Interest Rates in Contracts – What Contractors Need to Know About Usury Laws

What are Usury Laws?

Usury laws are designed to protect consumers from excessive interest rates on loans and other types of credit. Whether your contract allows for payments over time or simply includes a late fee for overdue payments, usury laws determine the maximum amount of interest you can charge. For most contracts in Minnesota, the interest rate for any debt must not exceed 6% unless a different rate is contracted for in writing. Even for written contracts, however, the rate cannot exceed 8%. There are exceptions to this rule, such as for contracts for more than $100,000 or contracts for business or agricultural purposes, so if you have questions about whether you’re covered, you should consult an attorney who look at the facts of your specific situation.

What happens if my rate is higher than that?

Minnesota Law states that if the interest rate in a contract exceeds the usury limit, the interest charged for the entire contract will be voided. If the borrower has already paid interest charged at a rate above that permitted by law, then that borrower is entitled to recover an amount equal to twice the amount of interest paid in a civil action.

How do I make sure I’m in compliance?

As a contractor, it is important to keep usury laws in mind when making agreements. Have a good written contract that you use on each job and have that agreement reviewed by an attorney every couple of years to be sure that it is in compliance with any laws or regulations that may have changed since the contract was drafted, including Usury laws. If in doubt, limiting rates in written agreements to 8% and unwritten agreements to 6% will help ensure that you will be entitled to the interest you agree to.