Minnesota Usury Law

Rate Terms Inside the Note

A rate escalation after maturity costs the lender everything, not just the excess. “Contracts shall bear the same rate of interest after they become due as before, and any provision in any contract, note, or instrument providing for an increase of the rate of interest after maturity, or any increase therein after making and delivery, shall work a forfeiture of the entire interest; but this provision shall not apply to notes or contracts which bear no interest before maturity nor shall it apply to any agreement which extends the maturity date of any contract, note, or instrument, and provides for an increased rate of interest after the original maturity date on the indebtedness then due.” Minn. Stat. § 334.01, subd. 1. Two situations escape that forfeiture: a note bearing no interest before maturity, and an agreement extending the maturity date that raises the rate on the indebtedness then due. An extension agreement is itself capped: it “shall not provide for an increased rate of interest in excess of $8 on $100 for one year.”

Interest may not be compounded. The same subdivision provides that “interest shall not be compounded, but any contract to pay interest, not usurious, upon interest overdue, shall not be construed to be usury.”

An arithmetic mistake is not usury. “No merely clerical error in the computation of interest, made without intent to avoid the provisions of this chapter, shall constitute usury.” Minn. Stat. § 334.03. That escape is limited by its own terms to a clerical error in the computation of interest, so it does not reach an overcharge the lender meant to make. A lender “need only intend to charge a rate that is in fact usurious,” and it “matters not whether the lender knows he is violating the usury law.” Miller v. Colortyme, Inc., 518 N.W.2d 544, 550 (Minn. 1994).

Usury as a Defense and as a Claim for Recovery

Minnesota’s usury statutes give a borrower sued on a usurious contract a defense, and they also give a borrower who has already paid a claim of his own. Minn. Stat. § 334.02 allows a person who paid more than section 334.01 permits to recover “the full amount of interest or premium so paid, with costs, if action is brought within two years after such payment or delivery.” The two years runs from the payment, not from the making of the loan. Minn. Stat. § 334.011, subd. 2, separately allows a borrower on a business or agricultural loan that exceeded the permitted rate to recover twice the interest paid.

Strickland v. First State Bank of Balaton, 202 N.W. 727, 729 (Minn. 1925), addresses a narrower point than it is often given credit for. Reciting settled usury principles, the court stated 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,” and that “[t]he usury statute is a shield but not a sword.” That language states a general principle rather than the ground of decision. The court decided only that competent evidence supported the jury’s verdict for the lender on his claim for money had and received and that the transaction was free from usury; it reversed the judgment entered for the bank despite that verdict and directed judgment for the lender. The statute itself supplies the counterweight: the section 334.02 recovery action derives from Revised Laws 1905, § 2734, so it was already on the books in 1925. Minn. Stat. § 334.02. The Court of Appeals later confirmed that “[u]sury law has been utilized by aggrieved debtors as a direct cause of action as well.” Trapp v. Hancuh, 530 N.W.2d 879, 885 (Minn. Ct. App. 1995).

Both of chapter 334’s core remedies switch off for a listed lender that is subject to one of three regulatory regimes in connection with the loan. Sections 334.02 and 334.03 each provide that the section “does not apply when the loan or forbearance is made by a lender and the lender is subject to section 47.59 or 48.196 or chapter 56 in connection with the loan or forbearance,” and each defines “lender” to cover a Minnesota bank or savings bank, a federally chartered savings association or savings bank, a chapter 51A savings association, a federal or chapter 52 credit union, a chapter 53 industrial loan and thrift company, a chapter 56 licensed lender, and a mortgagee or lender approved or certified by HUD or the administrator of veterans affairs.

Who May Raise Usury

The defense runs to the person directly and primarily liable on the loan. An individual who signs as maker or comaker may raise it, while an individual who merely guarantees a corporate debt generally may not. Charmoll Fashions, Inc. v. Otto, 311 Minn. 213, 216, 248 N.W.2d 717, 719 (1976); Trapp v. Hancuh, 530 N.W.2d 879, 884 (Minn. Ct. App. 1995) (“The individual with direct and primary liability may assert usury.”). A guarantor may still assert usury under the “New York Rule” by showing that the corporate form concealed a loan going directly to the individual and that the loan discharged personal obligations rather than furthering a business enterprise. Trapp, 530 N.W.2d at 884. A borrower that is itself an organization has no usury defense at all, because an extension of credit to an organization is exempt from the chapter. Minn. Stat. § 334.022. (Charmoll states this rule by citing Minn. Stat. § 334.021, which the legislature repealed in the same act that enacted § 334.022. Laws 2002, ch. 342, §§ 10-11.)

