Washington State Usury Laws: 12% Cap, Exemptions, and Remedies

Washington’s usury laws cap interest at 12% per year on most personal loans, whether or not the parties signed a written contract. A written agreement can technically allow a higher rate through a Treasury-linked formula, but in practice the formula has not pushed the ceiling above 12% in years. Charge more than the legal limit on a covered loan and the lender forfeits all interest and can be forced to credit the borrower twice what was already paid.

The 12% Cap and the Written-Contract Formula

When a loan has no written agreement setting a specific rate, Washington law automatically assigns 12% per year.¹ That covers handshake loans, IOUs, and any arrangement that simply doesn’t address interest.

With a written contract, RCW 19.52.020 allows a higher ceiling: whichever is greater of 12% per year, or four percentage points above the equivalent coupon issue yield on 26-week Treasury bills from the first auction of the calendar month before the agreement is signed.²

That formula rarely bites. The 26-week Treasury bill coupon equivalent yield was approximately 3.62% in early February 2026, putting the formula ceiling near 7.62%, well below 12%.³ The Washington Department of Financial Institutions has noted that the effective maximum has stayed at 12% for many years because Treasury yields have not climbed above 8%.⁴

What Counts as Interest

Washington courts look past the stated rate. Any compensation the lender receives in connection with the loan can be treated as interest, so mandatory fees, commissions, discounts, and other charges paid to the lender or their agent get folded into the calculation. A “loan processing fee” that isn’t truly optional can push the effective rate above 12% even when the number on the contract looks legal.

There is one narrow exception for small loans. On loans of $500 or less, a lender can collect a setup charge that doesn’t count toward the interest calculation, as long as it stays at or below 4% of the amount advanced or $15, whichever is smaller. For loans under $100, the lender can charge a minimum setup fee of up to $4.²

Loans the Cap Does Not Reach

Several common credit products sit outside the usury statute entirely, and rates on these can legally run far above 12%.

Retail installment contracts. Financing for cars, boats, furniture, and other consumer goods paid off over time is exempt under RCW 19.52.100 and governed by separate retail sales financing statutes.¹
Revolving credit and credit cards. Bank credit cards and store credit lines both fall outside the cap, which is why credit card APRs routinely exceed 20% in Washington without violating state law.
Business, commercial, agricultural, and investment loans. If a loan is primarily for a non-consumer purpose, the borrower cannot raise usury as a defense. RCW 19.52.080 also bars corporations, partnerships, trusts, and government entities from asserting usury claims at all. The statute preserves protection only for consumer transactions, meaning loans primarily for personal, family, or household needs.⁵
Pawnbrokers. Pawn loans are regulated under RCW 19.60, which allows higher fees and interest on small secured loans backed by personal property left as collateral.⁶

Payday Loans Follow Their Own Statute

Payday loans are not governed by the general usury law. They fall under RCW chapter 31.45, which regulates check cashers and small-loan lenders through a separate licensing framework with substantially higher permitted charges.

A licensed payday lender in Washington can advance a maximum of $700 or 30% of your gross monthly income, whichever is less, with a term no longer than 45 days. The maximum fee is 15% on the first $500 and 10% on any amount above $500.⁷ A borrower taking the maximum $700 loan would pay up to $95 in fees: $75 on the first $500 plus $20 on the remaining $200. Annualized, those charges dwarf the 12% ceiling on regular loans.

Because payday lending operates under its own statute, the usury penalties described below do not apply to licensed payday lenders charging within these limits. Complaints about a payday lender that exceeded the caps or operated without a license go to the Washington Department of Financial Institutions rather than through a usury lawsuit.

When Federal Law Overrides the State Cap

Several federal laws can make the 12% ceiling irrelevant depending on who the lender is and what the loan is for.

