Usury () is the practice of making unethical or immoral monetary
loan
In finance, a loan is the lending of money by one or more individuals, organizations, or other entities to other individuals, organizations, etc. The recipient (i.e., the borrower) incurs a debt and is usually liable to pay interest on that d ...
s that unfairly enrich the lender. The term may be used in a moral sense—condemning taking advantage of others' misfortunes—or in a legal sense, where an interest rate is charged in excess of the maximum rate that is allowed by law. A loan may be considered usurious because of excessive or abusive
interest rate
An interest rate is the amount of interest due per period, as a proportion of the amount lent, deposited, or borrowed (called the principal sum). The total interest on an amount lent or borrowed depends on the principal sum, the interest rate, th ...
s or other factors defined by the laws of a state. Someone who practices usury can be called a ''usurer'', but in modern colloquial English may be called a ''
loan shark
A loan shark is a person who offers loans at extremely high interest rates, has strict terms of collection upon failure, and generally operates outside the law.
Description
Because loan sharks operate mostly illegally, they cannot reasonably ...
''.
In many historical societies including ancient Christian, Jewish, and Islamic societies, usury meant the charging of
interest
In finance and economics, interest is payment from a borrower or deposit-taking financial institution to a lender or depositor of an amount above repayment of the principal sum (that is, the amount borrowed), at a particular rate. It is distinct ...
of any kind, and was considered wrong, or was made illegal. During the Sutra period in India (7th to 2nd centuries BC) there were laws prohibiting the highest castes from practicing usury. Similar condemnations are found in religious texts from Buddhism, Judaism (''
ribbit
Ribbit may refer to:
* Onomatopoeia for the sound that a frog makes.
* Ribbit (Pillow Pal), a plush toy frog made by Ty, Inc.
* Ribbit (telecommunications company), a telecommunications company based in Mountain View, California, acquired by BT Gr ...
'' in
Hebrew
Hebrew (; ; ) is a Northwest Semitic language of the Afroasiatic language family. Historically, it is one of the spoken languages of the Israelites and their longest-surviving descendants, the Jews and Samaritans. It was largely preserved ...
), Christianity, and Islam (''
riba
The Royal Institute of British Architects (RIBA) is a professional body for architects primarily in the United Kingdom, but also internationally, founded for the advancement of architecture under its royal charter granted in 1837, three suppl ...
'' in
Arabic
Arabic (, ' ; , ' or ) is a Semitic languages, Semitic language spoken primarily across the Arab world.Semitic languages: an international handbook / edited by Stefan Weninger; in collaboration with Geoffrey Khan, Michael P. Streck, Janet C ...
). At times, many states from
ancient Greece
Ancient Greece ( el, Ἑλλάς, Hellás) was a northeastern Mediterranean civilization, existing from the Greek Dark Ages of the 12th–9th centuries BC to the end of classical antiquity ( AD 600), that comprised a loose collection of cult ...
to
ancient Rome
In modern historiography, ancient Rome refers to Roman civilisation from the founding of the city of Rome in the 8th century BC to the collapse of the Western Roman Empire in the 5th century AD. It encompasses the Roman Kingdom (753–509 B ...
have outlawed loans with any interest. Though the
Roman Empire
The Roman Empire ( la, Imperium Romanum ; grc-gre, Βασιλεία τῶν Ῥωμαίων, Basileía tôn Rhōmaíōn) was the post-Republican period of ancient Rome. As a polity, it included large territorial holdings around the Mediterr ...
eventually allowed loans with carefully restricted interest rates, the
Catholic Church
The Catholic Church, also known as the Roman Catholic Church, is the largest Christian church, with 1.3 billion baptized Catholics worldwide . It is among the world's oldest and largest international institutions, and has played a ...
in medieval Europe, as well as the Reformed Churches, regarded the charging of interest at any rate as sinful (as well as charging a fee for the use of money, such as at a
bureau de change
A bureau de change (plural bureaux de change, both ) (British English) or currency exchange (American English) is a business where people can exchange one currency for another.
Nomenclature
Although originally French, the term "bureau de chang ...
).
Religious prohibitions on usury are predicated upon the belief that charging interest on a loan is a sin.
History
Usury (in the original sense of any interest) was denounced by religious leaders and philosophers in the ancient world, including
Moses
Moses hbo, מֹשֶׁה, Mōše; also known as Moshe or Moshe Rabbeinu (Mishnaic Hebrew: מֹשֶׁה רַבֵּינוּ, ); syr, ܡܘܫܐ, Mūše; ar, موسى, Mūsā; grc, Mωϋσῆς, Mōÿsēs () is considered the most important pro ...
,
Plato
Plato ( ; grc-gre, Πλάτων ; 428/427 or 424/423 – 348/347 BC) was a Greek philosopher born in Athens during the Classical period in Ancient Greece. He founded the Platonist school of thought and the Academy, the first institution ...
,
Aristotle
Aristotle (; grc-gre, Ἀριστοτέλης ''Aristotélēs'', ; 384–322 BC) was a Greek philosopher and polymath during the Classical period in Ancient Greece. Taught by Plato, he was the founder of the Peripatetic school of phil ...
,
Cato,
Cicero
Marcus Tullius Cicero ( ; ; 3 January 106 BC – 7 December 43 BC) was a Roman statesman, lawyer, scholar, philosopher, and academic skeptic, who tried to uphold optimate principles during the political crises that led to the estab ...
,
Seneca
Seneca may refer to:
People and language
* Seneca (name), a list of people with either the given name or surname
* Seneca people, one of the six Iroquois tribes of North America
** Seneca language, the language of the Seneca people
Places Extrat ...
,
Aquinas
Thomas Aquinas, OP (; it, Tommaso d'Aquino, lit=Thomas of Aquino; 1225 – 7 March 1274) was an Italian Dominican friar and priest who was an influential philosopher, theologian and jurist in the tradition of scholasticism; he is known wit ...
,
Gautama Buddha
Siddhartha Gautama, most commonly referred to as the Buddha, was a wandering ascetic and religious teacher who lived in South Asia during the 6th or 5th century BCE and founded Buddhism.
According to Buddhist tradition, he was born in Lu ...
and
Muhammad
Muhammad ( ar, مُحَمَّد; 570 – 8 June 632 Common Era, CE) was an Arab religious, social, and political leader and the founder of Islam. According to Muhammad in Islam, Islamic doctrine, he was a prophet Divine inspiration, di ...
.
Certain negative historical renditions of usury carry with them social connotations of perceived "unjust" or "discriminatory" lending practices. The historian
Paul Johnson, comments:
Theological historian John Noonan argues that "the doctrine
f usury
F, or f, is the sixth letter in the Latin alphabet, used in the modern English alphabet, the alphabets of other western European languages and others worldwide. Its name in English is ''ef'' (pronounced ), and the plural is ''efs''.
Hist ...
was enunciated by popes, expressed by three ecumenical councils, proclaimed by bishops, and taught unanimously by theologians."
Roman Empire
Banking
A bank is a financial institution that accepts deposits from the public and creates a demand deposit while simultaneously making loans. Lending activities can be directly performed by the bank or indirectly through capital markets.
Because ...
during the
Roman Empire
The Roman Empire ( la, Imperium Romanum ; grc-gre, Βασιλεία τῶν Ῥωμαίων, Basileía tôn Rhōmaíōn) was the post-Republican period of ancient Rome. As a polity, it included large territorial holdings around the Mediterr ...
was different from modern banking. During the
Principate
The Principate is the name sometimes given to the first period of the Roman Empire from the beginning of the reign of Augustus in 27 BC to the end of the Crisis of the Third Century in AD 284, after which it evolved into the so-called Dominate.