If you plan to raise usury, expect to carry a heavy burden. “The burden is upon the party interposing the defense of usury to negative every supposable fact, which, if true, would render the transaction lawful.” Strickland, 202 N.W. at 729. The same passage states two threshold points: “We cannot have usury without the loan of money nor without a contract. To be usurious the contract must be so when made,” and “[i]t is not usury to pay excessive interest for the past use of money.” Strickland also describes how usury gets proved and who decides it: “The contract of usury, of course, may be proved by conduct, as well as by words, and when there is a conflict . . . usury is a question of fact and must be left to the jury.” Only “[w]here there is no dispute in the testimony and the evidence shows a direct contract whereby, for a loan of money, the lender exacts a usurious bonus or excessive interest, the intent to evade the law is presumed and then, only, usury becomes a question of law.”

Elements of Usury

Minnesota courts apply a four-element test. All four “must be proven to establish a violation of the usury law,” Miller v. Colortyme, Inc., 518 N.W.2d 544, 549 (Minn. 1994):

1. A loan of money or forbearance of debt,

2. An agreement between the parties that the principal shall be repayable absolutely,

3. The exaction of a greater amount of interest or profit than is allowed by law, and

4. The presence of an intention to evade the law at the inception of the transaction.

Maslowski v. Prospect Funding Partners LLC, No. A21-1338 (Minn. Aug. 23, 2023) (quoting Miller v. Colortyme, Inc., 518 N.W.2d 544, 549 (Minn. 1994)); Citizen’s National Bank of Willmar v. Taylor, 368 N.W.2d 913, 918 (Minn. 1985); Rathbun v. W.T. Grant Co., 219 N.W.2d 641, 646 (Minn. 1974).

Four points make the list usable.

The second element has an operative definition, and it decided the most recent Minnesota Supreme Court usury case. “Under Minnesota law, the element of absolute payment means that the payment of the principal cannot be contingent on any event that must occur before payment is required,” and usury “cannot be predicated on ‘something occurring which may never occur.’” Maslowski, No. A21-1338. On that ground the court held that a 60% repurchase rate in a litigation financing agreement is not subject to the usury statute when repayment turns on a recovery in the underlying lawsuit, reversing the 2022 Court of Appeals decision that had applied the cap.

The first two elements can be supplied by statute. Where the legislature has defined a transaction as a consumer credit sale for all purposes, “the first two common law elements of usury are met by operation of statute,” so a lender cannot escape the cap by pointing out that the customer owes no absolute repayment. Miller, 518 N.W.2d at 549.

The fourth element does not require the lender to know it was breaking the law. “[A] lender need only intend to charge a rate that is in fact usurious,” and it “matters not whether the lender knows he is violating the usury law.” Miller, 518 N.W.2d at 550. Good faith excuses a lender only where the lender “has taken reasonable precautionary actions prior to the making of the loan in order to comply with the usury law.” Trapp, 530 N.W.2d at 885.

Labels do not control. “In addressing the scope of the usury statute, we look through the form to the substance of a transaction.” Miller, 518 N.W.2d at 550. A document calling itself a sale, a lease, a purchase of an interest, or a fee can still be a loan.

Chapter 334 sets a general 8% usury cap on interest rates, and there are many exceptions to it. Some of the more notable exceptions are credit extended to an organization such as a corporation, limited liability company, or partnership (Minn. Stat. § 334.022), written credit contracts in an amount of $100,000 or more (Minn. Stat. § 334.01, subd. 2), contracts for the loan or forbearance of money in an amount of less than $100,000 for business or agricultural purposes (Minn. Stat. § 334.011), interest on verdicts, judgments and awards (Minn. Stat. § 549.09), and retail installment sales of motor vehicles (Minn. Stat. § 53C.09). For a detailed breakdown of how these limits apply, see Minnesota Usury Law Limits.

Two of those deserve their own numbers. Interest on a judgment or award over $50,000, other than one for or against the state or a political subdivision or one in a family court action, runs at “ten percent per year until paid.” Minn. Stat. § 549.09, subd. 1(c)(2). Beginning August 1, 2022, no interest accrues on past, current, or future child support judgments. Id., subd. 1(c)(4).

