Not Interested in Usury? A Crime of Biblical Proportions
Interest rate regulation may not always make headlines, but it plays a critical role in protecting borrowers and shaping lending practices. Whether you are a lender, borrower, investor, or business owner, understanding the limitations imposed by Colorado’s usury laws is essential for ensuring that your financial transactions are compliant, enforceable, and insulated from costly legal exposure.
While the federal government has debated the concept of a national interest rate cap, no such law currently exists. However, Colorado has established its own clear restrictions, especially with respect to non-consumer (business) loans. Compared to many other states, Colorado’s interest rate ceiling is more generous to creditors, which is one reason the state continues to attract investors. Yet exceeding that ceiling, whether intentionally or accidentally, can lead to a contract being partially voided and may expose a lender to financial penalties or litigation. This overview breaks down Colorado’s current usury laws as they relate to business lending and outlines what you should know before entering into a loan agreement.
What is Usury?
In simple terms, usury refers to the act of charging interest above a legally permitted maximum. Under Colorado law, the highest allowable interest rate for a non-consumer loan is 45 percent per year. When a loan agreement includes fees, charges, or other costs imposed on the borrower as a condition of the loan, those must all be calculated and included in the annualized interest rate. If no specific rate is agreed upon in writing, the legal default is eight percent annually. Certain types of loans—such as mortgages, business loans, agricultural loans, and revolving credit plans—are generally exempt from this 45 percent cap.
What is “Interest” for Purposes of Colorado Usury Law?
The usury statute defines “interest” broadly as “the sum of all charges payable directly or indirectly by a debtor and imposed directly or indirectly by a lender as an incident to or as a condition of the extension of credit to the debtor…”
Beyond the base interest rate, lenders must consider additional charges that may push a loan over the legal limit. Charges during forbearance periods, which occur when a lender temporarily delays enforcing collection, must be calculated separately and annualized based on the length of the forbearance. These charges, when added to the regular interest, cannot cause the effective rate to exceed 45 percent per year.
Late fees are also considered. Any late charge that can be converted into a percentage of the unpaid balance must be included in the overall interest calculation. Colorado’s usury statute uses a “sum of all charges” approach, meaning that regardless of how fees are labeled—late charges, origination fees, service fees—they may still be treated as interest under the law.
How Do I Calculate Interest to Determine if my Loan is Usurious?
First, you calculate usury by using the total rate of interest that the borrower is subjected to during a given extension of credit. Next, you add all the charges imposed as a condition of the extension of credit to determine whether the sum total exceeds the 45% cap.
Then, if applicable, you must consider the rates charged during a forbearance period. These rates must be assessed during the forbearance period only and, likewise, cannot exceed the 45% cap when added to the per annum interest rates. The forbearance fee must be annualized using only the timeframe of forbearance as the annualization period. The resulting interest rate must then be added to any other charges accruing during that period to arrive at the effective interest rate, i.e. “the sum of all charges.”
Late charges are also considered interest for purposes of usury. Late charges must be combined with other interest charges, and may not exceed the 45% per annum ceiling under the statute. Moreover, if a fee or other charge can be converted into a percentage rate, it can be categorized as interest.
How GLO Can Help
If you are involved in a lending arrangement and are unsure whether your interest rate or associated charges comply with Colorado law, GLO can help. We offer legal review, strategic guidance, and representation for lenders, investors, and business owners. Our attorneys ensure that your credit agreements are clearly drafted, properly structured, and fully compliant with state usury limits—preserving enforceability and protecting your financial interests.
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GLO has prepared this blog to provide general information on legal issues that may be of interest. This blog does not provide legal advice for any specific situation and this does not create an attorney-client relationship between any reader and GLO or its attorneys. GLO engages clients only through specific signed fee agreements.
