Consumer Confidential: California's usury law caps loan rates. Bizarrely, most lenders are exempt

David Lazarus, Los Angeles Times on

Published in Business News

Rae Walker is scratching her head over her credit card bill.

"I noticed," she told me, "that the interest charged exceeds what appears appropriate for California's usury law," which caps the allowable interest rate for consumer loans at 10%.

Why, the Los Angeles resident wonders, is she being charged a rate of 23% on her card.

"They're breaking the law, aren't they?"

The answer is yes, in theory. And no, in point of fact.

I get asked frequently about California's usury law. It's an especially timely topic in light of Thursday's Senate Banking Committee hearing about establishing a national 36% rate cap for loans.


Not to mention that Americans are now borrowing more than ever before.

Consumer debt soared to $14.64 trillion in the first three months of the year — fueled in large part by mortgages, auto loans and the perennial problem of $1.7 trillion in outstanding student borrowing.

The average credit card interest rate in California and nationwide is 16.16%, according to

Yet Article 15 of the California Constitution declares that no more than 10% a year in interest can be charged for "any loan or forbearance of any money, goods or things in action, if the money, goods or things in action are for use primarily for personal, family or household purposes."


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