This section provides a guide detailing the practice of usury and its detrimental effects upon society.
Usury is the practice of overcharging borrowers. It has been prohibited by religious, legal, moral, and social codes since the beginning of recorded human history. Both the Hebrew Bible and the Qu’ran are unequivocal in their condemnation of high interest rates and the people who charge them. At the founding of America, interest rates in all 13 original states were capped at 6%. In fact, usury was illegal in the United States until 1978. But now, just 30 years later, it is rampant. Modern forms of usury include:
- Payday loans charging an annualized rate of over 300% (in Maryland, the Baltimore IAF affiliate successfully organized for the state-wide abolition of payday lending in 1998).
- Adjustable-rate mortgages with interest rates ballooning up to 14%.
- Rapid-refund tax return companies that charge 50% of the customer’s tax return for a two-month advance – or up to a 300% annualized rate.
- Credit card companies that raise rates as high as 30% without reason or notification, and add on fees for both good behavior and bad. (The recent credit card reform law signed by President Obama in 2009 mandates that credit card companies notify the consumer of interest rate increases, but does not limit how much interest they can charge).
- Banks that charge $50 or more for “overdraft protection” – essentially a high-rate loan for the amount of the overdrawn check.
- Check-cashing fees of 10% that are in effect exorbitant interest on the two-day period it takes for the check cashing agency to clear the customer’s check.
For more information on the history of usury and the prohibitions against it, read the Metro IAF background paper.
The argument for capping interest rates at 10% is fourfold:
1) Moral and civic prohibitions against usury stretch back deep into our religious and national history. Our prophets and founding fathers made the clear case long before us that usury is patently wrong, against God, and against our national interest. From the time of Hammurabi to the Carter administration, usury was illegal. Modern practices of usury are an aberrant blip in history.
2) Our people are hurting because of crushing debt loads exacerbated by exorbitant interest rates – in the form of high credit card premiums, payday loans, banking and check-cashing fees, sub-prime mortgages, rapid-refund tax return schemes, car-title scams, and other practices that seek to generate income off of financial misfortune.
3) The elimination of usury laws in America from 1978-1980 ushered in an era of deregulation that allowed financial markets to run wild, accelerating the present economic crisis.
4) The elimination of usury laws helped shift the investment of American capital and talent away from manufacturing and material innovation and into an unproductive financial sector based on trading paper rather than producing long-term wealth. That shift has damaged other sectors of the economy, decimated America’s labor force and weakened America’s position in the world.
What we need now more than thousands of pages of new regulations, or the sour faces of executives forced to reduce their eight-figure salaries to a mere seven, is a 10% cap on interest rates. Why 10%? Because 10% is enough. Ten percent puts proportion and equity into the relationship between the lender and the borrower. Ten percent restores our capacity to form right relationships.
For more information, read the Metro IAF background paper and the Metro IAF white paper.
Metro IAF calls on the president and the Congress to re-instate usury laws by capping interest rates at 10%.
There is nothing new about a limit on the interest rate that can be charged – just as there is nothing new about speed limits on roads or the amount of alcohol that is allowable before someone is considered too drunk to be driving. Until laws against usury were repealed three decades ago, interest rates were capped, with some exceptions, at 9%. Before 1980, in the context of these caps, banks had somehow found ways to operate profitably.
Life, liberty, and the pursuit of happiness do not depend on the nation continuing to condone legalized loan sharking. In fact, they may depend on the ability of political leaders to end it.
For more information, read the Metro IAF White Paper: 10% Is Enough.
