397 views | 2 | Last updated on Oct 30, 2019 Consumer Protection
Patrons frequently ask us what the maximum interest rate in the state of Texas is. Unfortunately, this is not a question with a straightforward answer. Below are a few of the common scenarios that patrons ask about.
There a few sections of law that set forth maximum interest rates. Article 16, Section 11 of the Texas Constitution states that in the absence of other legislation, contracts involving a rate of interest higher than 10% “shall be deemed usurious”. This section also states that “in contracts where no rate of interest is agreed upon, the rate shall not exceed” 6%.
Several chapters of the Texas Finance Code address interest rates:
Section 348.103 of the Texas Finance Code allows for a “time price differential” on motor vehicle installment sales that are paid in equal monthly installments and places restrictions on the amount of that differential.
The Office of the Consumer Credit Commissioner's page on current motor vehicle rates chart explains how this law is implemented. You can use the charts on this page to determine the maximum allowable rate.
Question: How are Annual Percentage Rates (APRs) of 500% or more legal?
Usury protections in the Texas Constitution prohibit lenders from charging more than 10% interest unless the Texas Legislature specifically authorizes a higher rate. Payday and auto title businesses have found a way around the constitutional protections by exploiting a legal loophole. Payday and auto title storefronts register as Credit Access Businesses (CABs) under the Credit Services Organization (CSO) Act, broker loans between the borrower and a third party lender, and charge borrowers high fees for arranging and guaranteeing these loans. The third party lender charges interest at or below 10% to avoid licensing under Texas law. CAB fees are completely unregulated and result in APRs over 500%.
For more information on payday loans, please visit our research guide on payday loans.
The Office of the Consumer Credit Commissioner (OCCC) regulates several specific categories of lenders, such as pawnshops and property tax lenders. The OCCC provides interest rate information for these industries on their website.