Usurious loans in Arkansas are loans that charge more interest than the state constitution allows, and for most private lending that ceiling is 17% per year. Go over it, and the lender does not just lose the excess. The lender loses the entire debt, principal included. That penalty is written into Amendment 89 of the Arkansas Constitution, which makes it far harder to soften than a statutory cap would be.1Justia. Arkansas Constitution Amendment 89
The 17% Cap and Who It Applies To
Amendment 89 sorts loans into three categories, and only one of them is capped at 17%.1Justia. Arkansas Constitution Amendment 89
- Bonds issued by, or loans made by or to, governmental units have no maximum rate unless the General Assembly sets one.
- Banks, credit unions, and savings institutions with their main office in Arkansas may charge up to the rate that applied to federally insured depository institutions under 12 U.S.C. § 1831u as of March 1, 2009.
- Every other loan or contract is capped at 17% per year.
That third category is the one that covers most private lending in the state: individuals loaning money to friends or family, private mortgage holders, non-bank finance companies, and commercial lenders that are not federally insured. The Arkansas Code backs the constitutional limits up. Section 4-57-104 allows written contracts to set interest up to the Amendment 89 rate, and Section 4-57-105 prohibits collecting more than that.2Justia. Arkansas Code 4-57-104 – Maximum Rate of Interest Permitted3Justia. Arkansas Code 4-57-105 – Usurious Interest Prohibited
When a contract says nothing about interest, Arkansas law does not assume zero. It implies a rate of 6% per year. That default matters in informal loans and business deals where the parties simply forgot to write a rate into the paperwork.
What Makes a Loan Usurious
A loan is usurious when the lender charges, takes, or receives more than the applicable cap. Section 4-57-105 reaches broadly: no person or corporation may “directly or indirectly” collect more than the legal limit, whether in money, goods, or anything else of value.3Justia. Arkansas Code 4-57-105 – Usurious Interest Prohibited
The “directly or indirectly” language is doing real work. Arkansas courts look past the labels a lender puts on charges. A “processing fee,” “storage fee,” “appraisal charge,” or “insurance premium” that is really the cost of borrowing gets treated as interest and measured against the cap. The test is practical: add up everything the borrower pays beyond the principal, treat it as the cost of the loan, and see whether it exceeds 17% annualized (or the applicable cap for that lender). If it does, the loan is usurious no matter what the paperwork calls the charges.
The Penalty: Principal and Interest Both Forfeited
Section 6 of Amendment 89 makes a loan that exceeds the 17% cap void as to both principal and interest.1Justia. Arkansas Constitution Amendment 89 The lender does not lose only the overcharge, or even only the interest. The lender loses the right to collect the loan itself. The entire debt is gone.
A lender who charges 18% on a $50,000 loan does not recover the $50,000 at a corrected 17% rate. The lender recovers nothing. The borrower keeps whatever principal has not been repaid, and payments already made may be recoverable too. Arkansas courts have enforced this forfeiture rule for more than a century under successive versions of the state’s constitutional usury provision. The severity is the point: forfeiting principal is meant to make usury economically irrational, so a lender tempted by a few extra percentage points has to weigh those against losing the whole loan.
What a Borrower Can Do
If you are paying on a loan you believe is usurious, you have two main options.
The first is defensive. If the lender sues you for nonpayment, raise usury as a defense in that case. You do not need to file a separate lawsuit. If the court agrees the rate exceeded the cap, the entire obligation is void and the lender’s collection action fails.
The second is affirmative. Because a usurious contract is void as to principal and interest, money you already paid was paid on a void obligation. Borrowers can sue to recover those payments, and courts have ordered lenders to return them. This route matters most when the loan has been substantially or fully repaid and the borrower wants money back rather than just a shield against collection.
These remedies apply to loans governed by Section 3 of Amendment 89, meaning non-bank, non-government loans. If your loan is from a federally insured bank or credit union, the automatic void-at-17% remedy does not apply, because a different rate structure governs.
The Bank and Credit Union Carve-Out
The largest gap in the 17% cap involves federally insured financial institutions. Amendment 89 gives them their own rate structure, and federal law adds preemption on top.
Under 12 U.S.C. § 85, a national bank can charge interest at the rate allowed by the state where it is located, or 1% above the Federal Reserve discount rate on 90-day commercial paper, whichever is higher.4Office of the Law Revision Counsel. 12 USC 85 – Rate of Interest on Loans, Discounts and Purchases State-chartered banks with FDIC insurance have parallel authority under 12 U.S.C. § 1831d, which lets them charge the rate permitted in their home state even when lending to Arkansas borrowers.5eCFR. 12 CFR Part 331 – Federal Interest Rate Authority
This is why credit cards routinely carry rates well above 17%. The issuing bank is headquartered in Delaware, South Dakota, or another state with a high cap or none at all, and federal law lets it apply the home-state rate nationwide. If you borrow from a federally insured bank or credit union, the 17% constitutional cap likely will not help you. Amendment 89’s Section 3 limit does its real work against private lenders, non-bank finance companies, and informal loans.
Pawn Transactions
Pawn shops are not exempt. Arkansas courts have held that when a pawnbroker charges a set fee for returning property within a defined period, that fee is interest and gets measured against the constitutional cap. Attempts to relabel interest as storage, appraisal, or insurance charges have not worked.
The 17% annual cap makes a standard 30-day pawn loan hard to sustain on small amounts, and the industry has long argued for relief. But because the cap is constitutional rather than statutory, the legislature cannot simply carve out a pawn exception. Changing it would take a constitutional amendment.
Post-Judgment Interest
Once a court enters a money judgment in Arkansas, the judgment itself earns interest. If the underlying contract does not specify a rate, the judgment accrues at the Federal Reserve primary credit rate on the date of judgment plus 2%, and that rate cannot exceed the Amendment 89 maximum.6Justia. Arkansas Code 16-65-114 – Interest on Judgments If the contract does specify a lawful rate, the judgment bears interest at that rate or 10% per year, whichever is greater. Interest runs from the date of the judgment until the losing party pays.
For a borrower who wins a usury claim, that means any award keeps growing if the lender delays payment. For a lender with a valid judgment on a non-usurious loan, it means the debt continues to accrue interest until it is satisfied.