What is Usury?
Executive Summary
- Usury is the charging of interest on loans.
- However, in the last hundreds of years, the term usury has been diluted to mean only charging excessive interest.
Introduction
Usury has a long history of being opposed my many religions as the following quote explains.
In fact, every major religion has spoken directly about usury or interest and has expressly prohibited it at one point or another.2 Most of these ancient cultures considered any interest collected on a loan to be forbidden usury, and the word usury was synonymous with interest.3 Today, nearly all societies allow a lender to charge reasonable interest and consider usury to be “too much interest,” or above what their laws allow. Laws on usury, then, are just how much a society deems is too much to charge on a loan.In the years 2000 BC to 1400 BC, the Vedic texts of ancient India mentioned usury; in the years 700 BC to 100 BC the sutra texts, as well as the Buddhist Jatakas of 600 BC to 400 BC, prohibited usury. Vasishtha, a well-known Hindu lawmaker of that time, forbade usury and disparaged the practice, saying that only “hypocritical ascetics are accused of practicing it.”4The Torah and the Talmud contain various passages prohibiting the Jews from charging any interest on loans—it was all prohibited usury. Ezekiel 18:13 states: “He [who] hath given forth upon usury, and hath taken increase: shall he then live? He shall not live: he hath done all these abominations; he shall surely die; his blood shall be upon him.” There were, however, loopholes in the blanket prohibition. Specifically: “Unto a stranger thou mayest lend upon usury; but unto thy brother thou shalt not lend upon usury, that the Lord thy God may bless thee in all that thou settest thine hand to in the land whither thou goest to possess it” (Deut. 23:19). Jewish leaders interpreted this to mean that although Jews could not lend with interest to other Jews, they could lend freely to Gentiles. Ignoring these prohibitions led to painful debt stories. Nehemiah, a Jew living under Persian rule in 445 BC, gives a vivid account of the people’s outcry over their mounting debts and mortgaged fields and their growing sense of powerlessness as they sold their daughters into slavery to pay their debts. He responded with indignation: “When I heard their outcry and these charges, I was very angry. I pondered them in my mind and then accused the nobles and officials. I told them, ‘You are charging your own people interest!’ … ‘You are selling your own people.… What you are doing is not right.… let us stop charging interest!
Source: How the Other Half Banks
https://www.amazon.com/How-Other-Half-Banks-Exploitation/dp/0674286065
Nehemiah’s account is interesting not only because of his moral qualm with usury but because when he presents the situation to the nobles and officials, they too acknowledge the unfairness. And even though it meant smaller financial gains on their part, they promised to—and did—stop the practice. For these Jews, the practice’s immorality was enough to end it. It was not dissimilar to the custom in ancient Persia where rulers issued periodic amnesty for all debts every few years. The slates would be wiped clean and all debts forgiven.6 This ceremony had not only religious significance but also political and practical utility. Canceling the debts subdued unrest that might threaten political power.In many early European societies where usury prohibitions were common, Jews were the only sources of loans. Laws prohibited Jews from entering many other professions, but Jewish scriptures expressly permitted lending to non-Jews. Jews operated as the primary moneylenders during much of the Middle Ages. Jewish lenders would sit on benches near the market, or bancas in Italian (from which the word bank originates), and lend to others with interest. Cultural disdain for all moneylenders, combined with or perhaps leading to rampant anti-Semitism, resulted in horrible violence and appalling injustices toward the Jews. Even though their borrowers knew the terms of the bargains they so willingly made when they needed money, they nonetheless vilified their lenders. In 1190, after destroying their lenders’ account books, the nobility of Europe massacred the Jews of York to whom they were in debt. European historian Joseph Patrick Byrne reported: “Money was the reason the Jews were killed, for had they been poor, and had not the lords of the land been indebted to them, they would not have been killed.”7 King Edward I later expelled the Jews from England in 1290 based on a similar antagonism.8 And then there are the accounts of Christian rulers imprisoning their Jewish lenders and extracting teeth and other body parts when their debts became due. Perhaps this cultural guilt led Shakespeare’s fictitious Jewish lender, Shylock, to famously demand “a pound of flesh.”For centuries, Christians were also forbidden to lend with interest. Gospel writer Luke proclaimed: “Lend, hoping for nothing again” (Luke 6:5). Amid his message of peace and love, in an uncharacteristic display of anger, Jesus Christ expelled the “moneychangers,” or lenders, from the temple grounds. The temple was, at the time, a place of considerable commerce, but Christ acted in “righteous anger” and purged those who profited from loans because he regarded lending on interest not as common business but rather a moral perversion. He drove the point home with his parable of the unforgiving servant, in which a certain man owing a large amount of money to his master or king is forgiven his debt and then turns around and imprisons his servant for failing to pay him a debt much smaller than what he himself owed.9 “Forgive us our debts as we forgive our debtors,” Christ prayed.Early Christian codes reinforced this message and made it explicit. In 325 AD, the Council of Nicaea banned the practice of usury—charging any interest—among clerics. In 789 AD, Charlemagne forbid usury among all people, perpetuating St. Ambrose’s characterization of usury as a transaction in which “more is asked than is given.”10Things escalated from there. In 1139, the second Lateran Council in Rome called usury “theft” and forced those who had demanded interest to pay it back. The church was strict about this prohibition and even punished transactions that tried to hide usury. The Council of Vienne in 1311 declared heretics of anyone who said usury was not a sin.11 The sixteenth-century reformers continued the prohibition. Martin Luther was rather vociferous in his disdain: “Therefore is there on earth no greater enemy of man, after the Devil, than a gripe-money and usurer, for he wants to be God over all men.