...
period, most banking activities were conducted by
private individuals who operated as large banking firms do today. Anybody that had any available liquid assets and wished to lend it out could easily do so.
The annual rates of interest on loans varied in the range of 4–12 percent, but when the interest rate was higher, it typically was not 15–16 percent but either 24 percent or 48 percent. They quoted them on a monthly basis, and the most common rates were multiples of twelve. Monthly rates tended to range from simple fractions to 3–4 percent, perhaps because lenders used
Roman numerals
Roman numerals are a numeral system that originated in ancient Rome and remained the usual way of writing numbers throughout Europe well into the Late Middle Ages. Numbers are written with combinations of letters from the Latin alphabet, eac ...
.
Moneylending during this period was largely a matter of private loans advanced to persons persistently in debt or temporarily so until harvest time. Mostly, it was undertaken by exceedingly rich men prepared to take on a high risk if the profit looked good; interest rates were fixed privately and were almost entirely unrestricted by law. Investment was always regarded as a matter of seeking personal profit, often on a large scale. Banking was of the small, back-street variety, run by the urban lower-middle class of petty shopkeepers. By the 3rd century, acute currency problems in the Empire drove such banking into decline. The rich who were in a position to take advantage of the situation became the moneylenders when the increasing tax demands in the last declining days of the Empire crippled and eventually destroyed the peasant class by reducing tenant-farmers to
serfs
Serfdom was the status of many peasants under feudalism, specifically relating to manorialism, and similar systems. It was a condition of debt bondage and indentured servitude with similarities to and differences from slavery, which developed ...
. It was evident that usury meant
exploitation
Exploitation may refer to:
*Exploitation of natural resources
*Exploitation of labour
**Forced labour
*Exploitation colonialism
*Slavery
**Sexual slavery and other forms
*Oppression
*Psychological manipulation
In arts and entertainment
*Exploita ...
of the poor.
Cicero
Marcus Tullius Cicero ( ; ; 3 January 106 BC – 7 December 43 BC) was a Roman statesman, lawyer, scholar, philosopher, and academic skeptic, who tried to uphold optimate principles during the political crises that led to the estab ...
, in the second book of his treatise ''
De Officiis
''De Officiis'' (''On Duties'' or ''On Obligations'') is a political and ethical treatise by the Roman orator, philosopher, and statesman Marcus Tullius Cicero written in 44 BC. The treatise is divided into three books, in which Cicero expounds h ...
'', relates the following conversation between an unnamed questioner and
Cato:
Judaism
Jews are forbidden from usury in dealing with fellow Jews, although not exclusively. Lending is to be considered
tzedakah
''Tzedakah'' or ''Ṣedaqah'' ( he, צדקה ) is a Hebrew word meaning "righteousness", but commonly used to signify ''charity''. This concept of "charity" differs from the modern Western understanding of "charity". The latter is typically un ...
. However, there are permissions to charge interest on loans to
non-Jews
Gentile () is a word that usually means "someone who is not a Jews, Jew". Other Groups claiming affiliation with Israelites, groups that claim Israelite heritage, notably Mormons, sometimes use the term ''gentile'' to describe outsiders. More ra ...
, restricted to cases when there is no other means of subsistence "If we nowadays allow interest to be taken from non-Jews, it is because there is no end to the yoke and the burden king and ministers impose on us, and everything we take is the minimum for our subsistence, and anyhow we are condemned to live in the midst of the
nations
A nation is a community of people formed on the basis of a combination of shared features such as language, history, ethnicity, culture and/or society. A nation is thus the collective identity of a group of people understood as defined by those ...
and cannot earn our living in any other manner except by money dealings with them; therefore the taking of interest is not to be prohibited" (Tos. to BM 70b S.V. tashikh).
This is outlined in the
Jewish
Jews ( he, יְהוּדִים, , ) or Jewish people are an ethnoreligious group and nation originating from the Israelites Israelite origins and kingdom: "The first act in the long drama of Jewish history is the age of the Israelites""The ...
scripture
Religious texts, including scripture, are texts which various religions consider to be of central importance to their religious tradition. They differ from literature by being a compilation or discussion of beliefs, mythologies, ritual prac ...
s, specifically in the
Torah
The Torah (; hbo, ''Tōrā'', "Instruction", "Teaching" or "Law") is the compilation of the first five books of the Hebrew Bible, namely the books of Genesis, Exodus, Leviticus, Numbers and Deuteronomy. In that sense, Torah means the s ...
:
Johnson contends that the Torah treats lending as
philanthropy
Philanthropy is a form of altruism that consists of "private initiatives, for the Public good (economics), public good, focusing on quality of life". Philanthropy contrasts with business initiatives, which are private initiatives for private goo ...
in a poor community whose aim was collective survival, but which is not obliged to be charitable towards outsiders.
As Jewish people were ostracized from most professions by local rulers during the Middle Ages, the Western churches and the
guild
A guild ( ) is an association of artisans and merchants who oversee the practice of their craft/trade in a particular area. The earliest types of guild formed as organizations of tradesmen belonging to a professional association. They sometimes ...
s, they were pushed into marginal occupations considered socially inferior, such as
tax
A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal entity) by a governmental organization in order to fund government spending and various public expenditures (regional, local, or n ...
and
rent
Rent may refer to:
Economics
*Renting, an agreement where a payment is made for the temporary use of a good, service or property
*Economic rent, any payment in excess of the cost of production
*Rent-seeking, attempting to increase one's share of e ...
collecting and moneylending. Natural tensions between creditors and debtors were added to social, political, religious, and economic strains.
Several historical rulings in
Jewish law
''Halakha'' (; he, הֲלָכָה, ), also Romanization of Hebrew, transliterated as ''halacha'', ''halakhah'', and ''halocho'' ( ), is the collective body of Judaism, Jewish religious laws which is derived from the Torah, written and Oral Tora ...
have mitigated the allowances for usury toward non-Jews. For instance, the 15th-century commentator
Rabbi Isaac Abarbanel specified that the rubric for allowing interest does not apply to Christians or Muslims, because their faith systems have a common ethical basis originating from Judaism. The medieval commentator
Rabbi David Kimhi extended this principle to non-Jews who show consideration for Jews, saying they should be treated with the same consideration when they borrow.
England
In England, the departing
Crusaders
The Crusades were a series of religious wars initiated, supported, and sometimes directed by the Latin Church in the medieval period. The best known of these Crusades are those to the Holy Land in the period between 1095 and 1291 that were in ...
were joined by crowds of debtors in the
massacres of Jews at London and York in 1189–1190. In 1275,
Edward I of England
Edward I (17/18 June 1239 – 7 July 1307), also known as Edward Longshanks and the Hammer of the Scots, was King of England and Lord of Ireland from 1272 to 1307. Concurrently, he ruled the duchies of Aquitaine and Gascony as a vassa ...
passed the
Statute of the Jewry
The Statute of the Jewry (''Statutum de Judaismo, 1275'') was a statute issued by Edward I of England in 1275. It placed a number of restrictions on Jews of England, most notably outlawing the practice of usury.Prestwich, Michael. Edward I p 345 ( ...
which made usury illegal and linked it to
blasphemy
Blasphemy is a speech crime and religious crime usually defined as an utterance that shows contempt, disrespects or insults a deity, an object considered sacred or something considered inviolable. Some religions regard blasphemy as a religiou ...