For a motor vehicle retail installment sale, the finance charge may run to 18 percent per year on a vehicle of the current or immediately prior model year, 19.75 percent on a two- or three-year-old vehicle, and 23.25 percent on any older vehicle. Minn. Stat. § 53C.09, subd. 1. Those rates are not the only path: section 53C.09, subdivision 4, lets a retail seller proceed under Minn. Stat. § 47.59 instead of the chapter 53C rate schedule, and a 2026 amendment extended that election to a sales finance company and tied it to section 47.59, subdivisions 4, 4a, and 6. Laws 2026, ch. 124, art. 1, § 8. The Motor Vehicle Retail Installment Sales Act was renumbered out of chapter 168 in 2005, so a citation to Minn. Stat. § 168.72 for these rates points at an empty section. The act also does not reach every dealer-financed sale: a “[r]etail installment contract” does not include “an installment sale of a motor vehicle purchased primarily for use in business,” Minn. Stat. § 53C.01, subd. 8, and a seller who overcharges is exposed to treble the excess time price differential, with a $50 minimum, plus attorney fees, Minn. Stat. § 53C.12, subd. 3.

Usury Liability

A usurious contract is void, except as to a holder in due course, who may still enforce it. Minn. Stat. § 334.03. The section carries a second exception alongside the holder in due course: an instrument “taken or received in accordance with and in reliance upon the provisions of any statute” is not void, which is how paper written under a separate rate statute stays enforceable. The negotiable-paper protection is conditional rather than automatic: the section preserves “the purchase of negotiable mercantile paper, usurious or otherwise, for a valuable consideration, by a purchaser without notice, at any price before the maturity of the same, when there has been no intent to evade the provisions of this chapter, or where such purchase has not been a part of the original usurious transactions.” Where the original holder sells a usurious note to an innocent purchaser, the maker or the maker’s representatives may recover the principal and interest paid back from the original holder.

Cancellation is one of three forms of relief, and the relief is mandatory once the court is satisfied. “When it satisfactorily appears to a court that any bond, bill, note, assurance, pledge, conveyance, contract, security, or evidence of debt is void under the provisions of this chapter it shall declare the same to be void, enjoin any proceeding thereon, and order it to be canceled and given up.” Minn. Stat. § 334.05. If a collection or foreclosure proceeding is already running against you on a usurious instrument, the injunction is often the more urgent remedy. Note that section 334.05 supplies the remedies rather than the voidness itself; a borrower’s release from the principal comes from the voidness that Minn. Stat. § 334.03 declares.

A lender who operates under a usurious contract can lose the interest on the money loaned and can also stand to lose the principal, because the instrument is void except as to a holder in due course. Minn. Stat. § 334.03. Courts do not impose that full forfeiture automatically. In Rathbun v. W.T. Grant Co., 300 Minn. 223, 242, 219 N.W.2d 641 (1974), the Minnesota Supreme Court narrowed a usury class action to the collection of interest only, because “the recovery of both interest and principal provides a remedy too harsh under the circumstances,” and it preserved the lender’s right to pursue customers who still owed principal after full credit for the finance charges. Katz & Lange, Ltd. v. Beugen, 356 N.W.2d 733, 735 (Minn. Ct. App. 1984), followed it, holding that “having the entire underlying debt declared void is too harsh under the circumstances; forfeiture of all finance charges is a sufficient remedy.”

For a business or agricultural loan under $100,000, the interest-only outcome is a rule rather than a matter of discretion. Subdivision 2 forfeits “the entire interest due on that note, bill or other evidence of debt” and lets a borrower who paid the excessive interest “recover in a civil action an amount equal to twice the amount of interest paid.” Minn. Stat. § 334.011, subd. 2. That remedy “is exclusive, and is not cumulative with other usury remedies,” so “the loan principal is not avoided.” Trapp v. Hancuh, 530 N.W.2d 879 (Minn. Ct. App. 1995). Barton v. Moore, 558 N.W.2d 746 (Minn. 1997) (“We hold that loans determined to be usurious pursuant to Minn.Stat. § 334.011, subd. 1 are not therefore void, but only subject the lender to loss of interest.”). The mechanics stack: “the entire interest due on the loan is forfeited. In addition, Trapp may recover twice the amount of interest he actually paid. However, Trapp remains obligated to repay the principal portion of the debt.” Trapp v. Hancuh, 530 N.W.2d 879, 886 (Minn. Ct. App. 1995).

Exceptions for Businesses

No interest rate limit applies to an extension of credit to an organization. The exemption is written broadly: “no limitation on the rate or amount of interest, points, finance charges, fees, or other charges applies to an extension of credit to an organization, and any such extension of credit is exempt from the other provisions of this chapter.” Minn. Stat. § 334.022. Two features matter to a business borrower. The exemption covers points, finance charges, and fees, not only the stated rate. And it lifts the credit extension out of the rest of chapter 334, which is where the usury remedies sit, the same lift that section 334.01, subdivision 2, gives a written contract of $100,000 or more. The rate override runs “[n]otwithstanding any law to the contrary,” while the blanket exemption runs only to chapter 334.

