New York usury law caps most interest at 16% per year and treats any rate above 25% as a felony. Cross either line and the consequences fall hard on the lender: a court can void the loan entirely, wiping out both the interest and the principal, and prosecutors can pursue prison time on top. But the caps only reach certain borrowers and certain loan sizes, and a large slice of everyday lending — including most credit cards and bank loans — sits outside them because of federal preemption.
The Two Rate Ceilings
New York runs two thresholds in parallel. The civil ceiling, set by Banking Law 14-a, is 16% annual interest on a loan or forbearance.1FindLaw. New York Banking Law 14-a – Rate of Interest The criminal ceiling, set by Penal Law 190.40, is 25%.2New York State Senate. New York Penal Law 190.40 – Criminal Usury in the Second Degree
The 16% figure is not just the stated interest rate. Courts fold in fees, points, and other charges the borrower pays as a condition of getting the loan, so a lender cannot escape the cap by relabeling interest as an “origination fee” or a “service charge.” If the true cost of borrowing runs above 16% once everything is added up, the loan is usurious.
When the Caps Apply by Loan Size
Protection shrinks as the loan gets bigger. General Obligations Law 5-501 lays out three tiers:
- Loans under $250,000: both the 16% civil cap and the 25% criminal cap apply.
- Loans from $250,000 to $2.5 million: the 16% civil cap drops out, so rates above 16% are enforceable, but the 25% criminal cap still applies.
- Loans of $2.5 million or more: no usury law applies at all, not even criminal usury. The parties can agree to any rate.
One important exception cuts against that pattern. A loan secured primarily by a one- or two-family home keeps the full 16% civil protection no matter its size.3New York State Senate. New York Code General Obligations Law 5-501 – Rate of Interest The dollar thresholds are fixed in the statute and are not adjusted for inflation.
What Happens When a Loan Is Usurious
If a loan crosses the applicable line, General Obligations Law 5-511 declares the contract void from the start.4New York State Senate. New York Code General Obligations Law 5-511 – Usurious Contracts Void The lender loses the whole deal, not just the excess interest. New York follows what its courts have described as a 300-year-old rule: on a usurious loan, the borrower owes nothing — no interest and no principal.
The Court of Appeals confirmed that severity in Adar Bays, LLC v. GeneSYS ID, Inc., holding that a usurious loan is completely invalid and the lender cannot recover even the amount originally advanced.5NY Courts. Adar Bays LLC v GeneSYS ID Inc The same case makes clear that courts look at the substance of a transaction rather than the label. Calling something a “purchase of future receivables” or a “sale” does not shield it from usury analysis if it functions economically like a loan.
If you already paid usurious interest, you can sue to get the excess back. General Obligations Law 5-513 lets anyone who paid above the legal rate recover the overpayment from the lender.6New York State Senate. New York Code General Obligations Law 5-513 – Recovery of Usurious Interest Written-contract claims in New York carry a six-year statute of limitations.
Corporate Borrowers Have Fewer Defenses
If you borrowed through a corporation, LLC, or other business entity, the picture changes. Under General Obligations Law 5-521, corporate borrowers generally cannot raise usury as a defense. A company charged 20% on a loan under $250,000 cannot get the loan voided the way an individual borrower could.
The one thing a corporate borrower can still raise is criminal usury. Adar Bays confirmed that a loan violating the 25% criminal cap is void even when the borrower is a corporation.5NY Courts. Adar Bays LLC v GeneSYS ID Inc The practical result: for business borrowers, rates between 16% and 25% are essentially unregulated, but anything above 25% is unenforceable.
Criminal Charges Against Lenders
Charging interest above 25% is a felony, not just a civil wrong. Two levels of offense sit on top of that threshold.
Second-Degree Criminal Usury
Knowingly charging above 25%, without legal authorization, is criminal usury in the second degree — a class E felony carrying up to four years in prison.2New York State Senate. New York Penal Law 190.40 – Criminal Usury in the Second Degree7New York State Senate. New York Penal Law 70.00 – Sentence of Imprisonment for Felony The phrase “not being authorized or permitted by law” carries a lot of weight. Licensed banks and credit unions have authorization to charge rates that would otherwise be criminal, which is why the statute mainly reaches unlicensed lenders and loan sharks.