, in order to seize the assets of the violators. Scores of English Jews were arrested, 300 were hanged and their property went to
the Crown
The Crown is the state in all its aspects within the jurisprudence of the Commonwealth realms and their subdivisions (such as the Crown Dependencies, overseas territories, provinces, or states). Legally ill-defined, the term has different ...
. In 1290, all Jews were to be expelled from England, allowed to take only what they could carry; the rest of their property became the Crown's. Usury was cited as the official reason for the
Edict of Expulsion
The Edict of Expulsion was a royal decree issued by King Edward I of England on 18 July 1290 expelling all Jews from the Kingdom of England. Edward advised the sheriffs of all counties he wanted all Jews expelled by no later than All Saints' D ...
; however, not all Jews were expelled: it was easy to avoid expulsion by converting to Christianity. Many other crowned heads of Europe expelled Jewish people, although again converts to Christianity were no longer considered Jewish. Many of these
forced converts still
secretly practiced their faith.
The growth of the
Lombard bankers and
pawnbroker
A pawnbroker is an individual or business (pawnshop or pawn shop) that offers secured loans to people, with items of personal property used as collateral. The items having been ''pawned'' to the broker are themselves called ''pledges'' or ...
s, who moved from city to city, was along the
pilgrim
A pilgrim (from the Latin ''peregrinus'') is a traveler (literally one who has come from afar) who is on Pilgrimage, a journey to a holy place. Typically, this is a physical journey (often on foot) to some place of special significance to the a ...
routes.
In the 16th century, short-term interest rates dropped dramatically (from around 20–30% p.a. to around 9–10% p.a.). This was caused by refined commercial techniques, increased capital availability, the
Reformation
The Reformation (alternatively named the Protestant Reformation or the European Reformation) was a major movement within Western Christianity in 16th-century Europe that posed a religious and political challenge to the Catholic Church and in ...
, and other reasons. The lower rates weakened religious scruples about lending at interest, although the debate did not cease altogether.
The
18th century papal prohibition on usury meant that it was a sin to charge interest on a money loan. As set forth by
Thomas Aquinas
Thomas Aquinas, OP (; it, Tommaso d'Aquino, lit=Thomas of Aquino; 1225 – 7 March 1274) was an Italian Dominican friar and priest who was an influential philosopher, theologian and jurist in the tradition of scholasticism; he is known wi ...
in the 13th century, because money was invented to be an
intermediary in exchange for goods, it is unjust to charge a fee to someone after giving them money. This is because transferring ownership of property implies the right to use that property for its purpose: "Accordingly if a man wanted to sell wine separately from the use of the wine, he would be selling the same thing twice, or he would be selling what does not exist, wherefore he would evidently commit a sin of injustice."
Charles Eisenstein
Charles Eisenstein (born 1967) is an American public speaker and author. His work covers a wide range of topics, including the history of human civilization, economics, spirituality, and the ecology movement. Key themes explored include anti-c ...
has argued that pivotal change in the English-speaking world came with lawful rights to charge interest on lent money, particularly the 1545 Act, "An Act Against Usurie" (
37 Hen. VIII, c. 9) of King
Henry VIII
Henry VIII (28 June 149128 January 1547) was King of England from 22 April 1509 until his death in 1547. Henry is best known for his six marriages, and for his efforts to have his first marriage (to Catherine of Aragon) annulled. His disa ...
of England.
Christianity
Bible
The
Old Testament
The Old Testament (often abbreviated OT) is the first division of the Christian biblical canon, which is based primarily upon the 24 books of the Hebrew Bible or Tanakh, a collection of ancient religious Hebrew writings by the Israelites. The ...
"condemns the practice of charging interest on a poor person because a loan should be an act of compassion and taking care of one’s neighbor"; it teaches that "making a profit off a loan from a poor person is exploiting that person (Exodus 22:25–27)."
Similarly, charging of interest () or the taking of clothing as pledges is condemned in
Ezekiel 18 (early 6th century BC), and
Deuteronomy
Deuteronomy ( grc, Δευτερονόμιον, Deuteronómion, second law) is the fifth and last book of the Torah (in Judaism), where it is called (Hebrew: hbo, , Dəḇārīm, hewords Moses.html"_;"title="f_Moses">f_Moseslabel=none)_and_th ...
23:19 prohibits the taking of interest in the form of money or food when lending to a "brother"; it is not clear if this refers to an actual brother, a fellow Israelite or any human being.
The
New Testament
The New Testament grc, Ἡ Καινὴ Διαθήκη, transl. ; la, Novum Testamentum. (NT) is the second division of the Christian biblical canon. It discusses the teachings and person of Jesus, as well as events in first-century Christ ...
likewise teaches giving rather than loaning money to those who need it:
"And if you lend to those from whom you expect repayment, what credit is that to you? Even sinners lend to sinners, expecting to be repaid in full. But love your enemies, do good to them, and lend to them, expecting nothing in return. Then your reward will be great, and you will be sons of the Most High; for He is kind to the ungrateful and wicked. Be merciful, just as your Father is merciful. - Luke 6:34-36 NIV
Church councils
The
First Council of Nicaea
The First Council of Nicaea (; grc, Νίκαια ) was a council of Christian bishops convened in the Bithynian city of Nicaea (now İznik, Turkey) by the Roman Emperor Constantine I in AD 325.
This ecumenical council was the first effort ...
, in 325, forbade
clergy
Clergy are formal leaders within established religions. Their roles and functions vary in different religious traditions, but usually involve presiding over specific rituals and teaching their religion's doctrines and practices. Some of the ter ...
from engaging in usury
At the time, usury was
interest
In finance and economics, interest is payment from a borrower or deposit-taking financial institution to a lender or depositor of an amount above repayment of the principal sum (that is, the amount borrowed), at a particular rate. It is distinct ...
of any kind, and the canon forbade the clergy to lend money at interest rates even as low as 1 percent per year. Later
ecumenical council
An ecumenical council, also called general council, is a meeting of bishops and other church authorities to consider and rule on questions of Christian doctrine, administration, discipline, and other matters in which those entitled to vote are ...
s applied this regulation to the
laity
In religious organizations, the laity () consists of all members who are not part of the clergy, usually including any non-ordained members of religious orders, e.g. a nun or a lay brother.
In both religious and wider secular usage, a layperson ...
.
[Noonan, John T., Jr. 1993. "Development of Moral Doctrine." 54 Theological Stud. 662.]
Lateran III decreed that persons who accepted interest on loans could receive neither the
sacrament
A sacrament is a Christianity, Christian Rite (Christianity), rite that is recognized as being particularly important and significant. There are various views on the existence and meaning of such rites. Many Christians consider the sacraments ...
s nor Christian burial.
The
Council of Vienne
The Council of Vienne was the fifteenth ecumenical council of the Roman Catholic Church and met between 1311 and 1312 in Vienne, France. One of its principal acts was to withdraw papal support for the Knights Templar at the instigation of Phili ...
made the belief in the right to usury a
heresy
Heresy is any belief or theory that is strongly at variance with established beliefs or customs, in particular the accepted beliefs of a church or religious organization. The term is usually used in reference to violations of important religi ...
in 1311, and condemned all secular legislation that allowed it.
