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Your state may have more than one law governing loans, especially small loans.

For example, many states have different rate limits for $500 loans with six-month repayment terms and $2,000 loans with two-year repayment terms.

This chart shows state interest rate caps for those two types of loan

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Banks can often charge up to the maximum interest rate allowed by the state where they are based. Over time, however, most states also exempted banks from their usury laws to entice them to set up shop there, Johnson says.

That means most banks don’t have to abide by most states’ lending laws.

These rules also allow high-cost online installment lenders, which consumer advocates call rent-a-bank lenders, to provide loans with triple-digit APRs in states with more restrictive rate laws, Johnson says.

For example, a financial technology company that operates nationwide can partner with a bank in a state with lax interest rate rules and provide loans to consumers across the country according to that state’s law.

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A usury law prevents lenders from providing extraordinarily expensive — or usurious — loans to consumers. Essentially, usury laws are interest rate laws.

There is no federal law that sets maximum interest rates on all consumer loans; rather, rates are restricted at the state level. This means usury laws vary between states.

Most states have been restricting interest rates for the majority of their existences, says Lauren Saunders, associate director at the National Consumer Law Center (NCLC).

“Usury law” can refer to the first interest rate laws made in the 19th century, when young states set rate limits around 6%, or it can refer to modern versions of those laws, like the 36% consumer loan rate cap Illinois passed in 2021, Saunders says.