Final answer:
Usury refers to the practice of charging interest at a rate higher than the legal limit. Usury laws set caps to prevent excessive interest charges, but these limits are often nonbinding unless market rates exceed them.
Step-by-step explanation:
When a lender charges higher interest than the legal limit, this practice is referred to as usury. Many states enforce usury laws to cap the interest rate that lenders can impose. These laws are meant to prevent exorbitant interest charges, although the caps may be set at levels high enough to allow substantial flexibility for market rates to fluctuate naturally. For instance, a legal limit of 30% per year would only affect rates if market forces drove the rates above this threshold. Therefore, while usury laws set upper limits, they are often nonbinding and only relevant if market rates surpass the established price ceiling.