Maximum Finance Charges in Minnesota

Minnesota law regulates the maximum finance charges that creditors can assess in various lending scenarios. These regulations are designed to protect consumers from predatory lending practices and ensure fairness in financial transactions. The specific limits depend on the type of credit and the amount financed.

General Interest Rate Limit

Minnesota Statutes Section 334.01 sets a general interest rate limit. Unless a specific law allows a higher rate, creditors can generally charge an interest rate of no more than 8% per year. This applies to many types of debts, including loans, credit sales, and other forms of credit agreements.

Exceptions and Higher Rates

Numerous exceptions exist to the general 8% limit. Several laws authorize higher interest rates for specific types of loans and credit transactions. Here are some examples:

• Credit Cards: Minnesota law allows for higher interest rates on credit cards. The specific rate is typically disclosed in the credit card agreement. Competition within the credit card market often dictates the actual rates offered.
• Motor Vehicle Sales: The interest rate on motor vehicle sales finance contracts is regulated by Minnesota Statutes Chapter 168. The maximum rate depends on the age of the vehicle and the original principal amount financed. Generally, older vehicles and smaller loan amounts allow for higher interest rates.
• Small Loans: Lenders making small loans (often called payday loans or short-term loans) are subject to specific regulations in Minnesota Statutes Chapter 47. These loans typically carry very high interest rates and fees, but are subject to limitations. The law places restrictions on loan amounts, terms, and the finance charges lenders can impose.
• Manufactured Home Sales: The interest rates on manufactured home sales are also subject to specific regulations.
• Certain Business Loans: Loans made to businesses, especially larger loans, may be exempt from certain interest rate limitations.

Payday Loans and Short-Term Lending

Payday loans are a high-cost form of short-term lending. Minnesota law regulates payday lenders stringently. They are required to be licensed and must adhere to specific rules regarding loan amounts, loan terms, and fees. The regulations aim to prevent debt traps and protect vulnerable borrowers.

Usury

Charging interest rates that exceed the legally permissible maximum is known as usury. In Minnesota, usury is illegal. Lenders who charge usurious rates face legal consequences, which could include forfeiture of the interest charged, penalties, and potential civil lawsuits.

Importance of Reviewing Loan Agreements

It is crucial for borrowers to carefully review loan agreements before signing them. Understand the interest rate, fees, and other terms of the loan. If you have concerns about the interest rate or other terms, seek advice from a financial advisor or attorney before committing to the loan.

Where to Find More Information

You can find more detailed information about Minnesota’s usury laws and lending regulations in the Minnesota Statutes, particularly Chapters 47 and 334. You can access the statutes online through the Minnesota State Legislature’s website.