Usury in Texas — the ceilings, the penalties, and the 61-day notice you have to send first

Usury in Texas is a penalty statute, and it behaves like one: the amounts are fixed, the deadlines are short, and a lender who corrects the mistake in time owes nothing at all.

The pre-suit notice is where most claims die. Under Finance Code § 305.006(b), the borrower must give the creditor written notice of the violation not later than the 61st day before filing suit. Under § 305.006(c), the creditor then has 60 days to correct it — and a creditor who corrects "is not liable to an obligor for the violation."

What the claim is

A lender contracted for, charged, or received interest above the rate the law allowed, and you want the statutory penalty.

Where the right comes from

The Texas Constitution, article XVI, § 11, executed through the Finance Code: chapter 302 (interest rates by contract), chapter 303 (the market ceilings), chapter 305 (penalties and remedies), and chapter 306 (commercial transactions).

What a plaintiff has to prove

1. A loan of money or an extension of credit;
2. An absolute obligation to repay the principal; and
3. Interest, or a charge that functions as interest, exceeding the maximum allowed by law.

The third element carries the case, and it splits into two questions: what was charged, and what was the ceiling.

The ceilings

The base rate is 10 percent. Section 302.001(b) provides that "the maximum rate or amount of interest is 10 percent a year except as otherwise provided by law," and that a greater rate "is usurious unless otherwise provided by law."

Where no rate was agreed, 6 percent. Under § 302.002, a creditor who never agreed on interest may charge legal interest at six percent a year beginning on the 30th day after the amount is due.

The market ceilings displace the 10 percent for most transactions. The consumer credit commissioner computes a weekly, monthly, quarterly or annualised ceiling and publishes it in the Texas Register. Section 303.009 then brackets the result:

A delinquency charge is not interest, within limits. Section 302.001(d) allows a loan at 10 percent or less to carry a delinquency charge on a payment in default at least 10 days, capped at the greater of five percent of the payment or $7.50.

Whole categories of lender operate outside these numbers under their own chapters — pawnbrokers, consumer lenders licensed under chapter 342, credit access businesses — and federally chartered institutions may claim preemption. The ceiling that governs depends on who lent and why.

What the claim pays

Consumer transactions — § 305.001(a). A creditor who contracts for, charges, or receives excessive interest in a transaction for personal, family or household use is liable for the greater of:

1. three times the amount computed by subtracting the interest allowed by law from the total interest contracted for, charged, or received; or
2. $2,000 or 20 percent of the principal, whichever is less.

Commercial transactions — § 305.001(a-1). For commercial credit the penalty is three times the excess interest, with no $2,000 floor — and the trigger is narrower: contracting for or receiving. Charging alone is not enough.

More than twice the ceiling — § 305.002. In a personal, family or household transaction, a creditor who charges and receives interest greater than twice the authorised amount is liable in addition for the principal on which the interest was charged and received, and for the interest and all other amounts charged and received. This is the provision that wipes out the loan.

Attorney's fees — § 305.005. A creditor liable under § 305.001 or § 305.003 "is also liable to the obligor for reasonable attorney's fees set by the court." The award runs one way, to the borrower.

And nothing else — § 305.007. The chapter's penalties "are the only penalties" for exceeding the maximum rate. Common law penalties do not apply.

Note what § 305.001(c) removes from the field: a creditor who charges more than the contract allowed but stays under the legal maximum is not subject to usury penalties, whatever else they may owe.

How long you have to file

Four years. Section 305.006(a): an action "must be brought within four years after the date on which the usurious interest was contracted for, charged, or received."

The same subsection sets venue — the county where the transaction was entered into, where the interest was charged or received, where the creditor resides or maintains its principal office, or where the obligor resided when the claim accrued.

What has to happen before you file

Written notice, 61 days out. Section 305.006(b) requires the obligor to give the creditor written notice "stating in reasonable detail the nature and amount of the violation" not later than the 61st day before filing.

Then 60 days of exposure to cure. Under § 305.006(c) the creditor may correct the violation during the 60 days after receiving the notice, and a creditor who does "is not liable to an obligor for the violation."

Counterclaims work differently — and better. Most usury claims are counterclaims in a collection suit. Section 305.006(d) requires the notice at the time of filing the counterclaim; the creditor may then apply to abate the action for 60 days to correct the violation. But as part of the correction the creditor must offer to pay the obligor's reasonable attorney's fees for the hours reasonably expended on the violation before the abatement. A borrower who raises usury by counterclaim gets paid for the work even where the creditor cures.

