Are loan costs tied to CD rates?
Dear Dr. Don, I have been in banking for 28 years and never had this question asked: “Is it a federal law that banks cannot lend at an interest rate that is more than 2 percent above its CD yield?” My response was we can charge whatever we choose as long as it does not exceed usury rates. I realize competition keeps us in the 2 percent to 3 percent over range, but with rates at historical lows, our bank instituted a 6 percent floor. What’s your response? — Keith Credit Dear Keith, It’s a complicated area of the law. States do have usury laws that limit the rate of interest on loans. A state may also have a legal rate. The “Lectric Law Library” has a comprehensive discussion of these rates on its Web site. But you shouldn’t rely on the state information being current. Check with your state’s banking commissioner for up-to-date usury and legal rates. The Conference of State Bank Supervisors has a directory that provides the contact information. Not all loans fall under the usury or lega
