State usury caps complicate equipment finance compliance

State usury laws vary widely and are compounding compliance challenges for equipment financiers due to their complexity and growing impact on commercial lending.  

Of more than 2,000 surveyed financial services firms, 21% said their top compliance challenge is interpreting complex regulations such as state usury limits is, according to a Sept. 3 report by lending software provider Carleton. 

“Usury caps” refer to the maximum interest rate lenders can charge on loans.  

Usury compliance is challenging due to the high degree of variance among states, Sarah Milovich, general counsel and vice president of compliance at Carleton, told Equipment Finance News.  

“State interpretation and definitions can vary greatly for seemingly generic terms like ‘finance charge,’” she said.  

Risk and ‘disguised loans’ 

Equipment lenders are increasingly subject to the inconsistencies as more states apply usury laws to commercial contracts, Kristin Esche, senior vice president and deputy general counsel at Mitsubishi HC Capital America, a North American equipment financier, told EFN.  

A bill proposed last year in New York, for example, would “deem all asset-based lending transactions as loans, pulling them under state usury laws,” Carleton’s Milovich said. 

“This creates risk in scenarios where equipment leases are structured as ‘disguised loans,’” she said. “Misclassification can trigger penalties, contract voidance and reputational harm.” 

Texas, for one, amended its usury laws in 2025, requiring commercial lenders to calculate the maximum interest based on the declining principal balance of the loan rather than the original total principal, according to state documents.  

This change prevents lenders from spreading the total interest in equal parts over the duration of the loan to remain under the state’s usury cap, which ranges from 18% to 28% for commercial contracts, depending on the loan type.  

Limits vary by state 

These are other examples of usury-law discrepancies, according to accounts receivable software company Paidnice: 

• New Jersey’s maximum interest rate is 50% for loans issued to corporations, LLCs or LLPs, the highest of any state for a non-consumer category;  
• In Oklahoma and Colorado, the maximum interest rate is 45% for commercial loans, tied for the second highest; 
• In Arkansas and California, the usury limit for non-consumer loans is 5% above the Federal Reserve‘s target interest rate, making them the only states with this specific stipulation; 
• South Carolina has no general usury limit for commercial transactions, subject to federal criminal laws against loan sharking;  
• Mississippi has no usury limit on commercial loans above $5,000; and 
• North Dakota is the only state that permits a late payment charge of 1.75% per month for overdue commercial accounts, specifically, unless stated otherwise in the contract.  

Exemptions for specific rules also vary greatly by state.  

Keys to complying  

To navigate usury-law complexities, equipment lenders must “understand how individual states operate and to work with trusted partners who are ingrained in this level of detail and nuance,” Milovich said. 

“For example, when a state allows a particular fee, is that fee allowed in addition to interest or, for state purposes, is it part of the interest charge? Definitional differences can have significant impacts when widespread violations can void contracts, render interest uncollectible and expose lenders to criminal penalties,” she said. 

Technology could help lenders. As more tech and AI solutions for compliance become available, “having a very solid, data-driven system is critical from a contract standpoint,” Mitsubishi HC’s Esche said. 

Lenders should be “using really good, clean, structured data so that it can be ingested into whichever model that the equipment finance company uses,” she said. “Then it can be programmatically included in the origination engine or the templating pool.” 

It’s also important for equipment lenders to use “dynamic contract templates,” which factor in variables in real-time so that “their language is compliant for the jurisdictions where they do business,” Esche said.  

Check out our exclusive industry data here.