Arkansas usury law caps interest at 17% per year on most loans, and a lender who charges more can lose the right to collect both the interest and the principal. That rule comes from Amendment 89 to the Arkansas Constitution, not from an ordinary statute, which is why the state legislature cannot soften it on its own.1Justia. Arkansas Constitution Amendment 89 Arkansas Code Section 4-57-104 restates the cap at the statutory level, and Section 4-57-105 forbids anyone from collecting more than Amendment 89 allows.2Justia. Arkansas Code 4-57-104 – Maximum Rate of Interest Permitted
The Three Rate Categories
Amendment 89 does not set a single cap. It sets three, and the one that applies depends on who is lending.1Justia. Arkansas Constitution Amendment 89
- Bonds issued by, and loans made by or to, governmental units have no maximum rate unless the General Assembly sets one.
- Federally insured depository institutions headquartered in Arkansas may charge up to the maximum rate that applied to federally insured depository institutions under 12 U.S.C. § 1831u as of March 1, 2009.
- Every other loan or contract is capped at 17% per year.
The 17% cap is the one that governs private lenders, individuals lending to friends or family, private mortgage holders, and non-bank commercial lenders. It applies to interest, discount points, finance charges, and similar costs, so a lender cannot escape the cap by renaming interest as a “fee.”
If No Rate Is Written Into the Contract
When a loan contract is silent on interest, Arkansas does not treat the loan as interest-free. The default rate is 6% per year. This shows up most in handshake loans and business arrangements where the parties never got around to writing down a rate.
What Makes a Loan Usurious
A loan is usurious when the lender charges, takes, or receives more than the applicable cap. Section 4-57-105 reaches anyone collecting more than the legal limit “directly or indirectly,” whether in money, goods, or anything else of value.3Justia. Arkansas Code 4-57-105 – Usurious Interest Prohibited Those two words carry weight. Arkansas courts have repeatedly looked past the labels a lender puts on charges. A “processing fee,” “storage fee,” or “appraisal charge” that functions as a cost of borrowing gets added to the interest column and measured against the cap.
The practical test: add up everything the borrower pays above the principal, treat it as the price of credit, and see whether it annualizes above 17%. If it does, the loan is usurious no matter what the paperwork calls the charges.
The Penalty: Loss of Principal and Interest
This is where the law bites. Under Section 6 of Amendment 89, a loan that exceeds the 17% cap is void as to both principal and interest.1Justia. Arkansas Constitution Amendment 89 The lender does not lose only the excess. The lender does not lose only the interest. The entire debt is wiped out.
A lender who charges 18% on a $50,000 loan does not get the money back at a corrected 17% rate. The lender gets nothing. Whatever portion of the principal the borrower has not already repaid stays with the borrower, and payments already made may be recoverable.
The point of the forfeiture is to make usury economically irrational. A lender tempted to push a loan past 17% has to weigh a few points of extra return against losing the whole balance.
What a Borrower Can Do
If you are paying on a loan at a usurious rate, you have two main options.
The first is defensive. If the lender sues you for nonpayment, raise usury as a defense in that case. A court that agrees should void the entire obligation. You do not need to file a separate lawsuit to use the defense.
The second is affirmative. Because a usurious contract is void as to principal and interest, money you have already paid went toward a void obligation, and courts have ordered lenders to return those payments. If the lender refuses, you can pursue the claim in civil court.
These remedies apply to loans governed by Section 3 of Amendment 89, meaning non-bank, non-government loans. Loans from federally insured banks and credit unions sit in a different category, and the automatic void-at-17% rule does not reach them.
Why Banks and Credit Cards Can Charge More
The largest gap in the 17% cap involves federally insured financial institutions. Amendment 89 carves them out, and federal law widens the opening.
A national bank, under 12 U.S.C. § 85, can charge the rate allowed in the state where it is located, or 1% above the Federal Reserve discount rate on 90-day commercial paper, whichever is higher.4Office of the Law Revision Counsel. 12 USC 85 – Rate of Interest on Loans, Discounts and Purchases An OCC regulation lets national banks charge at the highest rate any state-licensed lender can charge in the bank’s home state.5eCFR. 12 CFR 7.4001 – Charging Interest by National Banks
FDIC-insured state banks have parallel authority under 12 U.S.C. § 1831d and can charge the rate permitted where they are located even when lending to borrowers in states with lower caps.6eCFR. 12 CFR Part 331 – Federal Interest Rate Authority That is why credit cards issued by large banks routinely carry rates well above 17%. The issuer is headquartered somewhere with a higher cap or none at all, and federal law lets it apply the home-state rate nationwide.
If your loan or credit card comes from a federally insured bank or credit union, the 17% constitutional cap likely does not control your rate. Amendment 89’s Section 3 limit matters most for private lenders, non-bank finance companies, and informal loans.
Pawn Transactions Still Count
A common assumption holds that pawn shops operate outside Arkansas usury law. They do not. Arkansas courts have treated a pawnbroker’s predetermined fee for returning property within a set period as interest, and have measured those fees against the constitutional cap. Attempts to relabel the charge as storage, appraisal, or insurance have not succeeded.
Because the cap sits in the constitution rather than a statute, the legislature cannot create a pawn exemption on its own.
Interest on Court Judgments
When a court enters a money judgment and the underlying contract does not specify a rate, the judgment earns interest at the Federal Reserve primary credit rate on the date of judgment plus 2%, and that rate cannot exceed the Amendment 89 maximum.7Justia. Arkansas Code 16-65-114 – Interest on Judgments If the contract does specify a lawful rate, the judgment bears interest at that agreed rate or 10% per year, whichever is greater. Interest runs from the date of entry until the losing party pays.
For a borrower who wins a usury case, that means an award keeps growing if the lender delays payment. For a lender holding a valid judgment on a non-usurious loan, it means the balance earns real interest while collection runs its course.