What Is Usury?
Let me explain usury directly to you: it's the practice of lending money at an interest rate that's unreasonably high or exceeds what's allowed by law. This concept first gained traction in England under King Henry VIII, initially applying to any interest on loans. Over time, it shifted to mean charging excessive interest, though in some religions and regions, any interest is seen as illegal.
Understanding Usury
You should know that charging interest on loans isn't new, but in 16th-century England, limits were set on allowable interest. Certain religions have always avoided usury because it conflicts with their principles. Back then, lending happened between individuals or small groups, unlike today's banking systems, so strict social standards for loan terms were crucial.
High credit card interest rates contribute significantly to U.S. consumer debt. The three Abrahamic religions—Judaism, Christianity, and Islam—strongly oppose usury. Old Testament passages condemn it, especially for the less fortunate. In Judaism, interest was only charged to outsiders. Christianity's stance led to traditions against lending for profit, with the Protestant Reformation distinguishing high from low rates. Islam prohibits interest entirely.
Usury Laws and Predatory Lending
Today, usury laws protect you from predatory lenders, who impose unfair terms. These lenders often target those with limited access to traditional financing, charging exorbitant rates and demanding heavy collateral. Payday loans, which are short-term and unsecured, exemplify this, carrying high risks. Some states cap their APRs or ban them to prevent usury.
Usury laws differ by state, depending on loan size, lender type, and loan category. They apply to loans without written agreements from non-banks, private student loans, payday loans, and similar. Credit cards escape these laws due to a 1978 Supreme Court ruling. Penalties for violations vary: lenders might return all interest plus fees, and face jail time.
Example of Usury
Consider this scenario: John, unemployed and without health insurance, injures himself and faces $10,000 in medical bills. He covers $2,000 from savings but borrows $8,000 from an acquaintance at 18% monthly interest. If his state caps rates at 9%, this is usury, violating the law.
Usury FAQs
Is usury a crime? Yes, often it's a crime or violation, with federal and state laws setting maximum rates; exceeding them leads to accountability.
What's the current usury rate? It varies by state—for instance, North Dakota's is 5.5% above the U.S. Treasury Bill rate, with a minimum of 7%.
When did usury become illegal? It has a long history, made illegal to stop predatory practices that cause financial hardship, influenced by religious bans.
Do usury laws apply to private loans? Absolutely, they cover most non-bank loans to prevent unfair practices.
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