Arizona Usury Laws: The 10% Cap, Exemptions, and Penalties

Arizona usury laws cap interest at 10% per year on any loan that isn’t put in writing, but a signed written agreement can set almost any rate the parties choose. A handful of lending categories have their own statutory ceilings, medical debt has a much lower cap, and a lender who charges more than the law allows forfeits all interest on the loan, not just the excess.¹

The 10% Default and the Written-Contract Rule

Under ARS 44-1201, interest on any loan or obligation defaults to 10% per year. That rate applies automatically to verbal agreements, handshake deals, and any lending arrangement that isn’t memorialized in writing.² Lend money to a friend or business associate without a signed document and 10% is the ceiling, regardless of what you discussed out loud.

Written contracts work differently. When both parties sign a written agreement, the statute says “any rate of interest may be agreed to.”² So Arizona has no hard usury cap on most written loans between private parties. Courts look at economic substance rather than labels, meaning a lender cannot dodge a usury claim by relabeling interest as an “origination fee” or “processing charge.”

The freedom to set any rate has limits. Several categories of lenders (consumer lenders, title lenders) operate under their own statutory ceilings, and medical debt is capped separately.

Medical Debt Is Capped Much Lower

Arizona treats medical debt as a different animal. Under ARS 44-1201(A)(1), the maximum interest rate on medical debt is the lesser of the weekly average one-year constant maturity Treasury yield published by the Federal Reserve, or 3% per year.² The same cap follows any court judgment on medical debt, so a hospital or collection agency that wins in court cannot tack on a higher post-judgment rate.

If a medical creditor is charging you interest above 3%, that creditor is likely violating the statute.

Licensed Consumer Lenders

Companies licensed under the Arizona Consumer Lender Act (ARS Title 6, Chapter 6) can charge well above 10%. These lenders handle consumer loans of $10,000 or less,³ and their maximum finance charges are tiered by loan size:

Loans of $3,000 or less: up to 36% per year.
Loans above $3,000: 36% on the first $3,000 of principal and 24% on the amount above $3,000, or a single blended rate producing the same total finance charges over the life of the loan.

Revolving credit lines follow the same split: 36% on balances up to $3,000, and 24% on balances above that.⁴ A lender charging these rates without a valid consumer lender license is operating illegally.

Auto Title Loans

After Arizona effectively ended payday lending in 2010 when the enabling statute expired,⁵ auto title loans became one of the main high-cost credit products in the state. ARS 44-291 sets maximum monthly finance rates based on the original loan amount:

$500 or less: 17% per month (204% annualized).
$501 to $2,500: 15% per month (180% annualized).
$2,501 to $5,000: 13% per month (156% annualized).
Over $5,000: 10% per month (120% annualized).

These are monthly rates, which is easy to miss. A $1,000 title loan at 15% per month means $150 in finance charges every month.⁶

National Banks and First-Lien Mortgages Are Exempt

Federal law preempts Arizona’s rate limits for two important categories. Under 12 USC 85, a national bank can charge interest at the rate allowed by the state where the bank is located, regardless of where the borrower lives.⁷ Federal regulations confirm that a national bank may charge the highest rate permitted to any state-licensed lender in the state where it operates.⁸ A bank headquartered in a state with no usury cap can lend to Arizona borrowers at rates that would otherwise violate state law.

Mortgages secured by a first lien on residential property are also preempted. The Depository Institutions Deregulation and Monetary Control Act of 1980 overrides state interest rate ceilings for first-lien residential mortgages, including loans on manufactured homes and cooperative housing stock.⁹ This preemption applies regardless of lender type, so even a non-bank mortgage lender making a first-lien residential loan is not bound by Arizona’s default rate.

The Penalty: Total Forfeiture of Interest

Arizona’s usury penalty is blunt. A lender who charges more than the maximum permitted rate forfeits all interest on the obligation, not just the amount over the limit.¹ If a lender without a valid exemption charges 12% on an oral loan (where 10% is the cap), the lender doesn’t just lose the extra 2%. The lender loses everything on the interest side. The borrower still owes the principal, but every dollar of interest is wiped out.

Courts apply the forfeiture whether the lender received the excess directly in cash, through goods, or through any other arrangement. Both direct and indirect methods of extracting interest above the ceiling trigger the statute.

Title lenders face a harsher consequence. Under ARS 44-291, overcharging on a title loan makes the entire transaction voidable, and the lender loses the right to collect principal, finance charges, and fees altogether.⁶ An unlicensed person making title loans faces the worst outcome: those transactions are void from the start.

How to Challenge an Overcharge

Three channels are open to borrowers.

You can sue directly. Courts can declare the interest void under ARS 44-1202 and order the lender to refund interest payments. Class actions have been used against lending practices that affect large numbers of borrowers.

You can file a regulatory complaint. The Arizona Department of Insurance and Financial Institutions (DIFI) oversees licensed lenders and has authority to investigate complaints, conduct examinations, and issue cease-and-desist orders. Sanctions run from fines to license revocation.¹⁰ The Arizona Attorney General’s Office also investigates and prosecutes violations of the Consumer Fraud Act, particularly when lending involves deceptive advertising or misrepresentation of loan terms.¹¹

You can file with the Consumer Financial Protection Bureau. The CFPB accepts complaints about lending practices and forwards them to the company. Companies generally respond within 15 days, with more complex matters taking up to 60 days.¹² A CFPB complaint does not replace a state enforcement action or a lawsuit, but it creates a federal record and sometimes prompts faster resolution than litigation.

Federal Criminal Loan Sharking

Separate from Arizona’s civil usury framework, federal law criminalizes extortionate lending. Under 18 USC 892, extending credit at an annual rate above 45% (calculated using the actuarial method) is prima facie evidence of an extortionate transaction when combined with other factors, such as the borrower’s belief that the lender uses threats or violence to collect.¹³ The penalty is up to 20 years in federal prison. The statute targets the end of the lending spectrum where high rates meet coercion.

1
Arizona Legislature. Arizona Revised Statutes 44-1202 – Forfeiture of All Interest Upon Obligation Involving Interest
2
Arizona Legislature. Arizona Revised Statutes 44-1201 – Rate of Interest for Loan or Indebtedness
3
Arizona Legislature. Arizona Code 6-601 – Definitions
4
Arizona Legislature. Arizona Revised Statutes Title 6, Section 6-632
5
UPI. Arizona Law Shutting Down Payday Lenders
6
Arizona Legislature. Arizona Code 44-291 – Computation of Interest; Prepayment Rebate; Additional Charges
7
Office of the Law Revision Counsel. 12 USC 85 – Rate of Interest on Loans, Discounts, and Purchases
8
eCFR. 12 CFR 7.4001 – Charging Interest by National Banks at Rates Permitted Competing Institutions
9
Office of the Law Revision Counsel. 12 USC 1735f-7a – State Constitution or Laws Limiting Rate or Amount of Interest
10
Arizona Department of Insurance and Financial Institutions. Enforcement Actions
11
Arizona Attorney General’s Office. About Consumer Protection
12
Consumer Financial Protection Bureau. Submit a Complaint
13
Office of the Law Revision Counsel. 18 USC 892 – Making Extortionate Extensions of Credit