Usury

Usury (from the Latin usuria, "demanding in return for a loan a greater amount than was borrowed") was defined originally as charging a fee for the use of money. This usually meant interest on loans, although charging a fee for changing money (as at a bureau de change) is included in the original meaning. After moderate-interest loans became an accepted part of the business world in the early modern age, the word has come to refer to the charging of unreasonable or relatively high rates of interest.

Usury

Usury (from the Latin usuria, "demanding in return for a loan a greater amount than was borrowed") was defined originally as charging a fee for the use of money. This usually meant interest on loans, although charging a fee for changing money (as at a bureau de change) is included in the original meaning. After moderate-interest loans became an accepted part of the business world in the early modern age, the word has come to refer to the charging of unreasonable or relatively high rates of interest.

Contents:
1 Historical meaning
2 Biblical injunctions against Usury
3 Qur'anic injunctions against Usury
4 Usury in scholastic theology
5 Usury in literature
6 Usury and the law
7 Usury rates in the US
8 Ethical arguments defending usury

Historical meaning

Usury (in the original sense of any interest) is scripturally and doctrinally forbidden in many religions. Judaism forbids a Jew to lend at interest to another Jew. It is forbidden in Islam. In 1745, the Catholic teaching on usury was expressed by Pope Benedict XIV in his VIX Pervenit, which strictly forbids the practice as such, although he adds that "entirely just and legitimate reasons arise to demand something over and above the amount due on the contract" - such reasons could include the risk of loss, the time value of money in the modern economy, etc.

While Jewish law forbids the charging of interest to another Jew, Jews are not forbidden to charge interest on transactions to non-Jews. Throughout history, the interest attached to loans by Jews to non-Jews is widely considered to have been a central issue in causing a perception of usury, and contributing to a climate of anti-Semitism, although at times the reverse occurred, wherein antisemitic sentiment begot laws forcing Jews into the occupation of money-lender, inciting further hatred against Jews among debtors. Allegations of usury have been one factor leading to forceful confiscations of property and discrimination against Jews in business practice.

In the modern world Islamic teachings against usury probably have the widest influence, and specialized codes of banking have developed to cater for Muslim investors wishing to obey Qur'anic law; see: Islamic banking.

Usury was denounced by countless spiritual leaders and philosophers of ancient times, including Plato, Aristotle, Cato, Cicero, Seneca, Plutarch, Aquinas, Muhammad, and Moses.

Cato in his De Re Rustica said:

"And what do you think of usury?"
"What do you think of murder?"

Biblical injunctions against Usury

The following quotations are from the Bible (New Living Translation):

Exodus 22:25 If you lend money to a fellow Hebrew in need, do not be like a money lender, charging interest.

Leviticus 25:35-37 If any of your Israelite relatives fall into poverty and cannot support themselves, support them as you would a resident foreigner and allow them to live with you. Do not demand an advance or charge interest on the money you lend them. Instead, show your fear of God by letting them live with you as your relatives.

Do not demand an advance or charge interest on the money you lend them. Instead, show your fear of God by letting them live with you as your relatives.

Remember, do not charge your relatives interest on anything you lend them, whether money or food.

Deuteronomy 23:19 Do not charge interest on the loans you make to a fellow Israelite, whether it is money, food, or anything else that may be loaned with interest.

Deuteronomy 23:20 You may charge interest to foreigners, but not to Israelites, so the LORD your God may bless you in everything you do in the land you are about to enter and occupy.

Nehemiah 5:7 After thinking about the situation, I spoke out against these nobles and officials. I told them, "You are oppressing your own relatives by charging them interest when they borrow money!" Then I called a public meeting to deal with the problem.

Nehemiah 5:10 I myself, as well as my brothers and my workers, have been lending the people money and grain, but now let us stop this business of loans.

Psalm 15:5 Those who do not charge interest on the money they lend, and who refuse to accept bribes to testify against the innocent. Such people will stand firm forever.

Proverbs 28:8 A person who makes money by charging interest will lose it. It will end up in the hands of someone who is kind to the poor.