The statute defines “organization” to mean “a corporation, government, government subdivision or agency, trust, estate, partnership, joint venture, cooperative, limited liability company, or association.” Minn. Stat. § 334.022. That is a closed list, not an illustration. If you borrow in your own name, including as a sole proprietor who has formed no entity, you are not an organization, so this exemption does not apply to your loan.

Minn. Stat. § 334.011, subd. 1, permits interest “of not more than 4-1/2 percent in excess of the discount rate on 90-day commercial paper in effect at the Federal Reserve Bank in the Federal Reserve District encompassing Minnesota” on a loan of less than $100,000 for business or agricultural purposes, while Minn. Stat. § 334.022 exempts an organization’s credit from every limitation in the chapter. Minn. Stat. § 334.011 is one of those other provisions, so its ceiling does not reach a loan to a corporation, limited liability company, partnership, or other listed organization even when the loan is under $100,000 and made for a business purpose. The two sections do not conflict. This issue also arises in rent-to-own contracts and Minnesota’s usury law.

Four features of the business and agricultural ceiling decide most real cases. The statute defines the term that triggers it: “the term ‘business’ means a commercial or industrial enterprise which is carried on for the purpose of active or passive investment or profit.” The higher rate is unavailable where the money goes home: “No loan shall be made pursuant to this subdivision if the proceeds of the loan are used to finance the purchase or maintenance of real estate used principally for the borrower’s residence.” Compliance is tested once, at origination: “If the rate of interest charged is permitted by this section at the time the loan was made, that rate of interest does not later become usurious because of a fluctuation in the federal discount rate.” Id., subd. 3. And a separate fixed ceiling applies to qualifying 501(c)(3) microlenders, which may make loans “in principal amounts not to exceed $10,000, at a rate of interest not to exceed 16 percent per year, and with an origination fee not to exceed two percent of the principal amount.” Id., subd. 5.

One practical caution on that formula. The Federal Reserve restructured discount window pricing effective January 9, 2003, and no Reserve Bank posts a separate discount rate on 90-day commercial paper today. A Reserve Bank now prices discounts and advances at the primary, secondary, or seasonal credit rate. 12 C.F.R. § 201.51. The Board of Governors describes the primary credit rate as “[t]he rate charged for discounts made and advances extended under the Federal Reserve’s primary credit discount window program, which became effective January 9, 2003,” and states that it “replaces that for adjustment credit, which was discontinued after January 8, 2003.” Board of Governors of the Federal Reserve System, Statistical Release H.15, Selected Interest Rates, n.8. If you are relying on this ceiling, fix the rate as of the date the loan is made and document the published source you used.

Exceptions

The Minnesota usury statute provides a general ban on high interest rates, but there are exceptions. Several of them substitute a different ceiling rather than removing every limit, so read each one for what it actually gives you.

• Business and agricultural loans under $100,000, which carry a higher ceiling rather than no ceiling: interest of not more than 4-1/2 percent above the Federal Reserve 90-day commercial paper discount rate (see Minn. Stat. § 334.011). Loans of $100,000 or more made under a written contract signed by the debtor are exempt from the rate cap, subject to the exceptions the statute names in Minn. Stat. § 58.137 and, for a conventional loan or contract for deed, Minn. Stat. § 47.20, subd. 4a, and any extension of credit to an organization such as a corporation, partnership, or limited liability company is exempt from a rate cap altogether (see Minn. Stat. § 334.01, subd. 2; Minn. Stat. § 334.022)
• Interest a broker or dealer registered under the Securities Exchange Act of 1934 charges for carrying a customer’s debit balance that is payable on demand and secured by securities or bonds, subject to chapter 80A (see Minn. Stat. § 334.19)
• Loans a Minnesota-based financial institution makes against a savings or time deposit account the borrower owns, capped at the greater of two percent above the account’s rate or the rate contracted for under Minn. Stat. § 334.01, subd. 1 (see Minn. Stat. § 334.012). That section defines “financial institution” as “a bank, savings bank, trust company, mutual savings bank, or savings association organized under the laws of this state or the United States and having its main office in this state,” so any other lender stays under the general limit
• First-lien residential mortgage loans of the kind described in 12 U.S.C. § 1735f-7a, made in Minnesota after June 2, 1981, and still subject to the fee and prepayment-penalty limits of Minn. Stat. § 58.137 (see Minn. Stat. § 47.204)
• ERISA plan loans: a contract entered into on or after December 31, 1974 for the loan or forbearance of money between a participant, former participant, or beneficiary and a plan subject to the Employee Retirement Income Security Act of 1974, 29 U.S.C. ch. 18, as amended through December 31, 1982, is exempt from chapter 334 (see Minn. Stat. § 334.01, subd. 3)
• Depository institutions: a state or federally chartered bank, savings bank, savings association, or credit union doing business in Minnesota may charge up to 4-1/2 percent above the discount rate on 90-day commercial paper in effect at the Board of Governors of the Federal Reserve System, except on an extension of credit made under section 48.185 (see Minn. Stat. § 48.195). The section’s own heading calls it a usury limit rather than an exemption, and the benchmark moved from the Ninth Federal Reserve District to the Board of Governors by Laws 2026, ch. 124, art. 7, § 3
• Credit unions: a credit union’s rate on unpaid loan balances may not exceed one percent a month or the rate authorized by section 48.195, whichever is greater when the loan is made (see Minn. Stat. § 52.14, subd. 2). Subdivision 1 was repealed in 1982, so the ceiling lives entirely in subdivision 2, and it too is tested at origination

