The word usury comes from the Latin word usuria. The definition of the word is interest or excessive interest. Technically speaking, this applied to charging for the usage of money in any circumstance. We typically don’t think of a fee for exchanging currencies as interest, but that WAS considered interest back then.
Eventually countries got involved and legislated a maximum legal interest rate. Usury came to be known as the interest rate on a loan above the legal limit.
Historical Context
In the early hundreds CE (common era, often referred to as AD, anno domini), Christian bishops dictated that the clergy and laity could only accept up to a 1% interest rate. Anything in excess was usurious. By the 12th century things intensified: people who received interest could not receive sacraments or Christian burial. And by the 14th century, usury was labeled as heresy and secular legislation allowing it was banned.
Usury has been denounced through history even in its most basic definition of any interest. Who denounced usury? Plato, Aristotle, Cato, Cicero, Seneca, Aquinas, Muhammad, and many more.
Cato in De Re Rustica said:
“And what do you think of usury?” — “What do you think of murder?”
Among many other financial rules, the Islamic faith specifically disallows the charging of interest. Because of that, there are special loans & mortgages for Muslims.
As times changed, so did the Churches. They started allowing interest out of necessity for others. As rates went from around 30% to around 10%, it got harder to claim that interest charges were completely taking advantage of people.
Usury Laws in the U.S.A.
Usury laws are dictated by state statutes. Each state is allowed to set its own maximum interest rate. If a lender does charge an unlawful interest rate, depending on the state laws the loan can be voided from the initial date or the lender can be stuck without the ability to sue for debt recovery.
One large change, though, was with the Supreme Court Case Marquette National Bank of Minneapolis vs. First of Omaha Service Corp. The decision in this case allowed nationally-chartered banks to charge the maximum legal interest rate in their state regardless of the borrowers state. This led to an exodus of banks from states with strict interest rate laws. Because of this ruling, banks could now charter themselves in a state like Delaware and then charge higher interest rates than previously allowed in other states.
When the Depository Institutions Deregulation and Monetary Control Act was passed in 1980, it effectively overrode state and local usury laws. The act exempted Federally charted savings banks and a few others from usury laws. One of the few things that is still protected, though, is the fact that costs and charges must be disclosed.
Credit Is Not Needed
Remember, though, that credit and debt are avoidable. If you don’t borrow, you don’t have to worry about paying interest to anyone.
Hopefully this short history lesson about usury and interest was educational. If you look further into it you will find that a lot of moral arguments have been made against interest. It really makes you think to yourself if you should be self-inflicting the punishment of interest on yourself.
