Free Broker Tool

Usury Rate Checker

Check whether a financing rate exceeds state usury limits for the applicable loan type.

100% Free

No Sign-Up Required

Instant Results

What Are Usury Laws and How Do They Apply to MCA?

Usury laws set maximum interest rates that lenders can charge. Every state has usury limits, typically ranging from 6% to 36% for consumer loans, with commercial loans often having higher limits or exemptions. MCA transactions have historically been exempt from usury laws because they are structured as purchases of future receivables rather than loans. However, courts in several states (notably New York and California) have begun examining whether some MCA transactions are "true sales" or "disguised loans" -- and if characterized as loans, usury limits apply. A $100K MCA at a 1.35 factor rate over 6 months has an APR equivalent of roughly 70%, which would violate usury limits in virtually every state if classified as a loan. This calculator checks rates against state limits so brokers can assess usury risk on any deal.

How to Use This Calculator

Select the state and transaction type

Usury limits vary by state and by transaction type. Commercial loans often have higher limits or exemptions that consumer loans do not. MCA transactions have their own legal considerations.

Enter the annual rate

Use the APR equivalent from the APR Disclosure Calculator. If you only have the factor rate, convert it to APR first -- comparing a factor rate to an annual usury limit is meaningless.

Review compliance status

The checker shows whether the rate complies with state usury law. Important notes will flag any pending legislation, recent court rulings, or exemptions that affect the analysis.

Key Concepts

Usury

Charging interest above the rate permitted by state law. Criminal usury (a felony in some states like New York) typically applies at very high thresholds (25% criminal usury in NY). Civil usury renders the loan voidable or limits recovery to principal only.

True Sale vs. Disguised Loan

The legal test for whether an MCA is a sale of receivables (exempt from usury) or a loan (subject to usury). Key factors: does the merchant have a fixed obligation? Is there recourse against the merchant personally? Is repayment reconciled to actual revenue?

Commercial Exemption

Many states exempt commercial loans above a certain threshold from usury limits. In New York, loans over $250K are exempt from civil usury (but not criminal usury at 25%). These exemptions may or may not apply to MCAs depending on the court.

Expert Insights

The Legal Ground Is Shifting: The 2023-2025 wave of MCA litigation has produced inconsistent rulings on whether MCAs are loans. In New York, several courts have held that MCAs with fixed payment amounts (not true percentage holdbacks) are loans subject to usury. The distinction between a "true" MCA (percentage of daily receivables) and a "structured" MCA (fixed daily ACH payment) is now legally significant. Brokers must understand which structure their funders use.

Usury Risk Is a Funder Problem, But It Affects Brokers: If a court determines an MCA is usurious, the contract can be voided -- meaning the funder cannot collect the RTR. This triggers clawbacks of your commission because the deal is effectively dead. Brokers who consistently place merchants with funders using proper true-sale MCA structures (percentage holdback, reconciliation, no personal guarantee on the purchase amount) reduce their clawback risk from usury challenges.

Frequently Asked Questions

Historically yes, because MCAs are structured as purchases of future receivables rather than loans. However, courts increasingly scrutinize whether the transaction is a "true sale" or a "disguised loan." If the MCA has fixed payments, no reconciliation, and personal guarantees, it looks more like a loan and could be subject to usury limits.

Some states have criminal usury statutes that make charging above a specified rate a criminal offense. In New York, criminal usury is charging more than 25% interest (Penal Law 190.40). This is a class E felony. Unlike civil usury, there is no commercial exemption for criminal usury in most states.

Ensure your funders use true MCA structures: percentage-based holdback (not fixed payments), regular reconciliation of payments to actual revenue, no personal recourse for the purchase price (personal guarantees should be limited to performance obligations), and clearly documented purchase agreements. These features support the "true sale" characterization.

Results are estimates for educational purposes only. Actual amounts may vary based on your specific financial situation, market conditions, and other factors. This calculator does not constitute financial advice.