Interest: How much is too much?

Clients often come to me with questions about maximum allowable interest rates.  A degree of confusion is understandable--Article 19 § 13 of the Arkansas Constitution previously provided for a variable interest limit depending on the type of contract and the Primary Credit Rate at the time of the contract's formation.

During the 2010 general election, Arkansas voters passed Arkansas Constitutional Amendment 89, which became effective on January 1, 2011.  Amendment 89 simplified Arkansas usury law by dividing loans into three categories:

photo credit: EJP Photo

1. Governmental bonds and loans now nave no maximum rate.
2. Loans by or to federally insured depository institutions headquartered in Arkansas are capped by 12 U.S.C. § 1831u
3. All other contracts subject to Arkansas law have a maximum allowable interest rate of 17%.

There are some pretty severe penalties for violating Arkansas usury law, which I'll cover in a future post, so you should always consult your attorney if you have concerns about an interest provision in a contract.