Up to the 16th century, usury was condemned by the Catholic Church, but not really defined. During the
Fifth Lateran Council
The Fifth Council of the Lateran, held between 1512 and 1517, was the eighteenth ecumenical council of the Catholic Church and was the last council before the Protestant Reformation and the Council of Trent. It was convoked by Pope Julius II to ...
, in the 10th session (in the year 1515), the Council for the first time gave a definition of usury:
The Fifth Lateran Council, in the same declaration, gave explicit approval of charging a fee for services ''so long as no profit was made'' in the case of
Mounts of Piety
Mount is often used as part of the name of specific mountains, e.g. Mount Everest.
Mount or Mounts may also refer to:
Places
* Mount, Cornwall, a village in Warleggan parish, England
* Mount, Perranzabuloe, a hamlet in Perranzabuloe parish, C ...
:
Pope Sixtus V
Pope Sixtus V ( it, Sisto V; 13 December 1521 – 27 August 1590), born Felice Piergentile, was head of the Catholic Church and ruler of the Papal States from 24 April 1585 to his death in August 1590. As a youth, he joined the Franciscan order ...
condemned the practice of charging interest as "detestable to God and man, damned by the sacred canons, and contrary to Christian charity.
Medieval theology
The first of the
scholastic Christian theologians,
Saint Anselm of Canterbury
Anselm of Canterbury, OSB (; 1033/4–1109), also called ( it, Anselmo d'Aosta, link=no) after his birthplace and (french: Anselme du Bec, link=no) after his monastery, was an Italian Benedictine monk, abbot, philosopher and theologian of the ...
, led the shift in thought that labelled charging interest the same as theft. Previously usury had been seen as a lack of
charity
Charity may refer to:
Giving
* Charitable organization or charity, a non-profit organization whose primary objectives are philanthropy and social well-being of persons
* Charity (practice), the practice of being benevolent, giving and sharing
* Ch ...
.
St.
Thomas Aquinas
Thomas Aquinas, OP (; it, Tommaso d'Aquino, lit=Thomas of Aquino; 1225 – 7 March 1274) was an Italian Dominican friar and priest who was an influential philosopher, theologian and jurist in the tradition of scholasticism; he is known wi ...
, the leading scholastic theologian of the
Catholic Church
The Catholic Church, also known as the Roman Catholic Church, is the largest Christian church, with 1.3 billion baptized Catholics worldwide . It is among the world's oldest and largest international institutions, and has played a ...
, argued charging of interest is wrong because it amounts to "double charging", charging for both the thing and the use of the thing. 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. Similarly, one cannot charge for a piece of cake and for the eating of the piece of cake. Yet this, said Aquinas, is what usury does. Money is a medium of exchange, and is used up when it is spent. To charge for the money and for its use (by spending) is therefore to charge for the money twice. It is also to sell time since the usurer charges, in effect, for the time that the money is in the hands of the borrower. Time, however, is not a commodity for which anyone can charge. In condemning usury Aquinas was much influenced by the recently rediscovered philosophical writings of
Aristotle
Aristotle (; grc-gre, Ἀριστοτέλης ''Aristotélēs'', ; 384–322 BC) was a Greek philosopher and polymath during the Classical period in Ancient Greece. Taught by Plato, he was the founder of the Peripatetic school of phil ...
and his desire to assimilate
Greek philosophy
Ancient Greek philosophy arose in the 6th century BC, marking the end of the Greek Dark Ages. Greek philosophy continued throughout the Hellenistic period and the period in which Greece and most Greek-inhabited lands were part of the Roman Empir ...
with
Christian theology
Christian theology is the theology of Christianity, Christian belief and practice. Such study concentrates primarily upon the texts of the Old Testament and of the New Testament, as well as on Christian tradition. Christian theology, theologian ...
. Aquinas argued that in the case of usury, as in other aspects of Christian revelation, Christian doctrine is reinforced by Aristotelian
natural law
Natural law ( la, ius naturale, ''lex naturalis'') is a system of law based on a close observation of human nature, and based on values intrinsic to human nature that can be deduced and applied independently of positive law (the express enacte ...
rationalism. Aristotle's argument is that interest is unnatural, since money, as a sterile element, cannot naturally reproduce itself. Thus, usury conflicts with natural law just as it offends Christian revelation: see
Thought of Thomas Aquinas
Thomas Aquinas, OP (; it, Tommaso d'Aquino, lit=Thomas of Aquino; 1225 – 7 March 1274) was an Italian Dominican friar and priest who was an influential philosopher, theologian and jurist in the tradition of scholasticism; he is known wit ...
. As such, Aquinas taught "that interest is inherently unjust and one who charges interest sins."
![Bernardino da Siena – Tractatus de contractis et usuris, 15th-century manuscript – BEIC 10592116](https://upload.wikimedia.org/wikipedia/commons/7/71/Bernardino_da_Siena_%E2%80%93_Tractatus_de_contractis_et_usuris%2C_15th-century_manuscript_%E2%80%93_BEIC_10592116.jpg)
Outlawing usury did not prevent investment, but stipulated that in order for the investor to share in the profit he must share the risk. In short he must be a joint-venturer. Simply to invest the money and expect it to be returned regardless of the success of the venture was to make money simply by having money and not by taking any risk or by doing any work or by any effort or sacrifice at all, which is usury. St Thomas quotes Aristotle as saying that "to live by usury is exceedingly unnatural". Islam likewise condemns usury but allowed commerce (Al-Baqarah 2:275) – an alternative that suggests investment and sharing of profit and loss instead of sharing only profit through interests. Judaism condemns usury towards Jews, but allows it towards non-Jews (Deut 23:19–20). St Thomas allows, however, charges for actual services provided. Thus a banker or credit-lender could charge for such actual work or effort as he did carry out e.g. any fair administrative charges. The Catholic Church, in a decree of the
Fifth Council of the Lateran
The Fifth Council of the Lateran, held between 1512 and 1517, was the eighteenth ecumenical council of the Catholic Church and was the last council before the Protestant Reformation and the Council of Trent. It was convoked by Pope Julius II to ...
, expressly allowed such charges in respect of credit-unions run for the benefit of the poor known as "
montes pietatis
A mount of piety is an institutional pawnbroker run as a charity in Europe from Renaissance times until today. Similar institutions were established in the colonies of Catholic countries; the Mexican Nacional Monte de Piedad is still in operatio ...
".
In the 13th century
Cardinal Hostiensis enumerated thirteen situations in which charging interest was not immoral. The most important of these was ''lucrum cessans'' (profits given up) which allowed for the lender to charge interest "to compensate him for profit foregone in investing the money himself." This idea is very similar to opportunity cost. Many scholastic thinkers who argued for a ban on interest charges also argued for the legitimacy of ''lucrum cessans'' profits (e.g.
Pierre Jean Olivi Peter John Olivi, also Pierre de Jean Olivi or Petrus Joannis Olivi (1248 – 14 March 1298), was a French Franciscan theologian and philosopher who, although he died professing the faith of the Roman Catholic Church, remained a controversial figure ...
and
St. Bernardino of Siena
Bernardino of Siena, OFM (8 September 138020 May 1444), also known as Bernardine, was an Italian priest and Franciscan missionary preacher in Italy. He was a systematizer of Scholastic economics. His preaching, his book burnings, and his " bon ...
). However, Hostiensis' exceptions, including for ''lucrum cessans'', were never accepted as official by the Catholic Church.
