Excessive interest rates impose a great difficulty on debtors who are trying to repay a loan, but can only afford the minimum payments. A usurious loan imposes an interest rate that exceeds the state’s maximum. Usury laws vary by state; generally, the law in the creditor’s state governs. For loans in Colorado, the Colorado Uniform Commercial Code generally governs.
The need to borrow money places the potential debtor is a precarious spot. The potential for abuse by the creditor varies, depending on how badly the borrower needs the money. Consumer credit laws offer some protection. Usury laws, for example, prohibit a creditor from charging an excessive interest rate. In the absence of a usury limitation, creditors could charge an overbearing interest rate that would essentially shackle the debtor to his debt. Not every state has usury provisions; the limits vary by state.
In Colorado, usury limits vary depending on the nature of the loan and the amount. For example, a consumer loan up to $1,000 cannot include an interest rate of more than 36 percent. The limit drops to 21 percent for consumer loans between $1,000 and $2,100, then to 15 percent for consumer loans exceeding $2,100. If the law is silent regarding a specific type of loan, and the interest rate is not agreed to by the parties, Colorado law imposes an 8 percent limit. Regardless of the nature of the loan, Colorado laws prohibit a creditor from charging more than 45 percent.
Penalties for usury can be severe. In Colorado, usury is a Class 6 felony. Class 6 felonies are the least serious felony level in Colorado, but a conviction can result in fines and imprisonment, along with other stigmas associated with felonies, such as the need to disclose the conviction on job applications. In addition to possible jail time, the guilty party may also forfeit her right to receive the interest due under the loan.
The usury laws generally only protect consumers from private creditors. Large, commercial creditors, such as credit card companies, may be able to charge an interest rate greater than the state’s usury limit, depending on where the company is formed. In general, the laws of the company’s state control. A credit card company organized in a state with no usury law is not subject to another state’s usury limit. Because of the legal nature of this matter, readers should speak to an attorney for independent advice.