Michigan Usury Laws: Rate Caps, Criminal Line, and Penalties

Under Michigan usury laws, the default interest rate cap is 5% per year with no written agreement and 7% per year when the rate is set in writing, under MCL 438.31.¹ Those low numbers are misleading on their own, because they only bind lenders who aren’t regulated by some other state or federal law. Banks, credit unions, licensed mortgage companies, and most other lenders you’d actually borrow from operate under separate rules that reach 25% or have no ceiling at all. Charging more than 25% is criminal usury and carries up to five years in prison.

Who the 5% and 7% Caps Actually Bind

MCL 438.31 sets the baseline: 5% per year if nothing is written, 7% per year if the parties agree in writing. But the statute itself carves out any loan whose interest rate is “regulated by any other law of this state, or of the United States.”¹

That carve-out swallows most of the lending market. If your lender is a bank, a credit union, an insurance company, a licensed mortgage lender, or any entity supervised by a federal agency, a different and usually higher cap applies. In practice, the 5% and 7% figures matter for private loans between individuals and loans from unlicensed entities.

Caps by Loan Type

Real Estate

Regulated lenders approved as mortgagees under the National Housing Act, or supervised by a state or federal agency, can charge any written rate on a first-lien mortgage or land contract with no statutory ceiling. Unregulated lenders making first-lien mortgage loans or land contracts are capped at 11% per year.²

Purchase money mortgages and second mortgages are capped at 11% regardless of the lender. Mobile home financing that isn’t a retail installment transaction also has an 11% ceiling. For commercial real estate debts of $100,000 or more, when the collateral is real property other than a single-family home, the parties can agree in writing to any interest rate with no cap.³

Business Loans

Business lending has more room. Depository financial institutions, insurance companies, and other regulated lenders can charge up to 25% on loans to unincorporated borrowers. Loans to corporations or limited partnerships have no statutory ceiling as long as the rate is agreed in writing.⁴

Consumer Loans

Banks and credit unions can charge up to 25% on most consumer loans, and there is no statutory ceiling on credit cards and lines of credit issued by those institutions. Licensed regulatory loan companies are also capped at 25%, and auto financing through licensed dealers follows the same 25% limit.⁴ Non-depository credit card issuers are limited to 1.5% per month, which works out to 18% per year.

The 25% Criminal Line

Michigan draws a hard line at 25%. Under MCL 438.41, anyone who knowingly charges more than 25% simple interest per year on a loan, without legal authorization to do so, commits criminal usury. The penalty is up to five years in prison, a fine of up to $10,000, or both.⁵

The phrase “not being authorized or permitted by law” is doing real work. Regulated lenders specifically allowed to charge higher rates under other Michigan or federal statutes are not committing criminal usury when they do so. The provision targets loan sharks and unlicensed lenders.

Why Your Bank Credit Card Can Ignore These Numbers

If you’re borrowing from a major bank, Michigan’s caps may not apply at all. Under Section 85 of the National Bank Act, a national bank can charge the interest rate permitted by the state where it is located, even when lending to borrowers in states with lower limits. The Supreme Court established this rule in 1978.⁶ That is why credit card interest rates routinely exceed any state’s general usury limits. State-chartered federally insured banks have parallel authority under Section 27 of the Federal Deposit Insurance Act, and federally insured credit unions operate under their own federal framework.

Payday Loans Are Regulated Separately

Payday lending sits outside Michigan’s usury statutes. Under the Deferred Presentment Service Transactions Act, licensed payday lenders charge fees rather than interest, and the statute explicitly states those service fees are not interest.⁷ Payday lenders are prohibited from charging interest at all under the agreement, so the effective cost of a payday loan is high, but it isn’t measured against the usury caps in MCL 438.

Military Borrowers: 36% Cap Overrides Everything

Active-duty service members and their dependents have a federal layer of protection. Under the Military Lending Act, the total cost of most consumer credit cannot exceed a Military Annual Percentage Rate of 36%. That figure captures stated interest plus fees and other charges built into the cost of borrowing.⁸ Covered products include credit cards, deposit advance products, overdraft lines of credit, and certain installment loans. Vehicle purchase loans secured by the vehicle itself are generally excluded. The 36% cap applies regardless of what Michigan law or federal preemption would otherwise allow.

What a Usurious Lender Loses

The penalty for civil usury is designed to sting. Under MCL 438.32, a lender who charges above the legal maximum forfeits all interest on the loan, not just the excess. The lender also loses the right to collect official fees, delinquency charges, collection charges, attorney fees, and court costs.⁹

The borrower can also recover their own attorney fees and court costs from the lender.⁹ Fee-shifting is unusual in Michigan civil law, and it makes usury claims viable for borrowers who otherwise couldn’t afford litigation. The lender still gets repayment of principal, but every dollar of profit from the illegal rate is gone. For criminal usury over 25%, add up to five years in prison and a $10,000 fine.⁵

Challenging a Loan You Think Is Usurious

Michigan courts look at the substance of a transaction, not its label. In Wilcox v. Moore, the Michigan Supreme Court held that what matters is the true nature of the deal as revealed by the facts, not the form the parties gave it on paper.¹⁰ A lender can’t dodge usury law by dressing a high-interest loan up as a sale, a lease, or some other structure.

If you believe your loan is usurious, gather the loan agreement, payment records, and any communications showing what was actually charged. You can raise the issue in court, where the burden is on you to show the effective rate exceeds the applicable cap; if the court agrees, the lender forfeits all interest and fees, and you recover attorney fees. Michigan’s general six-year statute of limitations for breach of contract would typically apply.

You can also file an administrative complaint with the Michigan Department of Insurance and Financial Services, which regulates most licensed lenders in the state. DIFS can investigate and sanction lenders in violation, and filing does not require an attorney.¹¹

1
Michigan Legislature. Michigan Compiled Laws 438.31 – Legal Interest Rate; Scope
2
Michigan Legislature. Michigan Compiled Laws Chapter 438 – MCL 438.31c(6)
3
Michigan Legislature. Michigan Compiled Laws Chapter 438 – MCL 438.31c(11)
4
Michigan Department of Insurance and Financial Services. Michigan Statutory Interest Rate Ceilings
5
Michigan Legislature. Michigan Compiled Laws Chapter 438 – MCL 438.41
6
Legal Information Institute. Marquette National Bank of Minneapolis v First of Omaha Service Corp
7
Michigan Legislature. Michigan Compiled Laws 487.2153 – Deferred Presentment Service Transactions Act
8
National Credit Union Administration. Military Lending Act (MLA)
9
Michigan Legislature. Michigan Code 438.32 – Violation of Act; Attorney Fees and Court Costs, Recovery
10
Justia. Wilcox v Moore
11
Department of Insurance and Financial Services. How to File a Complaint With DIFS