save the lender if its interest rate turns out to be usurious. Their language will state that if the stated rate is ever deemed to be in violation of applicable usury rules, the maximum legally allowable interest rate will apply. Courts view this as an attempt to circumvent usury protections, which if permitted would allow lenders to collect  exorbitant interest, and leave borrowers with a meager remedy if successfully raising the usury defense that the lender would still collect maximum legal interest. Courts usually find such clauses void, resulting in the loan being uncollectable or the rate being criminal.  

If you’re reading this and wondering whether you’re party to a usurious loan (this author’s credit card carries a rate of 17.24%), there’s another thing to consider before cancelling that next payment. Loans made by out of state lenders are subject to the usury laws in their home jurisdiction, i.e., where the loan “originated,” regardless of borrowers’ location. Even if your lender is a local company or based in New York City, it is common for lenders to have affiliates in other jurisdictions. This allows them to use higher or nonexistent usury thresholds in those jurisdictions. South Dakota, Utah, and Delaware are popular. While the propriety of this forum shopping has been called into question by at least one federal court sitting in New York, it remains all but universally sanctioned.


Large institutional lenders are well versed in these rules, but they can easily trip up small businesses or those engaging in one-off transactions. This summary provides a basic overview and some of the nuances are necessarily not reflected. If you have questions regarding usury law’s application to a transaction, seeking advice of experienced legal counsel is well-advised. The attorneys at the Wladis Law Firm can be contacted at (315) 445-1700 or by emailing your regular firm contacts.

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Christopher J. Baiamonte

Mr. Baiamonte concentrates his practice primarily on civil litigation. He counsels individual, corporate, and municipal clients on resolving disputes ranging from environmental liability to shareholders rights to creditor–debtor suits. He also works with clients to navigate various state and federal regulations relating to areas such as environmental protection, employment, and civil rights.

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