Credit cards and loans from out-of-state national banks are largely outside Minnesota’s usury caps because 12 U.S.C. § 85 lets a national bank charge interest at the rate allowed by the laws of the state where the bank is located, and Marquette National Bank of Minneapolis v. First of Omaha Service Corp., 439 U.S. 299, 308, 312-13 (1978), applied that language to an out-of-state credit card program, so the reason is narrower than a general rule that federal law displaces state law. 12 U.S.C. § 85; Cantero v. Bank of America, N.A., 602 U.S. 205 (2024). A national bank may charge interest “at the rate allowed by the laws of the State . . . where the bank is located,” or one percent above the 90-day commercial paper discount rate, whichever is greater, “and no more.” 12 U.S.C. § 85. In Marquette National Bank of Minneapolis v. First of Omaha Service Corp., 439 U.S. 299 (1978), the Supreme Court held that section 85 lets a national bank charge interest “on any loan” at the rate allowed by the laws of the state where the bank is “located,” so a Nebraska national bank could charge its Minnesota credit card customers the higher rate Nebraska allowed even though Minnesota law capped it. Id. at 308, 313. The same sentence of section 85 contains the most-favored-lender rule, which is why a national bank’s ceiling tracks whatever a state allows its own state-chartered banks, and the section supplies a federal fallback rate where a state fixes none.

Three limits belong with that rule. The Court expressly reserved whether the National Bank Act protects a non-bank participant that is itself extending credit, noting that no complaint alleged the service corporation or the Minnesota merchants and banks “are themselves extending credit in violation of Minn. Stat. § 48.185 (1978), and we therefore have no occasion to determine the application of the National Bank Act in such a case.” Id. at 307-08. Enrolling a state’s residents, merchants, and banks does not relocate the bank: “The mere fact that Omaha Bank has enrolled Minnesota residents, merchants, and banks in its BankAmericard program thus does not suffice to ’locate’ that bank in Minnesota for purposes of 12 U.S.C. § 85.” Id. at 312-13. And the Court acknowledged that rate exportation weakens state usury laws, saying that “the protection of state usury laws is an issue of legislative policy, and any plea to alter § 85 to further that end is better addressed to the wisdom of Congress than to the judgment of this Court.” Id. at 318-19.

The rule is current, and it reaches more than the periodic rate. The Supreme Court restated Marquette’s credit card holding and extended section 85 to late-payment fees in Smiley v. Citibank (South Dakota), N.A., 517 U.S. 735, 737 (1996). When Congress rewrote National Bank Act preemption in 2010, it carved section 85 out by name: “No provision of title 62 of the Revised Statutes shall be construed as altering or otherwise affecting the authority conferred by section 85 of this title for the charging of interest by a national bank at the rate allowed by the laws of the State . . . where the bank is located, including with respect to the meaning of ‘interest’ under such provision.” 12 U.S.C. § 25b(f). A national bank located in Minnesota takes its ceiling from Minnesota law through section 85’s most-favored-lender clause. 12 U.S.C. § 85. That is where Minnesota’s ceilings for depository institutions do their work, including the open end loan account ceiling of Minn. Stat. § 48.185 and the depository institution ceiling of Minn. Stat. § 48.195. A national bank located in another state is not reached by those Minnesota ceilings, which is the point Marquette decided.

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. Because the exceptions turn on the borrower’s identity, the loan amount, and the form of the paperwork, a Minnesota business lawyer can assess whether a specific loan falls within Chapter 334’s limits.