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Usury () is the practice of making unethical or immoral monetary
loan In finance Finance is the study of financial institutions, financial markets and how they operate within the financial system. It is concerned with the creation and management of money and investments. Savers and investors have money avai ...
s that unfairly enrich the lender. The term may be used in a moral sense—condemning, taking advantage of others' misfortunes—or in a legal sense, where an interest rate is charged in excess of the maximum rate that is allowed by law. A loan may be considered usurious because of excessive or abusive
interest rate An interest rate is the amount of interest In finance Finance is the study of financial institutions, financial markets and how they operate within the financial system. It is concerned with the creation and management of money and investm ...
s or other factors defined by the laws of a state. Someone who practices usury can be called an ''usurer'', but in modern colloquial English may be called a ''
loan shark A loan shark is a person who offers loan In finance Finance is the study of financial institutions, financial markets and how they operate within the financial system. It is concerned with the creation and management of money and inv ...
''. In many historical societies including ancient Christian, Jewish, and Islamic societies, usury meant the charging of
interest In and , interest is payment from a or deposit-taking financial institution to a or depositor of an amount above repayment of the (that is, the amount borrowed), at a particular rate. It is distinct from a which the borrower may pay the len ...

interest
of any kind was considered wrong, or was made illegal. During the Sutra period in India (7th to 2nd centuries BC) there were laws prohibiting the highest castes from practicing usury. Similar condemnations are found in religious texts from Buddhism, Judaism (''
ribbit Ribbit may refer to: * Onomatopoeia for the sound that a frog A frog is any member of a diverse and largely Carnivore, carnivorous group of short-bodied, tailless amphibians composing the order (biology), order Anura (literally ''without tail' ...
'' in
Hebrew Hebrew (, , or ) is a Northwest Semitic languages, Northwest Semitic language of the Afroasiatic languages, Afroasiatic language family. Historically, it is regarded as the language of the Israelites, Judeans and their ancestors. It is the o ...
), Christianity, and Islam (''
riba The Royal Institute of British Architects (RIBA) is a professional body Regulatory colleges are legal entities in Canada charged with serving the public interest by regulating the practice of a profession. Most regulatory colleges are establ ...
'' in
Arabic Arabic (, ' or , ' or ) is a Semitic language The Semitic languages are a branch of the Afroasiatic language family originating in the Middle East The Middle East is a list of transcontinental countries, transcontinental region ...

Arabic
). At times, many states from
ancient Greece Ancient Greece ( el, Ἑλλάς, Hellás) was a civilization belonging to a period of History of Greece, Greek history from the Greek Dark Ages of the 12th–9th centuries BC to the end of Classical Antiquity, antiquity ( AD 600). This era wa ...
to
ancient Rome In historiography Historiography is the study of the methods of historian ( 484– 425 BC) was a Greek historian who lived in the 5th century BC and one of the earliest historians whose work survives. A historian is a person who stud ...
have outlawed loans with any interest. Though the
Roman Empire The Roman Empire ( la, Imperium Rōmānum ; grc-gre, Βασιλεία τῶν Ῥωμαίων, Basileía tôn Rhōmaíōn) was the post-Republican Republican can refer to: Political ideology * An advocate of a republic, a type of governme ...

Roman Empire
eventually allowed loans with carefully restricted interest rates, the
Catholic Church The Catholic Church, also known as the Roman Catholic Church, is the List of Christian denominations by number of members, largest Christian church, with 1.3 billion baptised Catholics Catholic Church by country, worldwide . As the wo ...

Catholic Church
in medieval Europe, as well as the Reformed Churches, regarded the charging of interest at any rate as sinful (as well as charging a fee for the use of money, such as at a
bureau de change A bureau de change (plural bureaux de change, both ) ( British English) or currency exchange (American English American English (AmE, AE, AmEng, USEng, en-US), sometimes called United States English or U.S. English, is the set of varieties ...
). Religious prohibitions on usury are predicated upon the belief that charging interest on a loan is a sin.


History

Usury (in the original sense of any interest) was denounced by religious leaders and philosophers in the ancient world, including
Moses Moses he, מֹשֶׁה, ''Mōše''; also known as Moshe Rabbenu ( he, מֹשֶׁה רַבֵּנוּ "Moshe our Teacher"); syr, ܡܘܫܐ, ''Mūše''; ar, موسى '; el, Mωϋσῆς, ' () is considered the most important prophet in Judais ...

Moses
,
Plato Plato ( ; grc-gre, wikt:Πλάτων, Πλάτων ; 428/427 or 424/423 – 348/347 BC) was an Classical Athens, Athenian philosopher during the Classical Greece, Classical period in Ancient Greece, founder of the Platonist school of thoug ...

Plato
,
Aristotle Aristotle (; grc-gre, Ἀριστοτέλης ''Aristotélēs'', ; 384–322 BC) was a Greek philosopher A philosopher is someone who practices philosophy Philosophy (from , ) is the study of general and fundamental quest ...