Pope Benedict XIV
Pope Benedict XIV ( la, Benedictus XIV; it, Benedetto XIV; 31 March 1675 – 3 May 1758), born Prospero Lorenzo Lambertini, was head of the Catholic Church and ruler of the Papal States from 17 August 1740 to his death in May 1758.Antipope ...
's encyclical ''
Vix Pervenit
''Vix pervenit'' was an encyclical, promulgated by Pope Benedict XIV on November 1, 1745, which condemned the practice of charging interest on loans as usury. Because the encyclical was addressed to the bishops of Italy, it is generally not cons ...
'' (1745), operating in the pre-industrial mindset , gives the reasons why usury is sinful:
The nature of the sin called usury has its proper place and origin in a loan contract… hich
Ij ( fa, ايج, also Romanized as Īj; also known as Hich and Īch) is a village in Golabar Rural District, in the Central District of Ijrud County, Zanjan Province, Iran
Iran, officially the Islamic Republic of Iran, and also ...
demands, by its very nature, that one return to another only as much as he has received. The sin rests on the fact that sometimes the creditor desires more than he has given…, but any gain which exceeds the amount he gave is illicit and usurious.
One cannot condone the sin of usury by arguing that the gain is not great or excessive, but rather moderate or small; neither can it be condoned by arguing that the borrower is rich; nor even by arguing that the money borrowed is not left idle, but is spent usefully…
15th through 19th century
Martin Luther
Martin Luther (; ; 10 November 1483 – 18 February 1546) was a German priest, theologian, author, hymnwriter, and professor, and Order of Saint Augustine, Augustinian friar. He is the seminal figure of the Reformation, Protestant Refo ...
argued against several forms of usury, publishing and republishing multiple treatises on the subject. Christians, Luther argued, should not act in self-defense, should give when asked, and in the lowest degree should lend, expecting nothing in return. On those grounds, making a loan with anticipated profits (and with required repayment and hence little risk for the lender) is a form of self-service that goes against love of neighbor. Defining "lend" as lending without interest or fee, Luther encourages lending for the purpose of aiding the borrower.
The
Westminster Larger Catechism
The Westminster Larger Catechism, along with the Westminster Shorter Catechism, is a central catechism of Calvinists in the English tradition throughout the world.
History
In 1643 when the Long Parliament of England called the Westminster Assem ...
, part of the
Westminster Standards
The Westminster Standards is a collective name for the documents drawn up by the Westminster Assembly (1643–49). These include the Westminster Confession of Faith, the Westminster Shorter Catechism, the Westminster Larger Catechism, the Directo ...
held as doctrinal documents by
Presbyterian
Presbyterianism is a part of the Reformed tradition within Protestantism that broke from the Roman Catholic Church in Scotland by John Knox, who was a priest at St. Giles Cathedral (Church of Scotland). Presbyterian churches derive their nam ...
churches, teaches that usury is a
sin
In a religious context, sin is a transgression against divine law. Each culture has its own interpretation of what it means to commit a sin. While sins are generally considered actions, any thought, word, or act considered immoral, selfish, s ...
prohibited by the
eighth commandment.
Concerns about usury included the 19th century
Rothschild loans to the Holy See
Rothschild loans to the Holy See refers to a series of major financial loans arranged between the Rothschild family and the Holy See of the Catholic Church. The first loan which occurred in 1832 took place in the aftermath of the Napoleonic Wars ...
and 16th century concerns over abuse of the
zinskauf clause. This was problematic because the charging of interest (although not all interest – see above for
Fifth Lateran Council
The Fifth Council of the Lateran, held between 1512 and 1517, was the eighteenth ecumenical council of the Catholic Church and was the last council before the Protestant Reformation and the Council of Trent. It was convoked by Pope Julius II to ...
) can be argued to be a violation of doctrine at the time, such as that reflected in the 1745 encyclical ''Vix pervenit''. To prevent any claims of doctrine violation, work-arounds would sometimes be employed. For example, in the 15th century, the
Medici Bank
The Medici Bank (Italian: ''Banco dei Medici'' ) was a financial institution created by the Medici family in Italy during the 15th century (1397–1494). It was the largest and most respected bank in Europe during its prime. There are some estima ...
lent money to the Vatican, which was lax about repayment. Rather than charging interest, "the Medici overcharged the pope on the silks and brocades, the jewels and other commodities they supplied." However, the
1917 Code of Canon Law
The 1917 ''Code of Canon Law'' (abbreviated 1917 CIC, from its Latin title ), also referred to as the Pio-Benedictine Code,Dr. Edward Peters accessed June-9-2013 was the first official comprehensive codification of Latin canon law.
Ordered ...
switched position and allowed church monies to be used to accrue interest.
The Catholic Church has always condemned usury, but in modern times, with the rise of
capitalism
Capitalism is an economic system based on the private ownership of the means of production and their operation for Profit (economics), profit. Central characteristics of capitalism include capital accumulation, competitive markets, pric ...
, the previous assumptions about the very nature of money have been challenged, and the Church had to update its understanding of what constitutes usury to also include the new reality. Thus, the Church refers, among other things, to the fact
Mosaic Law
The Law of Moses ( he, תֹּורַת מֹשֶׁה ), also called the Mosaic Law, primarily refers to the Torah or the first five books of the Hebrew Bible. The law revealed to Moses by God.
Terminology
The Law of Moses or Torah of Moses (Hebrew ...
doesn't ban all interest taking (proving interest-taking is not an inherently immoral act, same principle as with
homicide
Homicide occurs when a person kills another person. A homicide requires only a volitional act or omission that causes the death of another, and thus a homicide may result from accidental, reckless, or negligent acts even if there is no inten ...
), as well as the prevalence of bonds & loans paying interest. Because of this, as the old
Catholic Encyclopedia
The ''Catholic Encyclopedia: An International Work of Reference on the Constitution, Doctrine, Discipline, and History of the Catholic Church'' (also referred to as the ''Old Catholic Encyclopedia'' and the ''Original Catholic Encyclopedia'') i ...
put it, "Since the possession of an object is generally useful, I may require the price of that general utility, even when the object is of no use to me."
Jesuit
, image = Ihs-logo.svg
, image_size = 175px
, caption = ChristogramOfficial seal of the Jesuits
, abbreviation = SJ
, nickname = Jesuits
, formation =
, founders ...
philosopher
Joseph Rickaby
Joseph John Rickaby, SJ (1845-1932) was an English Jesuit priest and philosopher.
Life
Rickaby was born in 1845 in Everingham, York. He received his education at Stonyhurst College, and was ordained in 1877, one of the so-called ''Stonyhurst Phi ...
, writing at the beginning of the 20th century, put the development of economy in relation to usury this way:
He further gave the following view of the development of Catholic practice:
Modern era
The
, a Catholic Christian
religious order
A religious order is a lineage of communities and organizations of people who live in some way set apart from society in accordance with their specific religious devotion, usually characterized by the principles of its founder's religious practi ...
, teaches that the charging of interest is
sinful
In a religious context, sin is a transgression against divine law. Each culture has its own interpretation of what it means to commit a sin. While sins are generally considered actions, any thought, word, or act considered immoral, selfish, s ...
:
Islam
Riba
The Royal Institute of British Architects (RIBA) is a professional body for architects primarily in the United Kingdom, but also internationally, founded for the advancement of architecture under its royal charter granted in 1837, three suppl ...
