At common law, the taking of interest of any amount was in early times prohibited to all but a particular class in the community. Later, the taking of interest became legal, and for a while, no limitations were placed upon the amount of interest which could be taken. Still later, however, statutes were passed in England and in practically all the states in this country limiting the rate of interest which can be charged. The effect of the violation of this law differs in the different states. In some states the penalty is the loss of all, both principal and interest, in other states, the loss of all the interest; while in still others, the only effect is the loss of the interest above the legal rate.31

Usury laws only apply to the loan of money, never to the loan of chattels.32 The purchasing of a negotiable instrument from its holder at a discount more than equivalent to the legal rate of interest is not usury.33 The weight of authority is to the effect

31 The Interest Laws of the different states are as follows:

Penalties for usury differ in the various states.

Arizona, California, Colorado, Indian Territory, Maine, Massachusetts, (except on loans of less than $1,000), Montana, Nevada, Rhode Island, Utah and Wyoming have no provisions on the subject.

Loss of principal and interest is the penalty in Arkansas and New York.

Loss of principal in Delaware and Oregon.

Loss of interest in Alabama, Alaska, District of Columbia, Florida, Idaho, Illinois, Iowa, Louisiana, Michigan, Minnesota, Mississippi, Nebraska, New Jersey, North Carolina (double amount if paid), North Dakota (double amount if paid). Oklahoma Territory, South Carolina, South Dakota, Texas, Virginia, Washington (double amount if paid), Wisconsin, and Hawaii.

Loss of excess of interest in Connecticut, Georgia, Indiana, Kansas, Kentucky, Maryland, Missouri, New Hampshire (three times), New Mexico, Ohio, Pennsylvania, Tennessee, Vermont, and West Virginia.

32 Bowl vs. Rice, 5 (N. Y.), 315. 33 Nichols vs. Fearson (7 Pet., 103);

Jackson vs. Travers, 42 Minn., 438; 44 N. W., 316.

that it is not usury to charge compound interest.34 In a contract for the loan of money, whether the contract is in the form of a note or otherwise, it is legal to provide for the payment of attorneys' fees if the debt has to be collected by suit.35 The highest rate of interest may be charged and taken out of the loan in advance without violating the usury law, although in reality the legal rate of interest in such transactions is greater than that permitted by law.36 This is the method of collecting interest employed by the banks in discounting notes.