Yes. Loan sharking is illegal throughout the United States. What people call a loan shark is usually breaking at least one of three separate laws, and often all three at once. Understanding which laws apply matters, because it affects whether the debt can be collected and who you can report the lender to.
The three laws loan sharks break
1. Lending without a license
Every state requires a license to make consumer loans in that state, whether from a storefront or a website. Lending without one is illegal by itself, before interest rates even come into it. You can check any lender’s license through your state financial regulator or the NMLS Consumer Access database.
2. Usury: charging illegal interest
Most states cap the interest that can be charged on consumer loans. The caps vary widely by state and loan type, which is why a rate that is legal for a licensed lender in one state can be criminal usury in another. New York, for example, treats lending at more than 25 percent annual interest without authorization as criminal usury. Loan shark rates, commonly 10 to 20 percent per week, exceed every state’s cap by an enormous margin. See loan shark interest rates for the math.
3. Extortion: collecting through fear
Federal law makes it a felony to extend or collect credit through threats or violence. The federal statutes on extortionate credit transactions, 18 U.S.C. sections 891 through 894, were passed in 1968 specifically to prosecute loan sharking, and organized crime lending has also been prosecuted under RICO. States have their own extortion and harassment laws on top. A threat to hurt you, embarrass you, or harm your family over a debt is a crime even if the debt itself were legal.
Is the borrower breaking the law?
No. Usury, licensing, and extortion laws regulate the lender. Borrowing money, even from an illegal lender, is not a crime, and reporting a loan shark does not expose you to charges for having borrowed. This matters because fear of being implicated is one of the main reasons people keep paying quietly.
Can an illegal loan be enforced?
Generally an unlicensed lender cannot use the courts to collect, and in many states an illegal loan is void or partly void, meaning some or all of the interest, and sometimes the principal, is not legally owed. The specifics depend on your state, so before assuming you must keep paying, get advice from a legal aid office or attorney. Our debt help page lists free places to start.
Who enforces these laws?
State attorneys general and state financial regulators handle illegal lending, the FTC and CFPB take consumer complaints that build federal cases, and police and the FBI handle threats, violence, and organized loan sharking. Reporting to more than one is normal and useful. The full process, including what evidence to gather, is in how to report a loan shark.
Frequently asked questions
Is it illegal to lend money to friends with interest?
Occasional personal loans are generally fine if the interest is within your state’s limits. It becomes illegal when the rate exceeds the cap, or when lending is done as a business without a license.
Are online lenders with huge rates loan sharks?
If they are not licensed to lend in your state, yes, legally speaking. An unlicensed website charging above your state’s cap is an illegal lender no matter how professional the site looks. Check the license before you borrow, and see how to identify a loan shark.
What is the penalty for loan sharking?
It ranges from fines and license-related penalties to prison. Criminal usury is a felony in several states, and federal extortionate collection carries up to 20 years.
This page is general information, not legal advice. Laws vary by state and change over time. Last reviewed August 2026.