(usury) is forbidden in Islam. As such, specialized codes of banking have developed to cater to investors wishing to obey
Qur'anic law. ''(See
Islamic banking
Islamic banking, Islamic finance ( ar, مصرفية إسلامية), or Sharia-compliant finance is banking or financing activity that complies with Sharia (Islamic law) and its practical application through the development of Islamic economic ...
)''
The following quotations are English translations from the
Qur'an
The Quran (, ; Standard Arabic: , Quranic Arabic: , , 'the recitation'), also romanized Qur'an or Koran, is the central religious text of Islam, believed by Muslims to be a revelation from God. It is organized in 114 chapters (pl.: , sing. ...
:
Those who swallow usury cannot rise up save as he ariseth whom the devil hath prostrated by (his) touch. That is because they say: Trade is just like usury; whereas Allah permitteth trading and forbiddeth usury. He unto whom an admonition from his Lord cometh, and (he) refraineth (in obedience thereto), he shall keep (the profits of) that which is past, and his affair (henceforth) is with Allah. As for him who returneth (to usury) - Such are rightful owners of the Fire. They will abide therein. (''Al-Baqarah 2:275'')
Allah hath blighted usury and made almsgiving fruitful. Allah loveth not the impious and guilty. Lo! those who believe and do good works and establish worship and pay the poor-due, their reward is with their Lord and there shall no fear come upon them neither shall they grieve. O ye who believe! Observe your duty to Allah, and give up what remaineth (due to you) from usury, if ye are (in truth) believers. And if ye do not, then be warned of war (against you) from Allah and His messenger. And if ye repent, then ye have your principal (without interest). Wrong not, and ye shall not be wronged. And if the debtor is in straitened circumstances, then (let there be) postponement to (the time of) ease; and that ye remit the debt as almsgiving would be better for you if ye did but know.(''Al-Baqarah 2:276–280'')
O ye who believe! Devour not usury, doubling and quadrupling (the sum lent). Observe your duty to Allah, that ye may be successful. (''Al-'Imran 3:130'')
And of their taking usury when they were forbidden it, and of their devouring people's wealth by false pretences, We have prepared for those of them who disbelieve a painful doom. (''Al-Nisa 4:161'')
That which ye give in usury in order that it may increase on (other) people's property hath no increase with Allah; but that which ye give in charity, seeking Allah's Countenance, hath increase manifold. (''Ar-Rum 30:39'')
The attitude of
Muhammad
Muhammad ( ar, مُحَمَّد; 570 – 8 June 632 Common Era, CE) was an Arab religious, social, and political leader and the founder of Islam. According to Muhammad in Islam, Islamic doctrine, he was a prophet Divine inspiration, di ...
to usury is articulated in his
Last Sermon:
Verily your blood, your property are as sacred and inviolable as the sacredness of this day of yours, in this month of yours, in this town of yours. Behold! Everything pertaining to the Days of Ignorance is under my feet completely abolished. Abolished are also the blood-revenges of the Days of Ignorance. The first claim of ours on blood-revenge which I abolish is that of the son of Rabi'a b. al-Harith, who was nursed among the tribe of Sa'd and killed by Hudhail. And the usury of the pre-Islamic period is abolished, and the first of our usury I abolish is that of 'Abbas b. 'Abd al-Muttalib, for it is all abolished.
One of the forbidden usury models in Islam is to take advantage when lending money. Examples of forbidden loans, such as a person borrowing 1000 dollars and the borrower is required to return 1100 dollars. The above agreement is a form of transaction which is a burden for people who borrow, because in Islam, lending and borrowing are social transactions aimed at helping others, not like a sale and purchase agreement that is allowed to be profitable. Hence, a rule of thumb used by Islamic scholars is, "Every loan (qardh) which gives additional benefits is called usury."
In literature
In ''
The Divine Comedy
The ''Divine Comedy'' ( it, Divina Commedia ) is an Italian narrative poem by Dante Alighieri, begun 1308 and completed in around 1321, shortly before the author's death. It is widely considered the pre-eminent work in Italian literature and ...
'',
Dante
Dante Alighieri (; – 14 September 1321), probably baptized Durante di Alighiero degli Alighieri and often referred to as Dante (, ), was an Italian poet, writer and philosopher. His ''Divine Comedy'', originally called (modern Italian: '' ...
places the usurers in the inner ring of the seventh circle of hell.
Interest on loans, and the contrasting views on the morality of that practice held by Jews and Christians, is central to the plot of Shakespeare's play "
The Merchant of Venice
''The Merchant of Venice'' is a play by William Shakespeare, believed to have been written between 1596 and 1598. A merchant in Venice named Antonio defaults on a large loan provided by a Jewish moneylender, Shylock.
Although classified as ...
". Antonio is the merchant of the title, a Christian, who is forced by circumstance to borrow money from
Shylock
Shylock is a fictional character in William Shakespeare's play ''The Merchant of Venice'' (c. 1600). A Venetian Jewish moneylender, Shylock is the play's principal antagonist. His defeat and conversion to Christianity form the climax of the ...
, a Jew. Shylock customarily charges interest on loans, seeing it as good business, while Antonio does not, viewing it as morally wrong. When Antonio defaults on his loan, Shylock famously demands the agreed upon penalty: a measured quantity of muscle from Antonio's chest. This is the source of the metaphorical phrase "a pound of flesh" often used to describe the dear price of a loan or business transaction. Shakespeare's play is a vivid portrait of the competing views of loans and use of interest, as well as the cultural strife between Jews and Christians that overlaps it.
By the 18th century, usury was more often treated as a metaphor than a crime in itself, so
Jeremy Bentham
Jeremy Bentham (; 15 February 1748 Old_Style_and_New_Style_dates">O.S._4_February_1747.html" ;"title="Old_Style_and_New_Style_dates.html" ;"title="nowiki/>Old Style and New Style dates">O.S. 4 February 1747">Old_Style_and_New_Style_dates.htm ...
's ''Defence of Usury'' was not as shocking as it would have appeared two centuries earlier.
In
Honoré de Balzac
Honoré de Balzac ( , more commonly , ; born Honoré Balzac;Jean-Louis Dega, La vie prodigieuse de Bernard-François Balssa, père d'Honoré de Balzac : Aux sources historiques de La Comédie humaine, Rodez, Subervie, 1998, 665 p. 20 May 179 ...
's 1830 novel ''
Gobseck
''Gobseck'', an 1830 novella by French author Honoré de Balzac (1799-1850), appears in the ''Scènes de la vie privée'' section of his novel sequence ''La Comédie humaine''.
''Gobseck'' first appeared in outline form in '' La Mode'' in March 1 ...
'', the title character, who is a usurer, is described as both "petty and great – a miser and a philosopher..." The character
Daniel Quilp
Daniel Quilp is one of the main antagonists in the novel ''The Old Curiosity Shop'' by Charles Dickens, written in 1840. Quilp is a vicious, ill-tempered and grotesque dwarf and is the villain of the story. Quilp is as near as Dickens ever came to ...
in ''
The Old Curiosity Shop
''The Old Curiosity Shop'' is one of two novels (the other being ''Barnaby Rudge'') which Charles Dickens published along with short stories in his weekly serial ''Master Humphrey's Clock'', from 1840 to 1841. It was so popular that New York r ...
'' by
Charles Dickens
Charles John Huffam Dickens (; 7 February 1812 – 9 June 1870) was an English writer and social critic. He created some of the world's best-known fictional characters and is regarded by many as the greatest novelist of the Victorian e ...
is a usurer.
