Rethinking Usury Laws
| Author | Reginald Heber Smith |
| DOI | 10.1177/000271623819600127 |
| Published date | 01 March 1938 |
| Date | 01 March 1938 |
| Subject Matter | Articles |
189
Rethinking
Usury
Laws
By
REGINALD
HEBER
SMITH
FEW
words
in
the
English
language
i.
arouse
such
emotional
reactions
as
the
short
word
usury.
It
arouses
in-
stinctive
prejudices
whose
roots
go
far
back
in
history,
with
connotations
that
involve
religious,
racial,
economic,
and
social
factors.
WHAT
Is
USURY?
Most
of
us
believe
that
we
know
exactly
what
usury
is
and
why
we
condemn
it.
Most
of
us,
in
fact,
are
exactly
wrong
and
our
condemnation
is
based
on
false
premises.
It
is
impor-
tant
to
re6xamine
this
subject
because
only
twenty-five
years
ago
there
was
a
new
economic
development
in
our
coun-
try
that
could
be
solved,
and
was
solved,
only
by
straight
thinking
about
usury,
and
today
another
development
is
taking
place
which
gives
rise
to
the
same
challenge.
Usury
in
the
United
States
is
the
tak-
ing
of
a
greater
rate
of interest
on
a
loan
of
money
than
the
law
allows.
If
in
State
A
the
law
allows
interest
of
6
per
cent,
then
a
lender
who
charges
7
per
cent
is
a
usurer.
If
in
State
B
the
law
allows
interest
of
10
per
cent,
then
a
lender
who
charges
9
per
cent
is
not
a
usurer.
How
can
it
be
that
a
lender
who
charges
9
per
cent
is
a
law-abiding
citi-
zen
and
one
who
charges
7
per
cent
is
a
hated
usurer?
That
simple
question
can
never
be
answered
unless
we
are
will-
ing
to
cast
aside
preconceived
ideas
and
dispassionately
examine
what
usury
is.
LEGAL
VS.
MORAL
USURY
There
are
two
kinds
of
usury:
legal
usury
and
moral
usury.
Legal
usury
is
simply
charging
more
interest
for
a
loan
of
money
than
the
law
allows.
If
the
statute
says
1
per
cent
per
annum,
then
a
loan
at 2
per
cent
is
usurious.
People
were
shocked
when
in
1915
the
Comp-
troller
of
the
Currency
stated
that
more
than
one-third
of
the
national
banks
of
the
United
States
had
been
exacting
usurious
rates
of
interest.
By
that
he
meant
legal
usury.
Probably
not
a
single
loan
transaction
was
immoral.
Moral
usury
means
to
take
advantage
of the
necessity
of
the
borrower
in
order
to
extract unconscionable interestfrom him.
The
men
whose
studies
of
usury
are
now
accepted
as
authoritative-Ben-
tham
in
England,
Turgot
in
France,
and
Dana
in
Massachusetts-came
to
the
same
conclusion,
that
rates
of
inter-
est
depend
upon
the
condition
of
supply
and
demand
in
the
money
market
and
that
the
attempt
to
regulate
it
by
law
is
futile.
England,
France,
and
Massa-
chusetts
repealed
their
general
usury
statutes.
So
did
a
few
other
jurisdic-
tions,
but
the
great
majority
of
the
American
states
steadfastly
refused
to
do
so.
In
the
twentieth
century,
as
other
articles
in
this
volume
have
shown,
the
demand
for
small
loans-loans
of
one
hundred
dollars
or
fifty
dollars,
or
even
less-began
to
grow
enormously.
It
was
an
utter
economic
impossibility
to
make
such
loans
at
the
legal
rate
(usu-
ally
6
per
cent
per
annum).
The
lender
who
charged
7
per
cent
per
an-
num
was
as
guilty
as
one
who
charged
7
per
cent
per
month.
As
one
might
as
well
be
hanged
for
stealing
a
sheep
as
a
lamb,
the
lenders
who
had
to
operate
outside
the
pale
of
the
law,
or
go
bank-
rupt,
charged
all
the
traffic
could
bear,
and
this,
quite
commonly,
was
240
per
cent
per
year.
As
such
loans
were
il-
legal,
they
could
not
be
collected
by
the
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