Jeremiah 15:10 Then I said, "What sadness is mine, my mother. Oh, that I had died at birth! I am hated everywhere I go. I am neither a lender who has threatened to foreclose nor a borrower who refuses to pay--yet they all curse me."

Ezekiel 18:8 And suppose he grants loans without interest, stays away from injustice, is honest and fair when judging others,

Ezekiel 18:13 ...and lends money at interest. Should such a sinful person live? No! He must die and must take full blame.

Ezekiel 18:17 ...helps the poor, does not lend money at interest, and obeys all my regulations and laws. Such a person will not die because of his father's sins; he will surely live.

Ezekiel 22:12 There are hired murderers, loan racketeers, and extortioners everywhere! They never even think of me and my commands, says the Sovereign LORD.

Qur'anic injunctions against Usury

The following quotations are from the Qur'an:

Al-Baqarah 2:275 Those who charge usury are in the same position as those controlled by the devil's influence. This is because they claim that usury is the same as commerce. However, God permits commerce, and prohibits usury. Thus, whoever heeds this commandment from his Lord, and refrains from usury, he may keep his past earnings, and his judgment rests with God. As for those who persist in usury, they incur Hell, wherein they abide forever

Al-Baqarah 2:276-280 God condemns usury, and blesses charities. God dislikes every disbeliever, guilty. O you who believe, you shall observe God and refrain from all kinds of usury, if you are believers. If you do not, then expect a war from God and His messenger. But if you repent, you may keep your capitals, without inflicting injustice, or incurring injustice. If the debtor is unable to pay, wait for a better time. If you give up the loan as a charity, it would be better for you, if you only knew.

Al-'Imran 3:130 O you who believe, you shall not take usury, compounded over and over. Observe God, that you may succeed.

Al-Nisa 4:161 And for practicing usury, which was forbidden, and for consuming the people's money illicitly. We have prepared for the disbelievers among them painful retribution.

Ar-Rum 30:39 The usury that is practiced to increase some people's Wealth, does not gain anything at God. But if people give to charity, seeking God's pleasure, these are the ones who receive their reward many fold.

Usury in scholastic theology

St. Thomas Aquinas, the leading theologian of the Catholic Church, argued charging of interest is wrong because it applies to "double charging", charging for both the thing and the use of the thing; the "just price" theory said that a lender charges for the loan by requiring the loan to be paid back; in other words, paying back the loan is the charge for the loan. Any further charge is a charge for using the loan. Aquinas said this would be morally wrong in the same way as if one sold a bottle of wine, charged for the bottle of wine, and then charged for the person using the wine to actually drink it. Generally speaking, in the Middle Ages, money could not be invested in the way it can today, but could only be hoarded or spent, and so the comparison to charging someone to drink a bottle of wine was correct at the time.

Later, the Protestant John Calvin (father of a Protestant Reformation movement known as Calvinism) defended interest charges, helping to set the stage for the development of capitalism in northern Europe. Such a connection was advanced in influential works by Richard H. Tawney and by Max Weber.

Usury in literature

In The Divine Comedy Dante places the usurers in the inner ring of the seventh circle of hell, below even suicides. (Showing how cultural attitudes have changed since the 14th century, the usurers' ring was shared only by the blasphemers and sodomites.)

In the 16th century it was necessary for Shylock to convert to Christianity and forsake usury before he could be redeemed in the Merchant of Venice's climax. Thomas Lodge's didactic tirade against London moneylenders, An Alarum against Usurers containing tried experiences against worldly abuses tried to incite the educated class against the harm usurers seemed to induce in their victims.

By the 18th Century Usury was more often treated as a metaphor than a crime in itself, so that Jeremy Bentham's Defense of Usury was not as shocking as it would have appeared two centuries earlier.

In the early 20th century Ezra Pound's anti-usury poetry was not primarily based on the moral injustice of interest but on the fact that excess capital was no longer devoted to artistic patronage, as it could now be used for capitalist business investment. ([1]).

Usury and the law

"When money is lent on a contract to receive not only the principal sum again, but also an increase by way of compensation for the use, the increase is called interest by those who think it lawful, and usury by those who do not." (Blackstone's Commentaries on the Laws of England, p. 1336).

