Usury: Charging Excessive Interest Rates

An in-depth analysis of Usury, its implications, historical context, regulations, and contemporary relevance.

Usury refers to the practice of charging interest on loans at a rate that exceeds the legal limits established by state law. Historically, the term has had religious and moral dimensions, but in modern times, it primarily relates to legal and economic contexts.

Defining Usury

In legal terms, usury is:

$$ \text{Usury} = \text{Interest rate charged} - \text{Legal interest rate limit} $$

If this value is positive, the lender is in violation of usury laws.

Historical Context of Usury

Ancient and Medieval Periods

Usury has been a contentious issue throughout history:

• Ancient Civilizations: Both the Code of Hammurabi and the Roman Catholic Church condemned usury.
• Medieval Period: It was considered immoral and was heavily regulated by religious authorities, particularly within Christianity and Islam.

Modern Era

Contemporary views have evolved with economic changes:

• Economic Development: Industrialization increased the demand for capital, leading to more permissive views of interest, though regulations still exist.
• Legislative Framework: States have specific limits on interest rates one can charge on a loan.

Usury Regulations

State Laws

Usury limits vary from state to state and depend on several factors:

• Type of Lender: Different limits apply to banks, credit unions, and payday lenders.
• Type of Loan: Mortgages, personal loans, and credit card loans may have distinct limits.

Federal Preemption

Under certain conditions, federal laws can override state usury laws. Examples include:

• Depository Institutions Deregulation and Monetary Control Act (DIDMCA): Allows federally chartered banks to pre-empt state usury laws.
• Exportation Doctrine: Allows national banks to apply the interest rates of their home state to out-of-state customers.

Contemporary Issues and Special Considerations

Payday Loans

Payday lenders often operate in states with low or no usury limits, targeting high-risk borrowers with annual percentage rates (APRs) that can exceed 400%.

Predatory Lending

Predatory lenders may exploit legal loopholes or vulnerable populations, perpetuating cycles of debt.

Examples of Usury

• Case Study: In 2010, the state of Ohio capped payday loan interest rates at 28%. However, payday lenders circumvented the law by registering as mortgage lenders.

Related Terms with Definitions

• APR (Annual Percentage Rate): The annual rate charged for borrowing, expressed as a single percentage.
• Interest Rate Cap: A limit on the amount of interest that can be charged on a loan.
• Predatory Lending: Imposing unfair, deceptive, or abusive loan terms on borrowers.

FAQs

What is the difference between usury and high interest?

Usury specifically refers to interest rates that exceed legal limits, while high interest may be legal but still burdensome for borrowers.

Are usury laws the same in every state?

No, usury laws vary significantly between states and depend on the type of loan and the lender.

How do federal laws affect usury?

Federal laws can preempt state usury limits, especially for federally chartered banks and through regulations like the DIDMCA.

Can individuals take action if they are charged usurious rates?

Yes, borrowers can report to state regulatory agencies or pursue legal actions to reclaim overpaid interest and damages.

References

• US Code Title 12 - Banks and Banking: Overview of federal regulations on usury.
• National Conference of State Legislatures (NCSL): Detailed state-by-state usury laws.

Summary

Usury is a critical concept in finance and law, denoting the charging of excessively high-interest rates beyond legal limits. Understanding the historical context, varying state laws, and modern implications aids in comprehending its complexity. As lending practices and economic conditions evolve, regulations continue to adapt to ensure fair lending practices while balancing the needs of lenders and borrowers.