Usury: The state we all live in

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The latest financial dilemma is not new. At its core is a concept not much referred to in the public debate over who or what is to blame for the recent mess. Its called usury.

u·su·ry (yoo'zhe-ree) u·su·ries

1. The practice of lending money and charging the borrower interest, especially at an exorbitant or illegally high rate. 2. An excessive or illegally high rate of interest charged on borrowed money. 3. Archaic. Interest charged or paid on a loan.

Usury has a history which goes back to Biblical days and was a serious enough problem even at that time to warrant edicts against it.

The Prophet Ezekiel includes usury in a list of abominable things, along with rape, murder, robbery and idolatry. Ezekiel 18:19-13. Jews are forbidden to lend at interest to one another. Exodus 22:25; Deuteronomy 23:19-20, Leviticus 25:35-37

All of the major religions have such prohibitions against usury because it is recognized as a destructive practice that is untenable to a functioning society. Basically, it amounts to owners of wealth being able to take advantage of and control the fates of the not so wealthy and outright poor by creating a situation in which a debt on money borrowed can likely never be repaid. The mechanism is a familiar tune - "owing your soul to the company store."

Here's a historical list garnered from the Americans for Fairness in Lending site:

1750 B.C. The Code of Hammurabi regulates the interest that can be charged on a loan. Historical records indicate that many loans were made below the legal limit.

800-600 B.C. Both Plato and Aristotle believed usury was immoral and unjust. The Greeks at first regulate interest, and then deregulate it. After deregulation, there was so much unregulated debt that Athenians were sold into slavery and threatened revolt.

443 B.C.  The Romans adopt the "Twelve Tables" and cap interest at 8 1/3%.

88 B.C. The Roman usury rate is raised to 12%.

533 A.D. The Roman "Code of Justinian" sets a graduated maximum interest rate that did not go over 8 1/3 % for loans to ordinary citizens. This law lasts until 1543 A.D.

7th century  

 The Quran 2:275-276 states:  "...those you take usury will arise on the Day of Resurrection like someone tormented by Satan's touch. That is because they say 'Trade and usury are the same,' But God has allowed trade and forbidden usury. Whoever, on receiving God's warning, stops taking usury make keep his past gains -- God will be his judge -- but whoever goes back to usury will be an inhabitant of the Fire, therein to remain."

800 A.D.  Charlemagne outlaws interest throughout his empire.

11th century In England, the taking of any interest at all is punishable by taking the usurer's land and chattels.

Medieval Canon Law Usury is punishable by ex-communication.

Medieval Roman Law  Usurer's are fined 4X the amount taken, while robbery is penalized at twice the amount taken.

1306-1321 Dante pens "The Inferno," in which he places usurers at the lowest ledge in the seventh circle of hell - lower than murderers.

1553-1558 During the reign of Queen Mary, English Parliament again disallows the collection of interest.

1570 During the Reign of Queen Elizabeth, interest rates in England are limited to under 10%. This law lasts until 1854.

1713 Adoption in England of the "Statue of Anne," an Act to reduce interest rates.

Early 18th Century American colonies adopt usury laws, setting the interest cap at 8%.

After 1776  All of the States in the Union adopt a general usury. Most states set the interest limit at 6%.

Early 1900s A move to deregulation causes 11 states to eliminate their usury laws. Nine more states raise the usury cap to 10% or 12%. Banks are not making personal loans. "Salary Lenders" fill the need by "purchasing" a worker's future wages in exchange for a high fee - equal to a lending rate of 10% - 33%.

1916 A Uniform Small Loan Law allows specially-licensed lenders to charge higher interest rates--up to 36%--in return for adhering to strict standards of lending.

1945-1979 All states adopt special loan laws that cap interest at higher than the general usury rate--at 36%--but cap it nevertheless.

1978 The US Supreme Court decides that national banks may export the state interest rate law of their home state into any state where they do business. In response, South Dakota eliminates its interest rate caps. Several credit card issuing banks move to South Dakota and operate nationally with no interest rate cap.

1980 Congress preempts state interest rate controls on all first lien mortgages. This enables predatory mortgage lenders to make seemingly affordable loans, like adjustable rate and interest-only loans, that lead to foreclosure for many.

1994 Congress adopts the Home Ownership and Equity Protection Act of 1994, which provides some substantive protections to home mortgage borrowers with interest rates or points that are extraordinarily expensive, but sets no limits on what can be charged for these loans.

1994-2005 Many states and cities try to protect their citizens by adopting state statutes and local ordinances to curb predatory lending, but preemption claims by the federal government impede their efforts. Numerous bills are introduced in Congress to protect consumers in a wide range of transactions, including rent-to-own, credit cards, payday lending, and predatory mortgage lending, but none of these bills makes it to a hearing.

2006 The Department of Defense releases its findings that predatory lending, particularly payday loans, undermines military readiness, harms the morale of troops and their families, and adds to the cost of fielding an all-volunteer fighting force. DOD urges Congress to cap interest on loans marketed to the military at 36%.

2007 The launch of Americans for Fairness in Lending (AFFIL), a national multi-organization collaborative message and action campaign designed to raise public awareness and generate outrage about predatory lending.

What was it Santayana said about not remembering history?

One of the major problems with markets is that they are unconscious mechanisms and have zero memory. That leaves the manipulators and high priests of market theory who have been pontificating about the glories of free market deregulation for the last few decades running around with a big red "blame target" on their backs. How could they not know why regulations to prevent usury were in place. Is this not something they profess to have studied and understood?

Never mind blaming the public who was rused into bad loans there are two main groups of people that need to be severely punished for the present economic collapse which has yet to reveal its full force; the investment bankers and the politicians who allowed them to run wild by deregulating the industry.

The latest episode of Bill Moyers Journal has a couple of excellent segments on this subject well worth perusal.

The first describes the mortgage mess as exampled by the foreclosure destruction of an entire neighborhood of Cleveland where thousands of homes sit vancant, waiting for the wrecker's ball and people are now living in shelters.

The second is a highly informative interview with William Greider.


Fascinating... in a deep dark foreboding way.

Oh...we're doomed my friend...quite doomed.!

If the wheel is fixed
I'd still take a chance
If we're treading on thin ice
Then we might as well dance...

Because taking out a payday loan is a decision that consumers make for themselves, your arguement that payday loans are predatory doesn't make any sense. Additionally, our customers tell us that they like payday loans because they know exactly what the terms are and are comfortable using the product. On average the one time fee--note that it is not an interest rate, there is no complex mathmatic formula required--is on average $15 per $100 loaned for a two week loan.

Payday loans are not for everyone, but millions of Americans each year use them when they come up against an unexpected expense. Additionally, these millions of Americans have very few complaints out our product or industry. If you check with state regulators and BBB's across the country, you will find very few compliants.

What are the annual rates if the loans are not repaid within the 2 week allotted time?

I don't know about you but I consider 15% for a 2 week loan fairly excessive, especially when you consider that someone who is taking out a payday loan is probably already up against the wall.

Answer this: If some took out a $100. dollar loan for two weeks (supposing they make $500 take home every 2 wk pay period)...and then got fired a couple days after taking out that loan and couldn't repay the loan for another 6 weeks when they finally landed another job, what would they owe the payday lender because of interest?

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This page contains a single entry by cul published on July 21, 2008 10:31 AM.

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