I chanced across a blog post on usury a couple weeks ago that is the best explanation I’ve ever read of it. It turns out, usury-a major sin for Catholics-is almost completely misunderstood by most people in the modern world.
If you have a bit of time, the original article is hard to beat. I’ll do my best to sum it up in under 1500 words.
Why Does Usury Matter?
This is a good place to start. It matters because something that has been denounced for centuries is worth investigating, even if one is not a follower of a particular group or faith. Ideas come and go, but those that are useful to a functioning society tend to stick around longer. Those who are interested in the rising inequality between the rich and the poor should also look into how usury may affect this. Finally, if usury is morally and materially detrimental to its victims, it is important to learn how to avoid being the victim of it.
What Usury Is Not
Let’s start here. I’ve seen usury defined incorrectly as “charging a high rate of interest” on loans. This is not usury, although it is often an unjust action. A used car salesman who sells a vehicle at a 40% interest rate is not being usurious, although such an act generally is greedy and deceptive. (There is a way that used car dealers can be usurious, but we’ll look at that later) These sorts of loans are often called “non-recourse”.
Defining Usury in Simple Terms
Usury is charging interest on lending that which is consumed in its use. Let’s break that down a little.
If I borrow money from a credit card company, I consume that money when I use it: I can’t pay for something and still have my money. On the other hand, if I take a loan out against a house, the house is not consumed in its use, and it is not usury for a bank or lender to charge interest.
A better way to say it is this: if a person fails to repay a loan, and the result is that the lender can seek repayment from the person himself, it is usurious. This is opposed to a home mortgage, for instance, where a bank would typically reclaim the home (which has not been consumed by the borrower).
The small (but important) difference is here: in the usurious case, a person is being loaned money itself. In the case of a non usurious loan, the person is co-owning an asset with another party, and paying a rent for the continued use of the asset. In the case of a conventional home loan, for instance, the home buyer begins with a 20% down payment, making them co-owners with the bank of their home (this is not how home ownership is explained by real estate agents!). The bank charges interest, which essentially is the price the buyers pay to be able to live in that house while they pay it off fully.
Both the home buyers and the bank have a mutual end goal: the sustaining of a capital asset. When collateral is involved, and recovery of the collateral will close the contract, the loan is probably not usurious.
But when a credit card company loans money to an individual, that money is consumed (generally towards consumer “goods”). These loans have no specific collateral, and debt collectors can go after a person’s future work…essentially putting them into debt slavery. This is one reason why lenders are so prevalent among military communities: they know they can seek action against borrowers who don’t repay and that the government will dock their pay until they are repaid in full (various laws have been written in recent years to combat this).
The Effects of Usury
This is most easily seen in an area where usury has touched a great deal of the population: student loans.
Yes, student loans are usurious. The insane rise in the cost of college is a direct result of decades of usurious loans, which have created money out of thin air (no collateral). Student loans cannot be dismissed in bankruptcy, and the lender can’t just take the collateral and close the contract. To be clear, from my understanding, they are only usurious if there is interest charged onto the payment, but even a small interest rate (1%) is usurious in this case.
Usury is the charging of interest on loans that are full recourse, where collateral does not exist that can be taken by the borrower to close the loan. It has serious effects on the economy and increases the gap between the rich and the poor, and it is understood by very few people. I may write more on this later this week, but in the meantime, curious readers should read St Thomas Aquinas’ careful treatment of usury from the Summa Theologiae, and also check out the original link I mentioned from Zippy Catholic, which has a lot of FAQ’s about this.
P.S. Platforms like Maker, Salt, and Lendroid offer non-recourse loans against your cryptocurrency. Another reason to be excited about the blockchain: it offers non usurious loan options!
Interested in optimizing your Steem experience? Do you want to learn more about the Steem blockchain and how Steemit works? Click my logo below for a deep dive on Steem: