Texas Real Estate State Practice Exam

What is the term for charging an interest rate higher than the legal limit?

1. Predatory lending

2. Usury

3. Redlining

4. Equal Credit Opportunity

The correct answer is: Usury

The term for charging an interest rate higher than the legal limit is usury. Usury laws are established to protect consumers from excessively high-interest rates that can lead to financial exploitation. These laws define the maximum interest rate that can legally be charged for loans, and exceeding this rate is considered usurious lending. This practice is often seen as predatory because it can trap borrowers in cycles of debt that are difficult to escape. Other terms provided in the options refer to different concepts. For example, predatory lending encompasses a variety of unfair and deceptive practices used by lenders to take advantage of borrowers. Redlining describes the discriminatory practice in which banks and insurers refuse services based on the area's racial or ethnic composition. Equal Credit Opportunity refers to laws that prohibit discrimination in lending based on race, color, religion, national origin, sex, marital status, or age. Understanding the distinction between usury and these other terms is important for recognizing the various issues concerning lending practices and consumer protection in the financial industry.