A fixed rate, established by State law, greater than which no charge may be made for the use of money. An interest charge exceeding the legal rate is called "usury" and may be penalized by the courts. In some States no attempt is made to interfere between the lender and borrower establishing any agreed rate of interest, the legal rate in such cases being simply to prevent creditors exacting unfair rates from the debtors.
In New York State any rate of interest is legally permitted on "collateral call loans" of $5,000 or upwards, but in that State, as elsewhere, the regular legal rate is often successfully evaded by charging the borrowers a commission in addition to the interest rate.
In many parts of the old Testament we find that a strong prejudice existed against paying any interest whatsoever, but this was discovered to have been due to a mistaken interpretation of some of the enactments of the Mosaic law. Even in more recent times there has existed a strong aversion to the payment of interest, for during the reign of Edward VI (1547-1553), England passed a prohibitory act, the alleged reason being that "the charging of interest was a vice most odious and detestable, and contrary to the word of God." But the error and impolicy of this view was soon shown by Calvin, the reformer. Nevertheless, other legislation, known as the Usury Laws, kept the feeling alive by attempting to place a maximum limit upon the rate to be charged. Under Elizabeth (1571) this was fixed at 10%, and under James the First (1624) at 8%. Later (about 1651), it was reduced to 6%, and during Queen Anne's reign (1702-1714) to 5%, where it remained until 1839, when the law was repealed.
There was also a limit fixed to the rate of interest in the Italian Republics of the middle ages, as well as in France.