In the early 20th century
Ezra Pound
Ezra Weston Loomis Pound (30 October 1885 – 1 November 1972) was an expatriate American poet and critic, a major figure in the early modernist poetry movement, and a Fascism, fascist collaborator in Italy during World War II. His works ...
's
anti-usury poetry was not primarily based on the
moral injustice of interest payments but on the fact that excess capital was no longer devoted to artistic
patronage
Patronage is the support, encouragement, privilege, or financial aid that an organization or individual bestows on another. In the history of art, arts patronage refers to the support that kings, popes, and the wealthy have provided to artists su ...
, as it could now be used for
capitalist
Capitalism is an economic system based on the private ownership of the means of production and their operation for profit. Central characteristics of capitalism include capital accumulation, competitive markets, price system, priva ...
business investment.
Usury law
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." (
William Blackstone
Sir William Blackstone (10 July 1723 – 14 February 1780) was an English jurist, judge and Tory politician of the eighteenth century. He is most noted for writing the ''Commentaries on the Laws of England''. Born into a middle-class family i ...
's ''
Commentaries on the Laws of England
The ''Commentaries on the Laws of England'' are an influential 18th-century treatise on the common law of England by Sir William Blackstone, originally published by the Clarendon Press at Oxford, 1765–1770. The work is divided into four volume ...
'').
Canada
Canada's Criminal Code limits the interest rate to 60% per year.
The law is broadly written and Canada's courts have often intervened to remove ambiguity.
Japan
Japan has various laws restricting interest rates. Under civil law, the maximum interest rate is between 15% and 20% per year depending upon the principal amount (larger amounts having a lower maximum rate). Interest in excess of 20% is subject to criminal penalties (the criminal law maximum was 29.2% until it was lowered by legislation in 2010). Default interest on late payments may be charged at up to 1.46 times the ordinary maximum (i.e., 21.9% to 29.2%), while
pawn shop
A pawnbroker is an individual or business (pawnshop or pawn shop) that offers secured loans to people, with items of personal property used as collateral. The items having been ''pawned'' to the broker are themselves called ''pledges'' or ...
s may charge interest of up to 9% per month (i.e., 108% per year, however, if the loan extends more than the normal short-term pawn shop loan, the 9% per month rate compounded can make the annual rate in excess of 180%, before then most of these transaction would result in any goods pawned being forfeited).
United States
''Usury laws'' are
state law State law refers to the law of a federated state, as distinguished from the law of the federation of which it is a part. It is used when the constituent components of a federation are themselves called states. Federations made up of provinces, cant ...
s that specify the maximum legal
interest rate
An interest rate is the amount of interest due per period, as a proportion of the amount lent, deposited, or borrowed (called the principal sum). The total interest on an amount lent or borrowed depends on the principal sum, the interest rate, th ...
at which loans can be made.
In the United States, the primary legal power to regulate usury rests primarily with the states. Each
U.S. state
In the United States, a state is a constituent political entity, of which there are 50. Bound together in a political union, each state holds governmental jurisdiction over a separate and defined geographic territory where it shares its sover ...
has its own
statute
A statute is a formal written enactment of a legislative authority that governs the legal entities of a city, state, or country by way of consent. Typically, statutes command or prohibit something, or declare policy. Statutes are rules made by le ...
that dictates how much interest can be charged before it is considered usurious or unlawful.
If a lender charges above the lawful interest rate, a court will not allow the lender to sue to recover the unlawfully high interest, and some states will apply all payments made on the debt to the principal balance.
In some states, such as
New York
New York most commonly refers to:
* New York City, the most populous city in the United States, located in the state of New York
* New York (state), a state in the northeastern United States
New York may also refer to:
Film and television
* '' ...
, usurious loans are voided ''
ab initio
''Ab initio'' ( ) is a Latin term meaning "from the beginning" and is derived from the Latin ''ab'' ("from") + ''initio'', ablative singular of ''initium'' ("beginning").
Etymology
Circa 1600, from Latin, literally "from the beginning", from ab ...
''.
The making of usurious loans is often called
loan shark
A loan shark is a person who offers loans at extremely high interest rates, has strict terms of collection upon failure, and generally operates outside the law.
Description
Because loan sharks operate mostly illegally, they cannot reasonably ...
ing. That term is sometimes also applied to the practice of making consumer loans without a license in jurisdictions that requires lenders to be licensed.
Federal regulation
On a federal level, Congress has never attempted to federally regulate interest rates on purely private transactions, but on the basis of past U.S. Supreme Court decisions, arguably the U.S. Congress might have the power to do so under the interstate
commerce clause
The Commerce Clause describes an enumerated power listed in the United States Constitution ( Article I, Section 8, Clause 3). The clause states that the United States Congress shall have power "to regulate Commerce with foreign Nations, and amon ...
of Article I of the Constitution.
Congress imposed a federal criminal penalty for unlawful interest rates through the
Racketeer Influenced and Corrupt Organizations Act
The Racketeer Influenced and Corrupt Organizations (RICO) Act is a United States federal law that provides for extended criminal penalties and a civil cause of action for acts performed as part of an ongoing criminal organization.
RICO was en ...
(RICO Statute), and its definition of "unlawful debt", which makes it a potential federal felony to lend money at an interest rate more than twice the local state usury rate and then try to collect that debt.
It is a federal offense to use violence or threats to collect usurious interest (or any other sort).
Separate federal rules apply to most banks. The
U.S. Supreme Court
The Supreme Court of the United States (SCOTUS) is the highest court in the federal judiciary of the United States. It has ultimate appellate jurisdiction over all U.S. federal court cases, and over state court cases that involve a point o ...
held unanimously in the 1978 case, ''
'', that the
National Banking Act
The National Banking Acts of 1863 and 1864 were two United States federal banking acts that established a system of National bank#United States, national banks, and created the United States National Banking System. They encouraged development of ...
of 1863 allowed
nationally chartered banks to charge the legal rate of interest in their state regardless of the borrower's state of residence.
[''Marquette Nat. Bank of Minneapolis v. First of Omaha Service Corp.'', .]
In 1980, Congress passed the
Depository Institutions Deregulation and Monetary Control Act
The Depository Institutions Deregulation and Monetary Control Act of 1980 (, ) (often abbreviated DIDMCA or MCA) is a United States federal financial statute passed in 1980 and signed by President Jimmy Carter on March 31. It gave the Federal Res ...
. Among the Act's provisions, it exempted federally chartered savings banks, installment plan sellers and chartered loan companies from state usury limits. Combined with the ''Marquette'' decision that applied to National Banks, this effectively overrode all state and local usury laws.
The 1968
Truth in Lending Act
The Truth in Lending Act (TILA) of 1968 is a United States federal law designed to promote the informed use of consumer credit, by requiring disclosures about its terms and cost to standardize the manner in which costs associated with borrowing ...
does not regulate rates, except for some mortgages, but requires uniform or standardized disclosure of costs and charges.
In the 1996 ''
Smiley v. Citibank'' case, the Supreme Court further limited states' power to regulate credit card fees and extended the reach of the ''Marquette'' decision. The court held that the word "interest" used in the 1863 banking law included fees and, therefore, states could not regulate fees.
