In nearly all States a maximum rate of interest is fixed by law. For the lender to collect more than that rate is usury. When a usurious loan is made in some States the lender may collect only the maximum legal rate of interest, in others he loses all interest, while in some the penalty is loss of the entire amount loaned and interest. In most States however, a corporation is not permitted by law to plead the defense of usury. If therefore the borrower be a corporation, the lender may exact any rate of interest the borrower agrees to pay. This inability of corporations to seek relief in the usury laws has resulted in innumerable corporations coming into existence to operate in realty; lenders feel more secure in loaning to them, especially if a fee or commission be charged for making the loan.

Money for mortgage loans is purely a commercial commodity. Its value depends on whether or not it is plentiful. When plentiful the interest rate is low; when scarce, high. This is not a matter which can be regulated by law; it is purely economic. The usury laws do not protect the borrower. In fact they usually harm him. For when money is valuable the lender will see that he gets a fair return, and since that may exceed the maximum allowed by law, the lender fixes the interest rate in the bond at the maximum allowed by law and collects the difference as a fee or commission for lending. This subjects the lender to the possibility of losing the entire amount of his loan, or of engaging counsel to defend a claim of usury, and he naturally charges an additional amount for taking the risk. Consequently, if the legal maximum were six per cent, and eight per cent would give the lender a fair return, he collects not only that amount but something extra as a safeguard. This amount is paid by the borrower. So the usury laws actually add to his burden.