Aristotle
,
Cato Cato typically refers to either Cato the Elder or Cato the Younger, both of the Porcii Catones family of Rome. It may also refer to any of the following: People Romans, in the family Porcii Catones * Cato the Elder (Cato Maior) or "the Censor" ...
,
Cicero Marcus Tullius Cicero ( ; ; 3 January 106 BC – 7 December 43 BC) was a Roman Roman or Romans usually refers to: *Rome, the capital city of Italy *Ancient Rome, Roman civilization from 8th century BC to 5th century AD *Roman people ...

Cicero
,
Seneca Seneca may refer to: People and language *Seneca (name), a list of people with either the given name or surname *Seneca the Elder, a Roman rhetorician, writer and father of the stoic philosopher Seneca the Younger *Seneca the Younger, a Roman Stoi ...
,
Aquinas Thomas Aquinas (; it, Tommaso d'Aquino, lit=Thomas of Aquino; 1225 – 7 March 1274) was an Italian Dominican Order, Dominican friar, Philosophy, philosopher, Catholic priest, and Doctor of the Church. An immensely influential List of Cathol ...

Aquinas
,
Gautama Buddha Gautama Buddha, popularly known as the Buddha (also known as Siddhattha Gotama or Siddhārtha Gautama or Buddha Shakyamuni), was an , a religious leader and teacher who lived in (c. 6th to 5th century BCE or c. 5th to 4th century BCE). He ...

Gautama Buddha
and
Muhammad Muhammad ibn AbdullahHe is referred to by many appellations, including Messenger of Allah, The Prophet Muhammad, Allah's Apostle, Last Prophet of Islam, and others; there are also many variant spellings of Muhammad, such as Mohamet, Mohammed, ...

Muhammad
. Certain negative historical renditions of usury carry with them social connotations of perceived "unjust" or "discriminatory" lending practices. The historian
Paul JohnsonPaul Johnson may refer to: Musicians *Paul Johnson (producer) (1971–2021), American producer and DJ *Paul Johnson (singer), British soul singer of the 1980s *Paul Johnson (guitarist), American *Paul Francis Johnson, Australian bassist, frontman o ...
, comments: Theological historian John Noonan argues that "the doctrine f usurywas enunciated by popes, expressed by three ecumenical councils, proclaimed by bishops, and taught unanimously by theologians."


Roman Empire

Banking A bank is a financial institution Financial institutions, otherwise known as banking institutions, are corporation A corporation is an organization—usually a group of people or a company—authorized by the State (polity), stat ...

Banking
during the
Roman Empire The Roman Empire ( la, Imperium Rōmānum ; grc-gre, Βασιλεία τῶν Ῥωμαίων, Basileía tôn Rhōmaíōn) was the post-Republican Republican can refer to: Political ideology * An advocate of a republic, a type of governme ...

Roman Empire
was different from modern banking. During the
Principate The Principate is the name sometimes given to the first period of the Roman Empire The Roman Empire ( la, Imperium Rōmānum ; grc-gre, Βασιλεία τῶν Ῥωμαίων, Basileía tôn Rhōmaíōn) was the post-Republican Republ ...
period, most banking activities were conducted by private individuals who operated as large banking firms do today. Anybody that had any available liquid assets and wished to lend it out could easily do so. The annual rates of interest on loans varied in the range of 4–12 percent, but when the interest rate was higher, it typically was not 15–16 percent but either 24 percent or 48 percent. They quoted them on a monthly basis, and the most common rates were multiples of twelve. Monthly rates tended to range from simple fractions to 3–4 percent, perhaps because lenders used
Roman numerals Roman numerals are a that originated in and remained the usual way of writing numbers throughout Europe well into the . Numbers in this system are represented by combinations of letters from the . Modern style uses seven symbols, each with a ...
. Moneylending during this period was largely a matter of private loans advanced to persons persistently in debt or temporarily so until harvest time. Mostly, it was undertaken by exceedingly rich men prepared to take on a high risk if the profit looked good; interest rates were fixed privately and were almost entirely unrestricted by law. Investment was always regarded as a matter of seeking personal profit, often on a large scale. Banking was of the small, back-street variety, run by the urban lower-middle class of petty shopkeepers. By the 3rd century, acute currency problems in the Empire drove such banking into decline. The rich who were in a position to take advantage of the situation became the moneylenders when the increasing tax demands in the last declining days of the Empire crippled and eventually destroyed the peasant class by reducing tenant-farmers to
serfs Serfdom was the status of many peasants under feudalism, specifically relating to manorialism, and similar systems. It was a condition of debt bondage and indentured servitude with similarities to and differences from slavery, which developed ...
. It was evident that usury meant
exploitation Exploitation may refer to: *Exploitation of natural resources *Exploitation of labour *Exploitation fiction *Exploitation film *Exploitation (film), ''Exploitation'' (film), a 2012 film *Sexual slavery and other forms of slavery *Oppression See al ...
of the poor.
Cicero Marcus Tullius Cicero ( ; ; 3 January 106 BC – 7 December 43 BC) was a Roman Roman or Romans usually refers to: *Rome, the capital city of Italy *Ancient Rome, Roman civilization from 8th century BC to 5th century AD *Roman people ...