[ABA Journal, March 2010, p. 59]
Some members of Congress have tried to create a federal usury statute that would limit the maximum allowable interest rate, but the measures have not progressed. In July 2010, the
Dodd–Frank Wall Street Reform and Consumer Protection Act
The Dodd–Frank Wall Street Reform and Consumer Protection Act, commonly referred to as Dodd–Frank, is a United States federal law that was enacted on July 21, 2010. The law overhauled financial regulation in the aftermath of the Great Recessi ...
, was signed into law by President Obama. The act provides for a
Consumer Financial Protection Bureau
The Consumer Financial Protection Bureau (CFPB) is an agency of the United States government responsible for consumer protection in the financial sector. CFPB's jurisdiction includes banks, credit unions, securities firms, payday lenders, mortg ...
to regulate some credit practices but has no interest rate limit.
Texas
State law in Texas also includes a provision for contracting for, charging, or receiving charges exceeding twice the amount authorized (A/K/A "double usury"). A person who violates this provision is liable to the obligor as an additional penalty for all principal or principal balance, as well as interest or time price differential. A person who is liable is also liable for reasonable attorney's fees incurred by the obligor.
Avoidance mechanisms and interest-free lending
Islamic banking
In a partnership or joint venture where money is lent, the creditor only provides the capital yet is guaranteed a fixed amount of profit. The debtor, however, puts in time and effort, but is made to bear the risk of loss. Muslim scholars argue that such practice is unjust. As an alternative to usury, Islam strongly encourages charity and direct investment in which the creditor shares whatever profit or loss the business may incur (in modern terms, this amounts to an equity stake in the business).
Interest-free micro-lending
Growth of the
Internet
The Internet (or internet) is the global system of interconnected computer networks that uses the Internet protocol suite (TCP/IP) to communicate between networks and devices. It is a '' network of networks'' that consists of private, pub ...
internationally has enabled both business micro-lending through sites such as
Kickstarter
Kickstarter is an American public benefit corporation based in Brooklyn, New York, that maintains a global crowdfunding platform focused on creativity. The company's stated mission is to "help bring creative projects to life". As of July 2021, ...
as well as through global
micro-lending
:''This article is specific to small loans, often provided in a pooled manner. For direct payments to individuals for specific projects, see Micropatronage. For financial services to the poor, see Microfinance. For small payments, see Micropayme ...
charities where lenders make small sums of money available on zero-interest terms. Persons lending money to on-line micro-lending charity
Kiva
A kiva is a space used by Puebloans for rites and political meetings, many of them associated with the kachina belief system. Among the modern Hopi and most other Pueblo peoples, "kiva" means a large room that is circular and underground, ...
for example do not get paid any interest, although the end users to whom the loans are made may be charged interest by Kiva's partners in the country where the loan is used.
Non-recourse mortgages
A
non-recourse loan Nonrecourse debt or a nonrecourse loan (sometimes hyphenated as non-recourse) is a secured loan (debt) that is secured by a pledge of collateral, typically real property, but for which the borrower is not personally liable. If the borrower defau ...
is secured by the value of property (usually real estate) owned by the debtor. However, unlike other loans, which oblige the debtor to repay the amount borrowed, a non-recourse loan is fully satisfied merely by the transfer of the property to the creditor, even if the property has declined in value and is worth less than the amount borrowed. When such a loan is created, the creditor bears the risk that the property will decline sharply in value (in which case the creditor is repaid with property worth less than the amount borrowed), and the debtor does not bear the risk of decrease in property value (because the debtor is guaranteed the right to use the property, regardless of value, to satisfy the debt.)
Zinskauf
Zinskauf was a financial instrument, similar to an annuity, that rose to prominence in the Middle Ages. The decline of the Byzantine Empire led to a growth of capital in Europe, so the Catholic Church tolerated zinskauf as a way to avoid prohibitions on usury. Since zinskauf was an exchange of a fixed amount of money for annual income it was considered a sale rather than a loan. Martin Luther made zinskauf a subject of his Treatise on Usury and his Sermon on Trade and Usury
and criticized clerics of the Catholic Church for violating the spirit if not the letter of usury laws.
See also
*
Chrematistics
Chrematistics (from Greek: ''χρηματιστική''), or the study of wealth or a particular theory of wealth as measured in money, has historically had varying levels of acceptability in Western culture. This article will summarize histor ...
*
Christian finance
Christian finance is a kind of ethical finance following Christian ethics. Although not widely used, the notion of "Christian finance" or "Catholic finance" refers to banking and financial activities which came into existence several centuries ag ...
*
Contractum trinius
{{unreferenced, date=August 2013
A ''contractum trinius'' was a set of contracts devised by European bankers and merchants in the Middle Ages as a method of circumventing canonical laws prohibiting usury as a part of Christian finance. At the ...
*
Debt-trap diplomacy
Debt-trap diplomacy is an international financial relationship where a creditor country or institution extends debt to a borrowing nation partially, or solely, to increase the lender's political leverage. The creditor country is said to extend ...
*
Greed
Greed (or avarice) is an uncontrolled longing for increase in the acquisition or use of material gain (be it food, money, land, or animate/inanimate possessions); or social value, such as Social status, status, or Power (social and politica ...
*
History of banking
The history of banking began with the first prototype banks, that is, the merchants of the world, who gave grain loans to farmers and traders who carried goods between cities. This was around 2000 BCE in Assyria, India and Sumeria. Later, in anci ...
*
History of pawnbroking
Pawnbroking, lending money on portable security, began in ancient history. The practice was widespread in many parts of the world, from ancient Greece to medieval China and medieval Europe.
Mosaic law
Mosaic law precluded pawnbroking as it forba ...
*
Loansharking
A loan shark is a person who offers loans at extremely high interest rates, has strict terms of collection upon failure, and generally operates outside the law.
Description
Because loan sharks operate mostly illegally, they cannot reasonably ...
(traditional occupation of
Mafiosi
A gangster is a criminal who is a member of a gang. Most gangs are considered to be part of organized crime. Gangsters are also called mobsters, a term derived from ''mob'' and the suffix '' -ster''. Gangs provide a level of organization and r ...
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Money changing
A money changer is a person or organization whose business is the exchange of coins or currency of one country for that of another. This trade was a predecessor of modern banking.
The advent of paper money in the mid-17th century and the develop ...
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Payday loan
A payday loan (also called a payday advance, salary loan, payroll loan, small dollar loan, short term, or cash advance loan) is a short-term unsecured loan, often characterized by high interest rates.
The term "payday" in payday loan refers to ...
s
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Predatory lending Predatory lending refers to unethical practices conducted by lending organizations during a loan origination process that are unfair, deceptive, or fraudulent. While there are no internationally agreed legal definitions for predatory lending, a 2006 ...
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Credit card interest
Credit card interest is a way in which credit card issuers generate revenue. A card issuer is a bank or credit union that gives a consumer (the cardholder) a card or account number that can be used with various payees to make payments and borrow m ...
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Title loan
A title loan (also known as a car title loan) is a type of secured loan where borrowers can use their vehicle title as collateral. Borrowers who get title loans must allow a lender to place a lien on their car title, and temporarily surrender the ...
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Usury Act 1660
References
Further reading
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External links
What Love Is This? A Renunciation of the Economics of Calvinism The House of Degenhart.
S.C. Mooney's Response to Dr. Gary North's critique of Usury: Destroyer of NationsUsury laws by state. Heretical.com
Thomas Geoghegan on "Infinite Debt: How Unlimited Interest Rates Destroyed the Economy"
{{Debt
Medieval economics
Economic bubbles
Property crimes
Negative Mitzvoth