… And since we break on the wheel and behead highwaymen, murderers and housebreakers, how much more ought we to break on the wheel and kill … hunt down, curse and behead all usurers!”12 But the historian Roger Ruston claimed that around the 1620s, persuaded by the forces of capitalism that became harder to ignore, “usury passed from being an offence against public morality which a Christian government was expected to suppress to being a matter of private conscience [and] a new generation of Christian moralists redefined usury as excessive interest.”13And yet even as recently as 2014, the pope spoke out against usury, calling it a “social ill.” He explained, “When a family has nothing to eat, because it has to make payments to usurers, this is not Christian, it is not human!” and stated that “this dramatic scourge in our society harms the inviolable dignity of the human person.”14Muslims are also forbidden to require any interest of borrowers. They are the only religion that still abides by this rule, although creative adherents of Sharia law have found loopholes that permit something equivalent to modern loans. An entire field of law called Islamic banking helps businesses involved in trade with Muslim institutions find ways to engage in credit transactions that do not run afoul of usury laws. The Qur’an (2:275) states: “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.”
Source: How the Other Half Banks
In Islam, economist Ahmad explained that God “permits trade yet forbids usury … the difference is that profits are the result of initiative, enterprise and efficiency. They result after a definite value-creating process. Not so with interest.” These prohibitions also contained clear social justice elements—those who had money could not extract “rents” from those who did not because it would magnify existing inequalities. The Indian tradition holds that “it is Usury—the rankest, most extortionate, most merciless Usury—which eats the marrow out of the bones of the [cultivators] and condemns him to a life of penury and slavery.”
Source: How the Other Half Banks
In 300 BC, Aristotle wrote in Politics: “The most hated sort [of moneymaking], and with the greatest reason, is usury, which makes a gain out of money itself, and not from the natural use of it. For money was intended to be used in exchange, but not to increase at interest. And this term usury, which means the birth of money from money, is applied to the breeding of money because the offspring resembles the parent. Wherefore of all modes of making money this is the most unnatural.” Folklore and literature also often vilify usurers. Dante, Shakespeare, Dickens, Dostoyevsky, and many others cast moneylenders as their villains. Dante placed usurers in the seventh rung of hell: “From each neck there hung an enormous purse, each marked with its own beast and its own colors like a coat of arms.
Source: How the Other Half Banks
What Happened to Usury Caps?
Usury caps have been increasingly removed allowing extraordinary levels of interest to be charged, as is covered in the following quotation.
Usury limits, which had hovered around 6 to 12 percent for most of U.S. history, were allowed to reach 300 to 700 percent. Inflationary pressures caused the initial deregulation of interest rates by the states, but it was a Supreme Court decision that ultimately eradicated real interest rate caps in the country. In Marquette National Bank v. First Omaha Service Corporation, the Supreme Court said that a credit card lender could export the interest rates of one state to any other. Banks immediately lobbied for and were granted the same privilege. Predictably, lenders began to charter in states with the highest rates, which they then exported nationwide. This in turn caused a “race to the bottom” as states competed for lending businesses by lowering borrower protections and increasing usury limits. The U.S. Supreme Court case allowing rates to be exported did not apply to payday lenders because the industry was not prevalent at the time. However, payday lenders were able to quickly take advantage by “borrowing” bank charters, a practice dubbed “rent-a-bank,” in order to “benefit” from high interest rates. After banking laws prohibited this arrangement, payday lenders fled to charter on Native American reservations, which are exempt from state usury laws, in order to charge high rates. These lenders have been known to charge effective interest rates of up to 2000 percent. The result? As explained by one scholar, “The problem of loan-sharking was brushed aside by making [high interest rates], once typical only of organized crime, perfectly legal—and therefore, enforceable no longer by just hired goons and the sort of people who place mutilated animals on their victims’ doorsteps, but by judges, lawyers, bailiffs, and police.”
The current president of the US, was a major proponent of increasing the ability to export usurious interest rates from some states to others, as he was himself from the credit card capital of the US, Delaware.