Most states have usury laws (usually statutes) governing the amount of interest that can be charged on a loan. Usury laws vary from state to state, but the elements of a usury claim are generally: (1) a loan of money; (2) an absolute obligation to repay the principal; and (3) the exaction of a greater compensation than allowed by law for the use of the money by the borrower.
And interest means compensation for the use, forbearance, or detention of money. The term does not include time price differential, regardless of how it is denominated. The term does not include compensation or other amounts that are determined or stated by law not to constitute interest, or that are permitted to be contracted for, charged, or received in addition to interest in connection with an extension of credit.
Service charges, finance charges, and discount points are generally considered interest for purposes of usury. But contingent or uncertain charges are generally not considered interest.
In Texas, usury laws are designed to protect borrowers from excessively high interest rates on loans. The Texas Finance Code sets the maximum interest rates that can be charged, and these rates can vary depending on the type of loan and other factors. Generally, the legal maximum interest rate is 10% unless otherwise specified by law. For a usury claim to be valid in Texas, there must be a loan of money, an absolute obligation to repay the principal, and a charge of interest greater than what is permitted by law. Interest is defined as compensation for the use or loan of money, but it does not include certain charges such as time price differentials, which are not considered interest under Texas law. Service charges, finance charges, and discount points are typically categorized as interest and thus can be subject to usury laws. However, charges that are contingent or uncertain do not usually fall under the definition of interest for the purposes of usury. It's important for lenders to be aware of these regulations to avoid penalties, and for borrowers to understand their rights to ensure they are not being overcharged.
