The short answer
The United States has no general federal interest cap for private lenders. Each state sets its own usury rules, exemptions and penalties, and the penalties can include forfeiting interest or even principal. Canadian lenders must price every US loan to the law of the state that will govern it, and cannot assume a contract clause will fix a bad rate.
Why usury is a state question
US usury law is almost entirely state law. Federal preemption helps banks and some federally related residential first-lien loans (for example, under section 501 of the Depository Institutions Deregulation and Monetary Control Act of 1980, 12 U.S.C. § 1735f-7a). A non-bank private lender making a business-purpose loan secured by US real estate usually cannot rely on federal preemption and must satisfy the relevant state's rules.
Five states compared
| State | General civil limit | Key exemption or feature | Criminal usury | Main civil consequence |
|---|---|---|---|---|
| Florida | 18% simple (Fla. Stat. § 687.02); 25% for loans over $500,000 (§ 687.03) | Rate applies to all lenders; cap rises with loan size | Above 25% is a misdemeanor; above 45% a felony (§ 687.071) | Forfeiture of interest; double interest if collected (§ 687.04) |
| New York | 16% (Gen. Oblig. Law § 5-501; Banking Law § 14-a) | Loans of $250,000+ exempt from civil usury; $2.5 million+ exempt from criminal usury (§ 5-501(6)) | Above 25% (Penal Law § 190.40) | Corporations cannot plead civil usury (§ 5-521) but can plead criminal usury |
| California | 10% or discount-rate formula (Cal. Const. art. XV, § 1) | Loans made or arranged by a licensed real estate broker (Civ. Code § 1916.1); CFL licensees (Fin. Code § 22002) | None comparable | Treble interest paid in prior year; interest forfeited |
| Texas | Optional weekly ceiling, generally 18%–24% (Fin. Code ch. 303) | Commercial loans over $250,000 may use a higher ceiling | None comparable | Three times excess; forfeiture of principal and interest if more than double the limit (Fin. Code § 305.002) |
| Washington | 12% or T-bill formula (RCW 19.52.020) | Business-purpose exemption (RCW 19.52.080) | None comparable | Loss of interest, costs and fees (RCW 19.52.030) |
Always check current statutes and published rate ceilings before quoting a rate. Texas ceilings are published weekly by the Office of Consumer Credit Commissioner.
Three state rules that trip up Canadian lenders
New York's criminal floor. A New York corporation cannot use civil usury as a defense, but it can raise criminal usury. In Adar Bays, LLC v. GeneSYS ID, Inc., 37 N.Y.3d 320 (2021), the Court of Appeals held that a loan found criminally usurious under Penal Law § 190.40 is void ab initio when a corporate borrower raises that defense. For loans under $2.5 million, a 25% all-in cost is a hard ceiling.
California's broker exemption, and SB 1146. California's 10% limit disappears for loans "made or arranged" by a licensed real estate broker. After the In re Moon litigation, courts held that the exemption covered only the original term, so an unbrokered extension could become usurious. SB 1146 amended Civil Code § 1916.1, effective 1 January 2025, to exempt extensions and modifications that a licensed broker arranges. The practical rule: when you modify or extend a California loan, have a licensed broker arrange it.
Washington's burden of proof. Washington's business-purpose exemption in RCW 19.52.080 is powerful, but the lender bears the burden of proving the exemption. Borrower certifications help but do not replace real evidence of commercial purpose.
Does a choice-of-law clause solve the problem?
Sometimes, but not reliably. US courts generally apply the Restatement (Second) of Conflict of Laws § 187. A contractual choice of law is respected unless the chosen state has no substantial relationship to the parties or transaction, or applying it would offend a fundamental policy of a state with a materially greater interest.
Usury is treated with some flexibility. Under the "validation" principle in Restatement § 203, courts tend to uphold a rate that is lawful in a state with a substantial relationship to the contract. The US Supreme Court endorsed this approach in Seeman v. Philadelphia Warehouse Co., 274 U.S. 403 (1927).
Three limits remain. First, a Canadian province is a legitimate choice only where the parties have a real connection to it. Second, the forum state's criminal usury law may apply regardless of the contract. Third, many states treat their real property enforcement rules as mandatory, so the law of the land's location will govern the mortgage itself.
New York offers a useful tool. General Obligations Law § 5-1401 lets parties to contracts of $250,000 or more choose New York law even without a connection to New York. That choice does not override another state's mandatory rules on mortgages over land located there.
How Canadian lenders should approach a US deal
- Identify the governing state first. Usually it is the state where the property sits and the borrower operates.
- Classify the loan. Consumer or business purpose, residential or commercial, and loan size can each change the rate limit.
- Calculate the all-in cost. Many states treat points, fees and some prepayment charges as interest.
- Check for a licensing exemption. In California, a licensed broker or a CFL license can remove the cap; see Article 3.
- Add a savings clause. A usury savings clause helps in some states but will not rescue a knowingly usurious loan.
- Plan for extensions. Test every modification, extension and default-rate change against the same rules as the original loan.
Frequently asked questions
Frequently asked questions
Is there a federal usury limit in the United States?
No general federal cap applies to non-bank private lenders. Limits are set state by state, with narrow federal preemption for banks and certain residential first-lien loans.
Which state's usury law applies to my US loan?
Usually the state with the strongest connection to the loan, often where the property and borrower are located. A choice-of-law clause helps only if the chosen state has a substantial relationship to the transaction.
Can a corporation claim usury in New York?
A corporation cannot raise civil usury but can raise criminal usury above 25%, which voids the loan under Adar Bays.
Does a licensed broker make a California loan usury-exempt?
Yes, if the broker makes or arranges the loan under Civil Code § 1916.1. Since 1 January 2025, broker-arranged extensions and modifications are also exempt.
This content is general information for industry professionals and is not legal, tax or financial advice. Laws change and apply differently to each transaction; obtain advice from qualified counsel in each relevant jurisdiction. Legal counsel to the Cross-Border Private Lenders Association: Jasmine Daya & Co. Questions: info@cbpla.com