In the United States, usury laws are state laws that specify the maximum legal interest rate at which loans can be made. Congress has opted not to regulate interest rates on purely private transactions, although it arguably has the power to do so under the interstate commerce clause of Article I of the Constitution.

Congress has opted to put a federal criminal limit on interest rates by the RICO definitions of "unlawful debt" which make it a federal felony to lend money at an interest rate more than two times the local state usury rate and then try to collect that "unlawful debt"- Source 18 USCA 1961 B(6)(B). See Racketeer Influenced and Corrupt Organizations Act

It is, however, a federal offense to use violence or threats to collect usurious interest (or any other sort). Such activity is referred to as loansharking, although that term is also applied to non-coercive usurious lending, or even to the practice of making consumer loans without a license in jurisdictions that require licenses.

Usury rates in the US

States have usury statutes which speak of lawful interest rates AND usury /usurious interest rates - which are interst rate limits below which the interest rate is lawful and not usury, and above which , the interest rate is usury.

If above an usury interest rate limit and so usury, the remedy normally is that the lender can NOT sue you to collect such a debt since he was charging an illegal and unlawful interest rate. And if he does sue you anyway, you can plead that usury defense and have the lawsuit stopped or ended.

And in some states (as New York) such loans are avoided, meaning made void from the beginning or ab initio. Ref NY Gen Oblig 5-501 et seq. and NY 1503.

Interest rate usury limits for US states: usury rate limits

Ethical arguments defending usury

The primary ethical argument in defense of usury has been the argument of liberty against the "restraint of trade" (since the borrower has voluntarily entered into the usury contract).

A practical argument for usury in welfare economics is that charging interest is essential to guiding the investment process, based on the claim that profits are required to direct investments to their most productive use (solving the economic calculation problem). According to this argument, interest-driven investment is essential to economic growth, and therefore to the very existence of industrial civilization. This practical argument for the utility of usury treats all "unearned" returns to capital as interest; traditionally, guaranteed interest is usurious, whereas dividends from shared ventures are less so. In this tradition, the practical case against usury does not completely apply (although replacing debt market investments with stock market savings may not always be desirable). Officially, this is how capitalist Islamic states solve the calculation problem. An example of the 'moral' difference between dividend income and interest income is found in the Merchant of Venice: Shylock lends Antonio money for trade speculation, demanding repayment in flesh should Antonio's project fail utterly (accepting none of the business risk).

In addition to the defense of interest as such, the practice of charging high interest rates is defended by those who point out that such rates reflect the very fact that the loans are being given to creditors with a high risk of default (in a competitive debt market the interest spread simply covers the credit risk). Austrian economists say that there is no such thing as a "just" interest rate separate from the free market equilibrium determined by the time-preferences of individual lenders and debtors. (Other free market theorists take a similar view on the merit of an unregulated debt market, but may not explain the subjective estimate of a worthwhile interest-rate bargain through time preference.)

Some have defended the threat or use of force (legal or illegal) against non-payers (such as required by Shylock). This (minority) position is based on the idea that without force there will be a market failure - since very high interest loans will only be taken up by those intending to default. The need for violence in this case is due to the failure of governments to see this fact, or to adequately enforce the loan contracts (such as with overly lax bankruptcy laws), rather than any immorality inherent in moneylenders. See: "The market for lemons".

Some low-interest charity loans (such as small business micro-loans) have made a defense on the fact that interest rates allow for the indefinite administration of the charity, the replacement of defaulted loans, and in some cases, the creation of additional loan pools in other regions. The final "ethical result" of the interest rates justifies charging them.

Copyright Notice: © 2006 eoft All rights not specifically granted by the GNU Free Documentation License are reserved. The content of this article may be freely copied and used on other web-sites so long as www.eoft.com is acknowledged as the source of the content and an active hypertext link back to www.eoft.com is provided from the page using this content. This content is NOT in the public domain.

This article is licensed under the GNU Free Documentation License.

 

 

  home | privacy | terms of use | contact | about

  © 2006 eoft All Rights Reserved