What is usury? What are usury laws and usury rates? Can credit cards be usury? Where is the line between simply making money by charging interest and being usurious? Should there even be a line? What does the Bible say about usury and interest? Is there a technical definition of usury? Let’s take a look at all of these questions and more in this comprehensive guide to usury and interest and then please weigh in with your thoughts in the comments below.
The definition of usury has changed over time. In the past, the meaning of usury was interchangeable with the meaning of interest. Any type of interest charged was the exact same as usury (i.e. fees had to be paid to “use” money). However, this usury definition has morphed over the years to now arrive at the modern day definition of usury which is essentially that usury is an excessive or unlawful rate of interest.
State Usury Laws
In the United States usury is regulated at the state level. State usury laws vary from state to state with regulations sometimes differing wildly from one state to another. For example, in Alabama the general usury rate is only 8% while in Colorado it is a whopping 45%! (Source)
Usury law is also quite complex with many different exceptions and issues with entity classification. For example, in the state of Texas many payday loan lenders skirt the Texas usury laws by registering themselves as Credit Service Organizations (CSO’s) that are then not regulated by the Texas Office of Consumer Credit Commission (OCCC).
Are you subject to your state’s usury laws even if you just want to lend someone a couple hundred bucks? Yes. This is not legal advice of course as you should seek out guidance from a qualified usury law attorney with experience in cases dealing with usury law in your state but it is my understanding that even small person to person loans are subject to state usury laws (whether they would actually be enforced is another matter altogether).
Credit Card Usury?
When it comes to credit cards and usury laws or other bank products and state usury laws you should be very aware of one very important caveat to the state usury laws: banks, credit unions, credit card companies, and savings & loan institutions are all exempt from adhering to state usury laws in the state that they offer their products in as they must adhere to only the usury laws of the state that they are domiciled in (1978 Supreme Court decision Marquette National Bank v. First of Omaha Service Corp.).
What this means is that if your credit card issuer is headquartered in Delaware and you are a resident of California then the California usury laws will not apply to credit card products marketed by your Delaware domiciled credit card company even though they are being offered to you as a California resident.
This is why many credit card companies will quite naturally seek out home states with very liberal usury laws so that they can “export” those higher interest rates into states with much more restrictive usury laws. Which in turn brings us financial products like the First Premier credit card with the startling 79.99% interest rate!
This means that it is all the more important to shop around and compare credit cards to find the card that is best for you:
Should there be Usury Laws?
Should usury laws even exist? Here are some of the things that you will hear from both usury law critics and usury law champions.
Arguments AGAINST Usury Laws
Critics of usury laws point out that high interest rates compensate for the high risk inherent in lending money to those with bad credit who have a good chance of defaulting on their debts and never paying back a dime.
Critics also point out that no one is forcing people with bad credit to apply for a high interest rate loan and people can decide of their own free volition where they would like to apply for a loan if at all.
Critics of the usury laws believe that there is technically no such thing as an unjust rate of interest absent some form of collusion because in a perfectly free and unfettered market then competition will drive down interest rates to the lowest point that the given credit risk will be able to bear (i.e. if Amscot charges 90% interest on a payday loan then Cash America could charge only 80% interest to garner more market share and Billy Bob’s Payday Loans may end up only charging 70% interest and steal even more market share from Amscot which in theory would force Amscot to lower its interest rates or offer some other type of incentive to get more customers if it wanted to be able to compete with Cash America and Billy Bob which would in turn force Billy Bob and Cash America to lower its rates or do other things to get those same customers business, etc. etc. ad nauseum).
Arguments FOR Usury Laws
Those in favor of usury laws say that consumers need proper safeguards against excessive rates of interest because high interest rates and fees creates a debt cycle that is very difficult for those who are a part of to get free from.
Those in defense of usury laws believe that the principles of personal freedom and personal responsibility can still be maintained while having usury laws because enacting legislation to protect consumers from high rates of interest is similar to already existing laws that protect consumers from any other number of things like drunk driving, lead paint, etc.
Those defending usury laws also point out that in many neighborhoods it is difficult for the free markets to perfectly function because there may only be one or two local lenders and there is not enough robust competition to drive down interest rates to the market equilibrium.
The Bible and Usury
Most people already know that the religion of Islam prohibits any type of interest but what is not as well known is that the Bible also has some guidelines that deal with interest and usury. Some of the relevant Biblical verses that deal with usury and interest include:
“If thou lend money to any of my people that is poor by thee, thou shalt not be to him as an usurer, neither shalt thou lay upon him usury.” - Exodus 22:25 (KJV)
“Take thou no usury of him, or increase: but fear thy God; that thy brother may live with thee. Thou shalt not give him thy money upon usury, nor lend him thy victuals for increase.” – Leviticus 25:36,37 (KJV)
“Thou shalt not lend upon usury to thy brother; usury of money, usury of victuals, usury of any thing that is lent upon usury: Unto a stranger thou mayest lend upon usury; but unto thy brother thou shalt not lend upon usury: that the LORD thy God may bless thee in all that thou settest thine hand to in the land whither thou goest to possess it.” – Deuteronomy 23:19,20 (KJV)
While the above verses are all Old Testament Bible verses the New Testament parable of the nobleman who entrusts some of his money to his servants while he is away (referring to Jesus entrusting Christians with all of the things that God has given them and admonishing Christians to act as wise stewards of all that God has given them) offers some helpful insight regarding usury and interest:
“Finally the master said to him ‘Why then didn’t you put my money on deposit, so that when I came back, I could have collected it with interest?’” – Luke 19:23 (KJV)
“Thou oughtest therefore to have put my money to the exchangers, and then at my coming I should have received mine own with usury” – Matthew 25:27 (KJV)
Many Christians believe that the Bible teaches to give freely to those in need without asking for anything in return while also being good stewards with their money and practicing smart business practices of which interest and lending is certainly a part.
Questions for YOU
Do you believe that usury laws are a good thing?
What is your definition of usury (i.e. where do you draw the line between “fair” interest and “unfair” interest?)
What do you believe the Biblical/Christian approach to usury and interest should be?
NOTE: As always, be a smart and informed consumer by shopping and comparing the interest rates and other features of any credit cards you are considering before submitting an application.
- What is the highest credit card interest rate allowed by law?
- Where can I find local credit card companies in my area?
- Are there laws capping credit card interest rates?
- How do you find the cheapest credit card rates?
- What is the best small business credit card?
- Will regulators ever cap credit card rates?