Iowa Usury Rate: Caps, Exemptions, and Judgment Interest

The Iowa usury rate is 5% per year when the parties have no written agreement on interest, and a monthly floating ceiling when they do: the Iowa Superintendent of Banking takes the monthly average yield on 10-year U.S. Treasury notes and bonds, adds two percentage points, rounds to the nearest quarter percent, and publishes the result in the Iowa Administrative Bulletin before the first of each month.¹ Large swaths of lending sit outside that cap entirely, and federal law can override it, so the ceiling itself is only part of the answer.

The Default Rate and the Written-Agreement Cap

Iowa Code section 535.2 sets 5% per year as the rate for any debt where the parties either said nothing about interest or agreed to charge interest without naming a figure. It covers contracts, loans, overdue accounts, and other obligations to pay money.²

A signed written agreement can go higher, but only up to that month’s published ceiling. Because the number tracks Treasury yields, it moves with the broader economy rather than sitting at a fixed percentage. A lender who assumes a static cap without checking the Superintendent’s current figure is taking a real compliance risk: the actual maximum in any given month could be well above or well below what older summaries suggest.

Loans That Have No Interest Cap

Section 535.2 lets a borrower in several categories agree in writing to any rate of interest whatsoever, with no ceiling. A borrower who signs that kind of agreement cannot later raise usury as a defense.²

Loans to buy real estate, to refinance a contract for deed, or to enter a contract for deed as buyer. Construction loans above the federal threshold amount also qualify.
Loans for business or agricultural purposes, at any amount. Business purpose covers commercial, service, and industrial enterprises run for profit, along with investment activity.
Loans for personal, family, or household purposes above the “threshold amount.” Iowa ties that figure to the number set annually under federal Regulation Z, which is adjusted for inflation each year and has run well above $60,000 in recent years. Older references to a $25,000 threshold are out of date.³
Loans to domestic or foreign corporations, real estate investment trusts, and individuals buying securities on credit from a registered broker-dealer.

For a loan that falls in one of these buckets, the cap in section 535.2 does not apply, and neither do the rate limits found elsewhere in Iowa law, including the Consumer Credit Code in chapter 537 and the regulated-lender statutes.⁴

When a loan could serve more than one purpose, Iowa looks at where the majority of the proceeds actually go. If most of the money funds a business purpose, the whole loan qualifies for the business exemption even though some funds cover personal expenses.²

Credit Cards and Open-End Consumer Credit

Consumer transactions that do not fall into an exemption run under chapter 537, the Iowa Consumer Credit Code, which sets its own rate rules rather than relying on the general usury cap.⁵

Credit cards get their own treatment. If a card is honored by at least 100 merchants unrelated to the card issuer, the issuer can charge any finance rate without limit. That describes essentially every major credit card, which is why Iowa residents routinely see rates of 20% or higher without any usury issue. If that provision were struck down, a fallback cap of 22% per year would apply to open-end credit.

Open-end consumer loans that do not meet the 100-merchant threshold are subject to monthly finance-charge ceilings tied to the unpaid balance, with a minimum charge of 50 cents per billing cycle for monthly or longer cycles.

Payday Loans

Iowa regulates payday lending separately under chapter 533E. A payday loan is any loan with an APR above 36% and a term of 120 days or less.⁶

Maximum fee: $15.50 per $100 borrowed over the term of the loan.
Maximum principal: the lesser of $1,000 or 25% of the borrower’s gross monthly income.
Minimum term: 13 days, with no prepayment penalty.
Maximum consecutive debt: a borrower cannot remain indebted on payday loans for more than 45 consecutive days.
A lender cannot issue a payday loan to someone who already has an outstanding balance on another payday loan.

Regulated Small Loans

Licensed “regulated loan” companies under chapter 536 operate on a tiered monthly rate structure that permits higher charges on smaller balances:⁷

First $150: up to 3% per month.
$150 to $300: up to 2% per month.
$300 to $700: up to 1.5% per month.
Above $700: up to 1% per month.

For loans with an unpaid balance over $30,000, the maximum rate is the greater of the chapter 535 rate or the rate allowed for supervised financial organizations under chapter 537. The Superintendent of Banking can adjust the tiers by rule.