Cure, and the race to notice first

The creditor has a second, independent escape in § 305.103. A creditor is not liable if, within 60 days after it “actually discovered” the violation, it corrects the violation and makes any necessary adjustment — and gives the obligor written notice of the violation before the obligor gives notice or files suit.

Section 305.103(b) makes discovery mean discovery in fact, not what a prudent person should have found. And under § 305.104, where several creditors could be liable on one transaction, compliance by any of them protects them all.

The order of the letters therefore decides who pays. A creditor who found the error first and wrote first walks away. A creditor who waited for the borrower's § 305.006(b) notice still gets 60 days, but on a counterclaim has to pay for the borrower's lawyer.

Who can be sued

The creditor. In a chain of assignments, the party that contracted for, charged or received the interest.

Not, ordinarily, a federally chartered bank or a lender operating under a preemptive federal regime, and not a lender whose own Finance Code chapter authorises the rate.

Common defenses

• Correction under § 305.006(c) or § 305.103, which extinguishes liability outright.
• Accidental and bona fide error — § 305.101 exempts usurious interest resulting from one.
• No pre-suit notice, or notice that failed to state the violation in reasonable detail.
• The charge was not interest — a bona fide fee for a service, a permitted delinquency charge, a time price differential in a credit sale.
• The applicable ceiling was higher than the plaintiff assumes, under chapter 303 or the lender's own chapter.
• Federal preemption.
• The transaction was not a loan — no absolute obligation to repay.
• Limitations.

What people get wrong

A high rate is not automatically usury. The 10 percent figure in § 302.001 is the default, and most commercial lending operates under ceilings of 18 to 28 percent.

You cannot sue first and notify later. Section 305.006(b) makes the 61-day notice a precondition, and a suit filed without it invites abatement or dismissal.

Telling the lender is what lets it escape. The notice starts a 60-day cure window that extinguishes the claim. Borrowers should understand what the letter does before sending it.

Late fees are not interest, within the statutory limits, and a claim built on them usually fails.

Forfeiture of principal is narrow. Section 305.002 applies to consumer transactions where more than twice the authorised rate was both charged and received.

Where it came from

Texas has capped interest in its constitution since 1876, and for a century the penalty for exceeding the cap was severe and largely unforgiving. The modern structure was built in 1999, when the credit statutes were recodified into the Finance Code, and it reflects a bargain: the penalties stayed large, and the escapes got wider.

The result is a claim shaped like a compliance rule rather than a tort. A lender that monitors its own files and corrects errors will rarely pay, because § 305.103 rewards self-discovery. A lender that ignores a borrower's notice for 60 days will pay treble the excess plus the borrower's lawyer.

The floating ceilings in chapter 303 completed the shift. Once the maximum rate became a published number that moves each week, usury stopped being an argument about what is fair and became an arithmetic problem with a deadline attached.

Common questions

What is the maximum legal interest rate in Texas?

Ten percent a year by default under § 302.001, but most transactions run on the chapter 303 market ceilings — a floor of 18 percent, a cap of 24 percent, 28 percent for business or commercial credit, and 21 percent for certain credit card and retail charge accounts.

How long do I have to sue for usury?

Four years from the date the usurious interest was contracted for, charged, or received.

Do I have to notify the lender before suing?

Yes. Written notice stating the violation in reasonable detail, at least 61 days before filing. The lender then has 60 days to correct it and avoid liability.

What do I recover?

For a consumer loan, the greater of three times the excess interest or $2,000 or 20 percent of principal, whichever of those two is less — plus reasonable attorney's fees.

Can the lender lose the principal?

Yes, in a personal, family or household transaction where the lender charged and received more than twice the authorised rate.

Are late fees usury?

Generally no. A delinquency charge within the § 302.001(d) limits is not interest.

Where these rules live

• CPRC § 16.004 — Four-year limitations period
• CPRC § 16.051 — Residual four-year limitations period
• CPRC § 38.001 — Recovery of attorney's fees
• CPRC § 37.004 — Subject matter of a declaratory judgment
• CPRC § 41.008 — Limitation on amount of recovery
• TRCP 94 — Affirmative defenses