Back to: BANKING, LENDING, & CREDIT INDUSTRY
Usury describes an act of lending money to borrowers with high and exorbitant interest rates. The interest rates of money borrowed under usury agreement is often higher than what the law permits. Some countries and religions regard usury as an illegal act because this act enriches the lender at the detriment of the borrower.
Initially, usury entails charging any amount as interest on loans but it later extended to exorbitant charges and interest rates on loans. Usury became popular in England during the reign of King Henry VIII. A loan is regarded usuarios when there is an agreement that the debtor would pay back a much larger amount.
A Little More on What is Usury
Despite that there were many laws and religious beliefs that discouraged usury practise, many lenders still engaged in usry as far back as the 16th century. Usury is an unfair practice that benefits neither the society nor the borrower but it only benefits the lender in an unethical way. This is why many religions such as Judaism, Islam, Christianity and others frown against Usury as it stands against their core values.
Also, interest rates in usury are much higher that what the laws of certain states stipulate and this is seen as illegal. There were many revolts against usury such as the Protestant Reformation in the 16th century that distinguished usury and the acceptable practise of money lending.
Usury laws are formulated to protect borrowers from excessive interest rates that lenders demand on loans. These laws provide the required interests that should be charged on loans. Usury laws also protect individuals from predatory lenders, these are lenders (predators) that impose unfair loan terms and charge abusive interest rates on loans.
Oftentimes, groups or individuals who have little or no understanding of rules of finance fall victims of predatory lending. Usury laws regulate interest rates on loans and also the percentage charged by payday or alternative lenders. Examples of loan arrangements where predatory lending os paramount are payday loans, small dollars or advances loans.
References for Usury Laws
Academic Research on Usury Laws
The economics of usury regulation, Blitz, R. C., & Long, M. F. (1965). Journal of Political Economy, 73(6), 608-619.
A short review of the historical critique of usury, Visser, W. A., & Macintosh, A. (1998). Accounting, Business & Financial History, 8(2), 175-189.
Money, Mortgages, and Migraine–The Usury Headache, Benfield, M. (1967). Case W. Res. L. Rev., 19, 819.
Contract law in the welfare state: A defense of the unconscionability doctrine, usury laws, and related limitations on the freedom to contract, Posner, E. A. (1995). The Journal of Legal Studies, 24(2), 283-319.
Neither a borrower nor a lender be: an economic analysis of interest restrictions and usury laws, Glaeser, E. L., & Scheinkman, J. (1998). The Journal of Law and Economics, 41(1), 1-36.
Conflicts of interest? The ethics of usury, Lewison, M. (1999). Journal of Business Ethics, 22(4), 327-339.
Retrospectives: from usury to interest, Persky, J. (2007). Retrospectives: from usury to interest. Journal of Economic Perspectives, 21(1), 227-236.
The political economy of financial regulation: evidence from US state usury laws in the 19th century, Benmelech, E., & Moskowitz, T. J. (2010). The journal of finance, 65(3), 1029-1073.
Implicit interest rates, usury and isolation in backward agriculture, Basu, K. (1984).Cambridge Journal of Economics, 8(2), 145-159.
An economic model of the medieval church: usury as a form of rent seeking, Ekelund, R. B., Hebert, R. F., & Tollison, R. D. (1989). Journal of law, economics, & organization, 5(2), 307-331.
Beyond usury: A study of credit-card use and preference among low-income consumers, Littwin, A. (2007). Tex. L. Rev., 86, 451.