The penalty for overcharging on a regulated loan is severe. The entire loan contract becomes void as to all interest and charges, and the lender forfeits the lesser of $2,000 or the total principal. A regulated lender who overcharges on a small loan can lose both the interest and a chunk of the principal itself.⁷

What Happens If a Lender Charges a Usurious Rate

When a court finds that a lender contracted for interest above what Iowa law allows, section 535.5 imposes three consequences. The lender loses all interest, and the court enters judgment for the unpaid principal only, whether the interest was stated separately or folded into the principal balance. The lender then owes an additional forfeiture of 8% per year on the unpaid principal. That forfeiture is paid to the State of Iowa, not to the borrower.⁸

The lender also forfeits the right to recover court costs. A lender who sues on a usurious loan therefore ends up with a judgment for less than the principal after the 8% forfeiture is subtracted, no interest, and no costs. The design of the penalty is to make a usurious loan less profitable than a lawful one, not merely to strip out the excess.

Iowa does protect innocent assignees. Someone who buys a loan in good faith through the ordinary course of business without knowing it carried a usurious rate is not penalized for the original lender’s violation and can pursue a claim against the original lender instead.⁴

When Federal Law Overrides the Iowa Cap

Under 12 U.S.C. § 85, a national bank can charge the interest rate permitted by the state where it is located, regardless of where the borrower lives. A national bank headquartered in a state with no usury cap can lend to Iowa residents at rates that would otherwise violate Iowa law.⁹ This “exportation doctrine” explains why many credit cards and online loans marketed to Iowans carry rates far above what Iowa’s statutes alone would permit.

The doctrine is not unlimited. In Madden v. Midland Funding, LLC (2015), the Second Circuit held that federal preemption does not automatically follow a debt when a non-bank buys it from a national bank. A debt buyer collecting in Iowa could potentially face Iowa’s usury limits even if the original bank was exempt. Federal regulators have also scrutinized bank-fintech partnerships in which the bank originates a loan and the fintech company services or purchases it, focusing on which party is the “true lender.”¹⁰

Servicemember Rate Caps

The Servicemembers Civil Relief Act caps interest at 6% per year on debts incurred before the borrower entered active duty. It covers active duty servicemembers on Title 10 orders, reservists, National Guard members on qualifying orders longer than 30 consecutive days, and commissioned officers of the Public Health Service and NOAA. The servicemember must send each creditor written notice with a copy of their military orders within 180 days after service ends. Refinancing or consolidating a pre-service debt while on active duty can disqualify it, because the new loan originates during service. Joint debts qualify only if both the servicemember and the spouse are named on the account.¹¹

The Military Lending Act caps the Military Annual Percentage Rate at 36% on most consumer credit products originated while the borrower is on active duty. MAPR includes interest along with fees and charges for credit-related products. Covered credit includes credit cards, deposit advance products, overdraft lines of credit, and most installment loans. Residential mortgages, auto loans secured by the purchased vehicle, and purchase-money secured loans are excluded.¹²

Post-Judgment Interest

Once an Iowa court enters a money judgment, interest accrues on the unpaid balance. Section 535.3 directs courts to use the formula in section 668.13, which sets the post-judgment rate by statute rather than leaving it to judicial discretion.¹³

Child support, spousal support, and medical support payments follow a separate rule. Interest does not begin accruing until 30 days after the payment becomes due, and it runs at a flat 10% per year after that. Payments withheld from income under a wage withholding order receive some grace if the withholding schedule does not align with the support order’s payment dates.

In federal court, post-judgment interest follows 28 U.S.C. § 1961. The rate equals the weekly average one-year Treasury yield for the week before the judgment date, compounded annually.¹⁴

1
Iowa Legislature. Iowa Code 535.2 – Rate of Interest
2
Justia Law. Iowa Code Section 535.2 – Rate of Interest
3
Iowa Legislature. Iowa Code 537.1301 – General Definitions
4
Iowa Legislature. Iowa Code Chapter 535 – Money and Interest
5
Iowa Legislature. Iowa Code Chapter 537 – Consumer Credit Code
6
Iowa Legislature. Iowa Code Chapter 533E – Payday Loans
7
Iowa Legislature. Iowa Code 536.13 – Loan Classifications, Interest Rates, and Charges
8
Iowa Legislature. Iowa Code 535.5 – Penalty for Usury
9
Office of the Law Revision Counsel. 12 USC 85 – Rate of Interest on Loans, Discounts and Purchases
10
Board of Governors of the Federal Reserve System. FinTech and Banks – Strategic Partnerships That Circumvent State Usury Laws
11
U.S. Department of Justice. Your Rights as a Servicemember – 6% Interest Rate Cap for Servicemembers on Pre-service Debts
12
Board of Governors of the Federal Reserve System. Consumer Compliance Handbook – Military Lending Act
13
Iowa Legislature. Iowa Code 535.3 – Interest Rate, Judgments and Decrees
14
United States Courts. 28 USC 1961 – Post Judgment Interest Rates