Minnesota’s Usury Law, codified in Minnesota Statutes Chapter 334, sets limits on the amount of interest that can be charged on any particular type of debt. Chapter 334 also prohibits collection of interest that exceeds the statutorily allowed rate and renders some contracts with a higher rate invalid. The maximum allowed interest depends on the type and amount of the loan, ranging from no limit for loans exceeding $100,000 to a low of 8%. Minn. Stat. § 334.01, subd. 1, 2. For a broader overview, see Minnesota Usury Law: What Business Owners Should Know and Minnesota Usury Law: A Summary.
Usury is a Defense to Enforcement
Minnesota’s usury statutes exist as a defense for borrowers being sued on usurious contracts — not as an independent cause of action. Chapter 334 is designed to shield borrowers from enforcement of contracts that violate the statute, not to permit affirmative recovery. Strickland v. First State Bank of Balaton, 202 N.W. 727, 729 (Minn. 1925) (holding that “[o]ne who voluntarily pays usurious interest may not maintain an action to recover it, while one against whom a usurious contract is sought to be enforced may invoke the statute in his defense”).
As a practical matter, a usury defense is generally only available to a borrower. Id. (holding that “[t]he usury statute is a shield but not a sword”).
Elements of Usury
To establish a usury claim under Minnesota law, four elements must be present:
1. The loan of money or forbearance of debt,
2. Agreement between parties that principle shall be repayable absolutely,
3. Exaction of greater amount of interest or profit than is allowed by law, and
4. Presence of intention to evade law at the inception of the transaction.
Chapter 334 sets a general 8% usury cap on interest rates. However, there are many exceptions to this 8% cap. Some of the more notable exceptions are credit organizations, any credit for a loan in an amount of $1,000 or more, contracts for the loan or forbearance of money in amount of less than $1,000 for businesses or agricultural purposes, interests on verdicts, judgments and awards, and retail installment sales of motor vehicles. For a detailed breakdown of how these limits apply, see Minnesota Usury Law Limits.
Usury Liability
A usurious contract is void as to the holder. Any bond, bill, note, mortgage, or other contract or agreement is void if a court determines it was usurious. Minn. Stat. § 334.05. A lender who operates under a usurious contract can lose interest on the money loaned and can also stand to lose the principle. Minn. Stat. § 334.03 and 334.05. There have been cases, however, that limit recovery to the collection of interest only.
Exceptions for Businesses
No interest rate limit applies to an extension of credit to an organization. The term “organization” includes “a corporation, government, government subdivision or agency, trust, estate, partnership, joint venture, cooperative, limited liability company, or association.” Minn. Stat. § 334.022.
However, practitioners may observe there is a conflict of law between Minnesota Statutes sections 334.022 (no limit) and 334.011 (4.5% limit on loans for less than $100,000 for business or agricultural purposes). As of the writing of this article (2018), Minnesota courts have not resolved this conflict. This issue also arises in the context of rent-to-own contracts and Minnesota’s usury law.
Exceptions
The Minnesota usury statute provides a general ban on high interest rates, but there are exceptions:
- Business and agricultural loans (see Minn. Stat. § 334.011)
- Dealers under Securities Exchange Act (see Minn. Stat. § 334.19)
- Loans secured by savings accounts (see Minn. Stat. § 334.012)
- Mortgage loans (see Minn. Stat. § 47.204)
- Plans under ERISA (Employee Retirement Income Security Act of 1974) (see Minn. Stat. § 334.01)
- State banks/savings associations (see Minn. Stat. § 48.195)
- State credit union (see Minn. Stat. § 52.14)
Credit cards and loans from national banks are not subject to Minnesota usury laws. In Marquette National Bank v. First of Omaha Corp., the Court held that federal law trumps state law and permits a national bank “to charge on any loan” interest at the rate allowed by the laws of the State “where the bank is located.” As a result, Minnesota state usury laws do not apply to national banks located in a state where a higher interest rate is permitted.
When a loan dispute involves more than just interest rates — for example, allegations that a lender tortiously interfered with a borrower’s business relationships — different legal theories may apply. See Tortious Interference Laws in Minnesota for an overview of those claims.
What is the general interest rate cap under Minnesota usury law?
Minnesota’s general usury cap is 8% under Chapter 334 of the Minnesota Statutes. However, there are many exceptions — including no cap for loans exceeding $100,000 and no cap for extensions of credit to business organizations.
Can a business use Minnesota usury law as a defense?
Usury is a defense, not a cause of action. A borrower can invoke the usury statute to defend against enforcement of a contract with an illegal interest rate, but cannot use it to affirmatively sue for recovery of interest already paid.
Does Minnesota usury law apply to national banks and credit cards?
No. Under federal law, national banks are governed by the usury laws of the state where the bank is located — not the state where the borrower lives. As a result, Minnesota usury limits do not apply to most credit cards or national bank loans.
What are the penalties for a usurious loan in Minnesota?
A usurious contract is void as to the holder. The lender may lose both the interest charged and the principal of the loan, though some cases limit recovery to forfeiture of interest only.
Are business loans exempt from Minnesota usury law?
Extensions of credit to organizations — including corporations, LLCs, partnerships, and similar entities — are exempt from interest rate limits under Minn. Stat. § 334.022. However, a potential conflict exists with § 334.011, which sets a 4.5% limit on business loans under $100,000. Minnesota courts have not resolved this conflict.
