Usury, interest rates and the poor

June 8, 2010

Forgive us our debts as we forgive our debtors. Matthew 6:12.

When asked once what the most powerful force in the universe was, Albert Einstein is said to have answered: compound interest. Certainly, a modern, capitalist financial system could not exist without lending at interest. No interest, no credit. No credit, no productive economic activity.

The laws of ancient Greece, Rome and Israel, however, prohibited usury, or lending at interest, and so did those of medieval Europe. Eventually, though, the potential for creating wealth through investment rather than through land-based agriculture demanded the legalization of lending at interest, and capitalism and modernity itself were born. Nevertheless, throughout most of modern history, laws have set limits on the rates that could be charged.

The inflationary recession of the 1970s, however, began squeezing lenders (especially credit card lenders) against these limits, and they challenged these laws in court. Eventually, a 1978 Supreme Court decision pegged usury rates to the laws of a lender’s home state and states began competing for these companies; Delaware and South Dakota won. (See the excellent review article by Steven Mercatante in South Dakota Law Review for a history: “The deregulation of usury ceilings, rise of easy credit, and increasing consumer debt”.) The United States has been steadily deregulating the financial services industry ever since. There now exist virtually no limits on the interest rates a lender can charge, beyond those set by the market. The result of deregulation and of easy credit has been two banking crises (remember the savings and loans in the 1980s?), the last—well, you know.

Of course, high interest rates hurt the poor the most, and perversely, the people who most need the loan are those who pay the highest rates and are least able to pay them. A constellation of businesses exists to make money off of the poor’s desperate need for short-term cash—to keep the lights on, meet a rent payment, hold onto their car, keep their cable or phone. On Monday’s show (June 7, 2010), Terry Gross, host of NPR’s fine show Fresh Air, interviewed Gary Rivlin, author of Broke, USA, about these financial industries that make their profit from lending to the poor at very high interest rates. Oy.

I said above that the Bible prohibits usury (see this website for a list of the passages concerning interest rates on loans). The lending envisioned in the Bible differs from investment lending, but is exactly the kind of lending discussed by Rivlin: it is lending to the poor. Usually, that meant a free peasant subsistence farmer who’s experienced a productivity shortfall or some disaster (his ox dies) and needs either food to tide his family over or seed to plant next year’s crops, or both. The Bible defines who bears the responsibility for making such loans (family) and sets the terms, but predatory lending by bankers in the cities was a problem in ancient Israel as it is now. (See Isaiah 5:8)

As Congress revisits financial regulation in the aftermath of the catastrophes that deregulation have brought, we can expect ‘Christian’ Republicans (and Democrats, for that matter) to fight it on behalf of the banks. They should remember that Jesus literally defined his mission as the Christ in terms of relief for the poor:

The spirit of the Lord God is upon me because he has anointed me (Christed me, messiah-ed me) to bring good news to the poor. Luke 4:18.

They should set very strict limits on the interest rates that these institutions can charge the poor. It would be better to eliminate the interest rates altogether, but that would probably eliminate the lending itself, the last option available to the poor to meet these pressing short-term needs. Instead, churches should get into the short-term loan business and use the very modest profits they might make from low interest rates to help fund other relief efforts, like soup kitchens, and put these predatory lenders out of business with competition.

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4 Responses to “Usury, interest rates and the poor”


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    • Hi. Sorry to take so long to respond to your comment. I have suspended activity on this blog because I am very active on another blog and I find I can’t faithfully maintain both.

      As for starting a blog, I would go to WordPress.com and just follow their instructions. That’s what I did. I’m pretty familiar with computers, but no whiz. I think you will find it pretty straightforward. Good luck!

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