What is Usury?
Usury is the practice of charging high or prohibitive interest rates by unscrupulous lenders to primarily poor borrowers.
It is considered part of predatory lending and is illegal in most societies.
Origin of Usury
The roots of usury can be traced back to approximately four thousand years, when economic systems began to be developed across various societies around the world.
While borrowing and lending were considered essential economic functions, the practice of charging high or socially unacceptable interest rates for an inequitable transaction was banned.
Religious views on Usury
Most religions in the world have injunctions against usury.
The Bible discusses usury as a sin of avarice and commends the just man “who does not put out his money at interest”.
Judaism has laws against charging interest to followers of the Jewish faith.
Islam prohibits Riba – charged interest on loans and investments.
Ancient Hindu societies had laws banning charging of high interest rates by high castes and Buddhist religious tales criticize those who profit off the misery of others.
In modern times, institutions like the Federal Reserve and governments regulate interest rates.
For example, the former influences overall rates by setting a federal funds rate at which banks and other lending institutions may borrow from it.
State legislators enact statutes that set interest rate caps for various kinds of loans and penalize unethical lenders.
For example, the median rate cap for a $500, six-month installment loan in 45 states and the District of Columbia was 38.5% in 2020.
Laws against usury are meant to protect consumers from predatory lenders, defined by the Federal Deposit Insurance Corporation (FDIC) as those who impose “unfair and abusive loan terms on borrowers.”
They are also generally used in the context of “payday loans” which are generally short-term and unsecured loans with high interest rates.