The other day, I received an offer for a credit card from one of the airline companies. Usually, I shred credit card offers, but in this case, I thought I would see what they were offering. Turns out, the APR (annual percentage rate) was between 20.24 % and 28.24%. I thought to myself, this is usury!

Surprisingly, most people have never heard the term used. Usury, defined by The American Heritage Dictionary, is “The act or practice of lending money at an exorbitant or illegal rate of interest.” In our society, we use the term “predatory lending.” Today, usury is just an accepted practice, but did you know that for millennia it was considered immoral and illegal? Let me share some historical context of laws and societal mores against usury.

This information is from James M. Ackerman, “Interest Rates and the Law: A History of Usury,” 1981. Taken from the blog “Americans for Fairness in Lending.”

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Old Testament – The prophet Ezekiel includes usury in a list of “abominable things,” along with rape, murder and idolatry.

1750 B.C. The Code of Hammurabi regulates the interest that can be charged on a loan.

800 – 600 B.C. Both Plato and Aristotle believed usury was immoral and unjust. The Greeks at first regulate interest and then deregulate it. After deregulation, there was so much unregulated debt that Athenians were sold into slavery and threatened revolt.

443 B.C. The Romans adopt the “Twelve Tables” and cap interest at 8 1/3%.

88 B.C. The Roman usury rate is raised to 12%.

533 A.D. The Roman “Code of Justinian” sets a graduated maximum interest rate that did not go over 8 1/3%. This law lasted until 1543 A.D.

800 A.D. Charlemagne outlaws interest.

Medieval Roman Law: Usurers are fined 4X the amount taken, while robbery is penalized at twice the amount taken.

1306 – 1321 Dante pens “The Inferno,” in which he places usurers at the lowest ledge in the seventh circle of hell – lower than murderers.

1553 – 1558 During the reign of Queen Mary, English Parliament again disallows the collection of interest.

1570 During the Reign of Queen Elizabeth, interest rates in England are limited to under 10%. This law lasts until 1854.

Early 18th Century – American Colonies adopt usury laws, setting the interest cap at 8%.

Early 1900’s – A move to deregulation causes 11 states to eliminate usury laws. Nine more states raise the usury cap to 10% or 12%. Banks are not making personal loans. “Salary Lenders” fill the need by “purchasing” a worker’s future wages in exchange for a high fee – equal to a lending rate of 10% – 33%.

1916 A Uniform Small Loan Law allows specially-licensed lenders to charge higher interest rates – up to 36% – in return for adhering to strict standards of lending.

1945 – 1979 All states adopt special loan laws that cap interest at higher than the general usury rate – at 36%.

1978 The US Supreme Court decides that national banks may export the state interest rate law of their home state into any state where they do business. In response, South Dakota eliminates its interest caps. Several credit card issuing banks moved to South Dakota and operate nationally with no interest rate cap.

1980 Congress preempts state interest rate controls on all first lien mortgages. This enables predatory mortgage lenders to make seemingly affordable loans, like adjustable-rate and interest-only loans, that lead to foreclosure for many.

1994 Congress adopts the Home Ownership and Equity Protection Act of 1994, which provides some substantive protections to home mortgage borrowers with interest rates or points that are extraordinarily expensive, but sets no limits on what can be charged for these loans.

1994 – 2005 Many states and cities try to protect their citizens by adopting state statutes and local ordinances to curb predatory lending, but preemption claims by the federal government impede their efforts. Numerous bills are introduced in Congress to protect consumers in a wide range of transactions, including rent-to-own, credit cards, payday lending, and predatory mortgage lending, but none of these bills makes it to a hearing.

2001 – 2007 Predatory and mainly subprime lenders make home loans to people who cannot afford them, boosting their own profits in the short term. Many of these loans are packaged and sold to Wall Street.

2005 After extensive pressure from the industry, the federal government changes bankruptcy laws, making it harder for consumers to discharge debts and get a clean start in bankruptcy.

2006 Congress passes the “Talent Amendment” which caps interest on loans to active military personnel and their families to 36%, reacting to findings that high-cost payday lenders had been targeting the military.

2007 Foreclosure rates begin to increase dramatically as a result of predatory mortgage lending.

2008 Unpaid mortgages caused mortgage-backed securities on Wall Street continue to “go bad,” triggering widespread downturn in both the United States and around the world. Some commercial and investment banks go bankrupt, and some are the object of government “bailouts.”

2009 The passage of the Credit CARD Act, which greatly curtails abusive credit card lending.

2010 The passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which creates a Consumer Financial Protection Bureau to rein in predatory lending (though it cannot pass usury caps). The bill also reforms some of Wall Street’s greedy and excessive practices.

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I do not purport to be an expert in finance or economics, but I do know that usury or predatory lending is taking place today. Can we, as consumers, do anything about it? Since interest is regulated at the state level, we can put pressure on our local representatives to enact legislation that will protect consumers in our state from usury. According to USA Today, as of 12/13/2023, banks were paying 5 to 5.25 % for their Cost of Fund Rate. Any interest they charge on top of that is profit. It seems to me that legislation capping the interest that can be charged on loans or credit cards on top of their Cost of Fund Rate to 10% is fair. That would cap the interest they could charge on 12/13/2023 between 15 and 15.25%.

Let’s try to stop the silent crime of usury that is being perpetrated on unwitting consumers. It will certainly help gain financial freedom for the many and will lower the rate of bankruptcy for more than a few. This will put our economy on a more sure footing.

Photo by kalhh, Courtesy of Pixabay.