Usury

• Author: Jeffrey Lehman, Shirelle Phelps

Page 187

The crime of charging higher interest on a loan than the law permits.

State laws set the maximum amount of interest that can be charged for a loan of money. A lender that charges higher than the maximum amount of interest is guilty of the crime of usury. In addition, courts may modify contracts that contain usurious rates of interest by reducing the interest to the legal maximum.

The charging of excessive interest in exchange for a monetary loan has been considered reprehensible from the earliest times. Chinese and Hindu law prohibited it, while the Athenians scorned persons who charged more than a moderate rate of interest for a loan. The Romans at one time abolished the practice of charging interest. Although they later revived it, the rates were strictly regulated.

During the Middle Ages in western Europe, the Catholic Church censured usurers, and when they died, the Crown confiscated their lands and property. In England, until the thirteenth century charging any interest was defined as usury. As commerce and trade increased, however, the demand for credit grew, and usury was redefined to mean exorbitant interest rates. In 1545 the English Parliament set a legal maximum interest rate. Charging higher interest constituted usury.

The United States followed the English practice, as states passed laws that set maximum legal interest rates. Rate restrictions vary from state to state, and different limits are set for different kinds of loans. For example, higher interest rates are usually allowed on consumer loans than on home mortgages. Some states do not restrict the interest rates that corporations can be charged under the assumption that corporations have sufficient bargaining power and business sense to negotiate a fair rate independently.

Restrictions on legal interest rates apply to banks, consumer loan companies, and other businesses that extend credit. Loan agreements between private individuals are also governed by state usury laws. For example, if a person agrees to lend a friend $5,000, the interest rate cannot exceed the maximum set by the state usury statute. Persons who charge excess interest and then threaten EXTORTION are known as loan sharks. They may be prosecuted for usury and, if convicted, fined and possibly imprisoned. The persons who typically borrow from a loan shark are those who cannot qualify for...