Exceptions to the Usury Law
There are many instances where the usury law does not apply. These are known as exceptions to the usury law. The list provided below includes many of these exceptions.
Commercial, Agricultural, Investment and Business Loans
If a loan was made primarily for a commercial, agricultural, investment or business purpose, then a borrower may not claim a defense of usury against the lender. Interest rates on loans made primarily for a commercial, agricultural, investment or business purpose may exceed Washington State’s usury law. See RCW 19.52.080.
Credit Card and Other Retail Installment Debts
Of course, credit card and other retail installment debt may, and frequently does, exceed the maximum rate of interest that may be charged per RCW 19.52.020(1). This is because Washington State’s usury law generally does not apply to debts related to “retail installment transactions,” as defined in RCW 63.14.010(8). Retail installment transactions include “retail installment contracts,” “retail charge agreements,” "lender credit cards" (such as Nordstrom or Macy's) and "financial institution credit cards" (such as VISA or MasterCard). See RCW 19.52.100.
Note: If credit card issuers comply with RCW 63.14.167, which covers lender credit card agreements, they do not have to comply with the general usury law (see RCW 19.52.115, which redirects you to RCW 63.14.165). This is how credit card issuers can charge higher rates than the usury law allows. It is a provision well known and generally followed by credit card issuers.
Consumer leasing includes personal property such as automobiles and furniture. In the case of a consumer lease that exceeds 4 months on personal property up to $25,000 in value (as defined in RCW 63.10.020(4)), a consumer may not raise a claim or defense of usury. See RCW 19.52.150 and RCW 63.10.060.
Most Favored Lender Status
Regardless of Washington State’s usury law, a national banking association such as Wells Fargo Bank, N.A., or Bank of America, N.A., may charge interest on a consumer debt (including, without limitation, a retail installment or credit card debt) at the highest rate available on any day for any other institution in the United States or U.S. Territories (see 12 U.S.C. 85).
In addition, Washington State banking law (RCW 30.04.025) allows any depository financial institution (bank, trust company, mutual savings bank, savings and loan association or credit union per RCW 30.22.040(12)) authorized to do business and accept deposits in Washington State, under either state or federal law, to have the same “most favored lender” power and status as national banking associations. The addition of RCW 30.04.025 to our statutes in 2003 was prompted by House Bill 1759, which was introduced by the banking industry.
Most First Lien Residential Mortgage Loans
Federal law generally takes precedence over (preempts) Washington State’s usury law for most first lien mortgage loans. However, a private lender who makes an isolated transaction, or a seller of a home who makes a first lien purchase money loan or land installment contract of sale with his or her buyer, is generally subject to Washington State’s usury law.
Specifically, federal law (12 U.S.C. 1735f - 7A) preempts state usury law for any loan, mortgage, credit sale or advance that is secured by a first lien on:
- Residential real property .
- Stock allocated to a dwelling unit in a residential cooperative
- A residential manufactured home.
In addition, state usury laws do not apply if the loan, mortgage, credit sale or advance (even a junior lien mortgage) is:
- Insured by any U.S. government agency .
- Provided by any lender that is regulated by a U.S. government agency .
- Provided, insured, guaranteed, supplemented, or assisted in any way by the Secretary of Housing and Urban Development (HUD), or other government agency (e.g., an FHA or VA loan).
- Eligible for purchase by the Federal National Mortgage Association (“Fannie Mae”), the Government National Mortgage Association (“Ginnie Mae”) or the Federal Home Loan Mortgage Corporation (“Freddie Mac”)
- Provided by any "creditor" who makes or invests in residential real estate of more than $1,000,000 per year, who regularly extends consumer credit which is payable by agreement in more than four installments where payment of a finance charge is or may be required, provided that:
- In an open-end credit plan involving a credit card, the card issuer and any person who honors the credit card and offers a discount which is a finance charge, are the "creditors."
- Any person who originates 2 or more "high interest mortgages" in any 12-month period or any person who originates 1 or more such mortgages through a mortgage broker is a "creditor."
Note: For this purpose, “high-interest mortgage” is a consumer credit transaction that is secured by the consumer's principal dwelling, and in which the annual percentage rate (APR) at closing exceeds, by more than 10%, the yield on U.S. Treasury Department securities having comparable periods of maturity on the 15th day of the month, immediately preceding the month in which the loan application is received by the creditor. Or, if the total points and fees payable by the consumer at or before closing will exceed the greater of 8% of the total loan amount or $400, the mortgage is considered "high-interest."
Second Mortgages & Home Equity Loans by Licensed Consumer Loan Companies
A consumer loan company licensed under the Washington Consumer Loan Act (RCW Chapter 31.04) may generally make second mortgages and subordinate lien home equity loans on residential real estate at interest rates in excess of Washington State’s usury law.
“Small Loans” Regulated Under Washington State Law
A licensed check casher or check seller under RCW Chapter 31.45, who has obtained a “small loan endorsement” from the DFI per RCW 31.45.030, may make a “small loan” up to $700 (most commonly a “payday loan”) at interest rates that greatly exceed the maximum rate of interest under Washington State’s usury law. The lender must provide all proper disclosures and comply with all other terms of RCW 31.45.
Lease-Purchases on Personal Property
Certain Financing of Mobile Homes
Washington State’s usury law does not apply to the financing of a mobile home that has become “real property” as defined in RCW 84.04.090, and which financing is insured by the federal government (e.g., FHA or VA). See RCW 19.52.160.
Note: The term “real property” includes a mobile home that has substantially lost its identity as a mobile unit by being permanently fixed in location upon land owned or leased by the owner of the mobile home and placed on a permanent foundation (posts or blocks) with fixed pipe connections with sewer, water, or other utilities.
Loans from a Tax-Qualified Retirement Plan
Washington State’s usury law does not apply to any loan permitted under applicable federal law and regulations from a tax-qualified retirement plan to a person then a participant or a beneficiary under the plan. See RCW 19.52.170.
Certain Interest Charged by Broker-Dealers
A broker-dealer, who is registered under the Securities Act of Washington (RCW 21.20) and under the federal Securities and Exchange Act of 1934, is not limited by the maximum rate of interest under RCW 19.52.020(1) if the underlying loans made by the broker-dealer may be paid in full at the option of the borrower and are subject to Federal Reserve Board regulations. See RCW 19.52.110.
Interest, Penalties and Costs on Delinquent Property Taxes
Washington State’s usury law does not apply to interest, penalties, or costs on delinquent property taxes. See RCW 19.52.140.
Deferred Payment of Purchase Price
Washington State’s usury law does not apply to sales contract for goods or services providing for the deferred payment of the purchase price. See RCW 19.52.120.
Statutory Interest on Judgments
Statutory interest on judgments entered and enforced in Washington State courts may bear interest, per RCW 4.56.110, as follows:
- Written Contracts – rate set forth in the contract .
- Unpaid Child Support – 12% per annum
- Judgments for Intentional or Negligent Conduct – 2% above the rate for 26-week treasury bills for the first auction quote in the month preceding the entry of judgment.
Otherwise, judgments in Washington State courts include interest from the date of judgment at the rate set forth in Washington State’s usury law. See RCW 19.52.020.