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When I worked in the corporate world, I remember dealing with a company from the U.K. who cited a U.K. regulation on maximum interest/finance charges that necessitated a change in their contract.

What are those maximums, and do all countries have them?

9

The word you're looking for is usury - the crime of lending money at rates above an amount set by law.

6

In Canada section 347 of the Canadian Criminal Code makes it illegal to charge more than 60% annually. Since most Canadian credit card annual interest fee is below this they are within that legal limit. However this is limited only to the rate and not necessarily a cap on the absolute interest charges.

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In the U.S., each state has its own local usury law. This website has a separate page for each state summarizing the local usury law and provides a reference to the local statute.

The rules aren't simple: some set absolute limits, some appear to be pegged to something like the Prime Rate, some states don't have a general usury limit, the rules don't apply to certain loans because of the type of loan or lender, etc.

There are US Federal laws dealing with usury, primarily in the context of racketeering -- the RICO Act lets the Feds go after racketeers that violate local usury laws beyond certain parameters.

2

In the US, usury is complicated and depends on the type of account, the bank charter and the where the bank makes credit decisions. Most major US credit cards are issued by entities in Utah, South Dakota and Delaware. None of these states have usury limits.

Many states have usury limits. In New York, for example a loan may not exceed 16% interest, if the institution is supervised by the State.

Credit card issuers are usually chartered as "National Associations" (ie Federally chartered banks regulated by the Comptroller of the Currency). There is no Federal usury statute, and Federally chartered banks are allowed to "export" many of the regulations of the state where credit decisions are made. Small states like South Dakota basically design their banking regulations to meet the needs of the banks, which are major employers.

1

What are those maximums, and do all countries have them?

Usury, lending money for any interest at all, used to be anti-biblical: it wasn't a Christian thing to do, and so in Christian countries it was Jews who did it (Jews who were money-lenders).

Asking for interest on loans is still anti-Koranic: so Islamic banks don't lend money for interest. Instead of your getting a mortgage from the bank to buy a house, the bank will buy the house, which you then buy from bank on a rent-to-own basis.

Further details:

  • 1
    ChrisW - usury was banned by God to the Israelites before Christ was born (except to aliens) – warren Apr 27 '11 at 20:19
  • @warren - Anyway, the stuff about Christians and Israelites is a bit beside the point here: historical. More to the point is that, as far as I know, the law in modern-day Islamic countries don't allow any interest at all. – ChrisW Apr 28 '11 at 0:16
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In the EU, you might be looking for Directive 2000/35/EC (Late Payment Directive). There was a statutory rate, 7% above the European Central Bank main rate.

However, this Directive was recently repealed by Directive 2011/7/EU, which sets the statutory rate at ECB + 8%.

(Under EU regulations, Directives must be turned into laws by national governments, which often takes several months. So in some EU countries the local laws may still reflect the old Directive. Also, the UK doesn't participate in the Euro, and doesn't follow the ECB rate)

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