Iowa Usury Laws

The State of Iowa has established a usury rate for personal, consumer loans. In this regard, the maximum rate of interest that can be charged on consumer transactions in Iowa is 12%. This rate is applicable to consumer, personal transactions -- not other types of loans in Iowa.

The specific statues governing usury laws in Iowa are found in the Iowa Merged Code and Supplement. Specifically, these laws are found in the chapter involving commercial and consumer transactions. In addition, there are other provisions in the Iowa Merged Code and Supplements that deal with other types of lending practices. For example, there are statutory provisions that deal with interest rates that banks and savings and loans chartered in the state can impose on loans that they make.

The courts in Iowa tend to take a restrictive view of what is permissible interest on a personal loan. The courts maintain that because Iowa statutes specifically set out what is permissible interest on personal and consumer loans, it is not necessary to take an expansive view of what is a legal interest rate in a loan agreement. Simply, an interest rate is either legal or it is not.

If a personal loan agreement contains an illegal interest rate, courts in Iowa nearly always will determine that the loan agreement itself is illegal. Courts in Iowa reason that the interest rate is such a fundamental part or element of a loan agreement itself, if such a major provision of a loan agreement, the entire contract must be voided and found to be of no effect. In other words, if a borrower defaults on this type of loan that contains an illegal interest rate provision, the lender will not be able to obtain relief in a court in Iowa because such a personal loan agreement with a provision for statutorily unsupported interested will be an unenforceable and illegal contract.

Finally, in some more rare instances, when a person has engaged in a pattern and practice of providing loans with illegal interest rates (generally considered loan sharking), such a person could face the prospect of criminal prosecution in regard to this type of ongoing lending practice.

The laws in Iowa governing usury and loans and interest rates do change. Therefore, we cannot absolutely guarantee the accuracy of the information in this article -- although we do take every effort to keep this information accurate and up to date.

Nothing in this article should be construed as legal advice. The materials in this article are intended for informational purposes only.

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