National Banks Can Export Another State’s Rate

Under 12 U.S.C. § 85, a nationally chartered bank can charge interest at the rate allowed by the state where the bank is located, not the state where the borrower lives.⁸ The Supreme Court confirmed this in Marquette National Bank of Minneapolis v. First of Omaha Service Corp., allowing a Nebraska-based bank to charge Minnesota cardholders Nebraska’s rate.⁹ If your credit card or loan comes from a national bank headquartered in a state without a usury cap, Washington’s 12% limit does not apply to your account.

Residential First Mortgages

First-lien residential mortgage loans are exempt from state usury caps under Section 501 of the Depository Institutions Deregulation and Monetary Control Act of 1980. The implementing federal regulation explicitly preempts state limits on federally related residential first mortgages.¹⁰ Your mortgage rate is set by market conditions and your credit, not by the state ceiling.

Federal Credit Unions

Federal credit unions follow rate limits set by the National Credit Union Administration rather than state law. The Federal Credit Union Act generally caps loan interest at 15%, but the NCUA Board has maintained a temporary 18% ceiling that is currently extended through September 10, 2027.¹¹ Federal credit unions can also charge up to 28% on payday alternative loans.

Extra Protection for Military Borrowers

The federal Military Lending Act sets a 36% cap on the Military Annual Percentage Rate for most consumer loans to active-duty service members, reservists on active duty, National Guard members mobilized for more than 30 consecutive days, and their spouses and dependents.¹² The MAPR is broader than a standard APR and folds in finance charges, credit insurance premiums, and most fees. Covered products include credit cards, payday loans, overdraft lines of credit, and most installment loans. The MLA does not reach residential mortgages, purchase-money auto loans, or home equity products.¹³ Where Washington’s 12% cap already applies, it stays in place; on products Washington exempts, the 36% federal cap works as a backstop.

What You Can Recover if the Rate Was Illegal

A usurious contract is not void. The loan itself survives, but the lender’s right to collect interest does not. RCW 19.52.030 sets the consequences and they scale with what the borrower has already paid.¹⁴

If no interest has been paid, the lender collects the principal minus whatever interest accrued at the illegal rate. Every dollar of expected interest disappears. If the borrower has already made interest payments, the math tilts further: the lender is entitled to the principal minus twice the interest already paid, minus all remaining accrued and unpaid interest. On a loan where a borrower made substantial payments before catching the violation, that double deduction can cut into the principal itself. If total payments already exceed what the lender is entitled to after the deductions, the surplus goes back to the borrower. Court costs and reasonable attorney fees are also recoverable.

The usury defense is available only for consumer loans. Individuals who borrowed primarily for personal, family, or household purposes can raise it; those who borrowed primarily for business, agricultural, or investment purposes cannot, and corporations and other business entities are barred from asserting usury claims at all under RCW 19.52.080.⁴⁵

1
Washington State Legislature. Washington Code 19.52 – Interest-Usury
2
Washington State Legislature. Washington Code 19.52.020 – Highest Rate Permissible-Setup Charges
3
U.S. Department of the Treasury. Daily Treasury Bill Rates
4
Washington State Department of Financial Institutions. Usury Law
5
Washington State Legislature. Washington Code 19.52.080 – Defense of Usury Prohibited if Transaction Primarily Agricultural, Commercial, Investment, or Business-Exception
6
Washington State Legislature. Washington Code 19.60.060 – Rates of Interest and Other Fees-Sale of Pledged Property
7
Washington State Department of Financial Institutions. Payday Loans
8
Office of the Law Revision Counsel. 12 USC 85 – Rate of Interest on Loans, Discounts and Purchases
9
Legal Information Institute. Marquette National Bank of Minneapolis v. First of Omaha Service Corporation
10
eCFR. 12 CFR Part 190 – Preemption of State Usury Laws
11
National Credit Union Administration. Permissible Loan Interest Rate Ceiling Extended
12
Consumer Financial Protection Bureau. Military Lending Act
13
GPO.gov. What Is the Military Lending Act and What Are My Rights
14
Washington State Legislature. Washington Code 19.52.030 – Usury-Penalty Upon Suit on Contract-Costs and Attorneys Fees