First-Degree Criminal Usury
The charge escalates when the lender either has a prior usury conviction or was running a scheme or ongoing business of making usurious loans. First-degree criminal usury is a class C felony carrying up to 15 years.8New York State Senate. New York Penal Law 190.42 – Criminal Usury in the First Degree7New York State Senate. New York Penal Law 70.00 – Sentence of Imprisonment for Felony Prosecutors typically bring this charge in loan-sharking cases where illegal lending is the defendant’s regular business.
Loans the Caps Don’t Reach
Plenty of high-rate lending is legal in New York because the borrower or the product falls outside the statute.
Banks and Interest-Rate Exportation
Section 85 of the National Bank Act lets a national bank charge the interest rate allowed by the state where the bank itself is located, not the borrower’s state.9Office of the Law Revision Counsel. 12 USC 85 – Rate of Interest on Loans, Discounts and Purchases The Supreme Court’s 1978 Marquette decision applied that rule to out-of-state lending, and it is why credit card issuers incorporated in states with no usury cap can charge New York residents rates far above 16%. Congress later extended parallel authority to state-chartered insured banks. For state-chartered New York banks and trust companies, Banking Law 108 ties the maximum rate to whatever the Superintendent of Financial Services prescribes under Banking Law 14-a.10New York State Senate. New York Banking Law 108 – Rates of Interest
First-Lien Residential Mortgages
Federal regulations preempt state usury caps — both civil and criminal — for federally related first-lien loans secured by residential property, including residential manufactured homes and cooperative housing stock. The preemption applies to qualifying mortgages made after March 31, 1980.11eCFR. 12 CFR Part 190 – Preemption of State Usury Laws
Merchant Cash Advances
Commercial financing pitched as a “purchase of future receivables” is a gray area. In LG Funding, LLC v. United Senior Properties of Olathe, LLC, a New York appellate court asked whether the funder actually bore risk that the merchant would generate less revenue than expected. Because the funder controlled payment adjustments and took no real risk of loss, the court found the transaction was a loan and applied usury analysis. The label on the contract does not decide the question; the economics do.
Extra Protection for Servicemembers
Active-duty servicemembers and their dependents get two federal layers on top of state law.
The Military Lending Act caps the Military Annual Percentage Rate at 36% for covered loans. The MAPR is broader than a normal APR because it pulls in finance charges, credit insurance premiums, and fees for add-on products.12Consumer Financial Protection Bureau. Military Lending Act For most New York borrowers dealing with licensed lenders, the state’s 16% civil cap is already lower, so the MLA matters most for products that fall outside state usury protection.
The Servicemembers Civil Relief Act reaches back to debts taken on before service. A servicemember can request that the rate on any pre-service loan — car loan, credit card, mortgage, student loan — be reduced to 6% for the period of active duty. Written notice with a copy of military orders must go to the creditor within 180 days after service ends. Once received, the creditor forgives interest above 6% retroactively to the start of active duty and lowers the monthly payment.13U.S. Department of Justice. 6% Interest Rate Cap for Servicemembers on Pre-Service Debts
Where to Report a Usurious Loan
Three agencies handle New York usury complaints, and they take different angles.
The New York State Department of Financial Services oversees licensed financial institutions and can fine violators, revoke licenses, and issue cease-and-desist orders. DFS has moved aggressively against unlicensed online and payday lenders reaching into the state from elsewhere.14Department of Financial Services. Enforcement and Discipline
The Attorney General’s Office pursues usurious lending civilly and criminally. On the civil side, the AG can bring claims under General Business Law 349, which prohibits deceptive business practices and was recently expanded by the FAIR Business Practices Act to also cover unfair and abusive acts.15Office of the New York State Attorney General. Attorney General James Applauds Passage of Legislation to Protect Consumers and Small Businesses Available remedies include restitution for borrowers, civil penalties, and injunctions. Local district attorneys handle criminal usury prosecutions, particularly cases involving threats, coercion, or organized crime.