Usury involves the practice of making high interest loans which take advantage of the borrower. They are unfair loans that unjustly enrich the lender. Throughout history, these type loans have been deemed to be unethical or immoral. The Bible itself condemns taking interest from the poor. Exodus 22:25
History of Usurious Loans
In the early days of our nation, usurious loans were illegal. Most states had laws that set a limit on interest at 6%. But in the early 1900s, a move towards “deregulation” caused many states to weaken or do away all together with usury laws. By the middle of the 20th century, many states had adopted loan laws capping the interest rate at 36%. This was a high rate but at least state caps existed.
Unfortunately, by the late 20th century, through a series of court opinions and legislative changes virtually all state usury laws were preempted and essentially eliminated by the federal government. Predatory and subprime lenders grew their business at a rapid pace and many middle class and poor citizens got caught with debt burdens that they simply couldn’t handle. Facing the prospect of being unable to pay their bills, many people faced foreclosure on their homes, garnishment of their wages or repossession of their vehicle. With little other option, people turned to bankruptcy and consumer filings grew dramatically. Then, in 2005, the lending industry convinced congress to toughen the bankruptcy laws and many people felt as if they had no option whatsoever.
Not surprisingly, and shortly thereafter, the United States entered into a period of general economic decline so significant that it became known as the Great Recession. We experienced a period of general economic decline that many economists deemed to be the worst recession since the Great Depression in the 1930s.
Somewhat miraculously, and following a bail out of some of the financial institutions many believe contributed in large part to the financial downturn, our country experienced a gradual healing and unemployment figures decreased from a high of 10% in October of 2009 to under 5% by January of 2016.
So people are now back to work. But as a bankruptcy attorney, I can tell you that middle and low income consumers are still hurting. Many are trapped by high interest loans which I believe are designed to keep from ever being paid off. Despite efforts by some, the payday loan industry still thrives in my home state of Alabama and elsewhere.
Payday loans (also called “cash advance loans”) are offered at thousands of location across the country and appear to offer a solution to a consumer unable to pay her bills. You go into one of these businesses and walk out half an hour later with $300 in your pocket to pay that week’s necessary bills. Then, on your next payday, you report back to repay the $300 but now owe another $35 or so in interest. The problem is that if you didn’t have $300 the week before, you now likely don’t have $335. So you just pay the interest week after week. Or worse yet, you take out another loan from the payday lender down the street and pile up yet more debt you will never be able to pay off. This is like being on a treadmill that keeps going faster and faster. People find themselves in a cycle of debt that they can’t escape often leading to anxiety, family problems and substance abuse.
So I say, THERE OUGHT TO BE A LAW! It is time for our elected officials to recognize high interest predatory lenders for what they are. Their practices are immoral and unethical. Throughout history, governments have sustained laws, supported and often endorsed by religious leaders to limit interest rates that can be charged to consumer debtors. We must do so again. It is the right thing to do.