US states set statutory interest rates for loans and judgments, which may exceed usury caps. National banks are exempt from state laws, as are some finance companies. Post-judgment interest accrual is separate from pre-judgment interest and tied to the Federal Reserve’s discount rate.
In all US states, interest may be charged on money lent to a consumer or may accrue on certain legal debts such as a judgment obtained against a debtor. While it may be legal to charge interest on loans or pending judgments, many jurisdictions set a statutory interest rate that cannot be exceeded. As a rule, the legal interest rate that a lender can charge a borrower is set by law and can only be changed by the legislator. On the other hand, the interest charged on a judgment is often subject to change once a year, usually in October.
In order to protect consumers from predatory lending practices, most states in the United States have set a maximum interest rate, also known as a usury cap, that a lender can charge a borrower on money owed. While the usury limit is, in theory, intended to protect consumers, the statutory interest rate may actually be higher for many loans than the state’s usury limit. The reason is that the usury limit does not apply to all types of loans.
Domestic banks are not constrained by the legal interest rate within a specific state for most loans. When the federal government originally excluded national banks from usury limit laws, national banks were the exception to the rule; however, most banks in the US are now considered national banks, meaning most bank loans are exempt from statutory interest rate laws. In many cases, other finance companies or installment loans are also excluded from the state usury limits.
The other area where statutory interest rate laws play an important role is post-judgment interest accrual. When a borrower defaults on a loan, or when a person owes money for any reason, the lender can file a lawsuit in the appropriate court and seek a monetary judgment against the borrower for the amount owed. If the judge is satisfied that the money is actually owed to the obligee, then a judgment will be issued against the obligee. A judgment is a court order stating that money is owed by one person or business to another person or business.
Most states also allow a judgment to begin earning interest from the time the judgment is entered in court. The post-judgment interest is separate and distinct from the pre-judgment interest. States also have a statutory interest rate that can be charged on post-judgment debt. Post-judgment interest rates typically change once a year and are often tied to the Federal Reserve’s discount rate.
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