Cicero
, in the second book of his treatise ''
De Officiis ''De Officiis'' (''On Duties'' or ''On Obligations'') is a 44 BC treatise by Marcus Tullius Cicero Marcus Tullius Cicero ( ; ; 3 January 106 – 7 December 43 BC) was a Roman statesman, lawyer, scholar, philosopher and Academic Sk ...
'', relates the following conversation between an unnamed questioner and
Cato Cato typically refers to either Cato the Elder or Cato the Younger, both of the Porcii Catones family of Rome. It may also refer to any of the following: People Romans, in the family Porcii Catones * Cato the Elder (Cato Maior) or "the Censor" ...
:


Judaism

Jews are forbidden from usury in dealing with fellow Jews, although not exclusively. Lending is to be considered
tzedakah ''Tzedakah'' or ''Ṣedaqah'' ( he, צדקה ) is a Hebrew word meaning "righteousness", but commonly used to signify '. This concept of "charity" differs from the modern Western understanding of "charity." The latter is typically understood as ...
. However, there are permissions to charge interest on loans to , restricted to cases when there is no other means of subsistence "If we nowadays allow interest to be taken from non-Jews, it is because there is no end to the yoke and the burden king and ministers impose on us, and everything we take is the minimum for our subsistence, and anyhow we are condemned to live in the midst of the
nations A nation is a community A community is a social unitThe term "level of analysis" is used in the social sciences to point to the location, size, or scale of a research target. "Level of analysis" is distinct from the term " unit of observation ...
and cannot earn our living in any other manner except by money dealings with them; therefore the taking of interest is not to be prohibited" (Tos. to BM 70b S.V. tashikh). This is outlined in the
Jewish Jews ( he, יְהוּדִים ISO 259-2ISO The International Organization for Standardization (ISO; ) is an international standard are technical standards developed by international organizations (intergovernmental organizations), suc ...

Jewish
scripture Religious texts, also known as scripture, scriptures, holy writ, or holy books, are the texts which various religious traditions consider to be sacred Sacred describes something that is dedicated or set apart for the service or worship of ...
s, specifically in the
Torah The Torah (; he, תּוֹרָה, "Instruction", "Teaching" or "Law") includes the first five books of the Hebrew Bible The Hebrew Bible or Tanakh (; : , or ), is the of scriptures, including the , the , and the . These texts are a ...

Torah
: Johnson contends that the Torah treats lending as
philanthropy Philanthropy consists of "private initiatives, for the public good, focusing on quality of life Quality of life (QOL) is defined by the World Health Organization The World Health Organization (WHO) is a list of specialized agencies of the ...

philanthropy
in a poor community whose aim was collective survival, but which is not obliged to be charitable towards outsiders. As Jewish people were ostracized from most professions by local rulers during the Middle Ages, the Western churches and the
guild A guild is an association of artisan Wood carver in Bali An artisan (from french: artisan, it, artigiano) is a skilled craft worker who makes or creates material objects partly or entirely by hand. These objects may be functional ...
s, they were pushed into marginal occupations considered socially inferior, such as
tax A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal entity In law Law is a system A system is a group of Interaction, interacting or interrelated elements that act accord ...
and
rent ''Rent'' (stylized as ''RENT'') is a rock musical with music, lyrics, and book by Jonathan Larson Jonathan David Larson (February 4, 1960 – January 25, 1996) was an American composer and playwright noted for exploring the social issues ...
collecting and moneylending. Natural tensions between creditors and debtors were added to social, political, religious, and economic strains. Several historical rulings in
Jewish law ''Halakha'' (; he, הֲלָכָה, ), also transliterated Transliteration is a type of conversion of a text from one script to another that involves swapping letters (thus '' trans-'' + '' liter-'') in predictable ways, such as Greek → ...
have mitigated the allowances for usury toward non-Jews. For instance, the 15th-century commentator Rabbi Isaac Abarbanel specified that the rubric for allowing interest does not apply to Christians or Muslims, because their faith systems have a common ethical basis originating from Judaism. The medieval commentator Rabbi David Kimhi extended this principle to non-Jews who show consideration for Jews, saying they should be treated with the same consideration when they borrow.


England

In England, the departing
Crusaders The Crusades were a series of religious wars initiated, supported, and sometimes directed by the Latin Church in the medieval period. The term refers especially to the Eastern Mediterranean campaigns in the period between 1095 and 1271 that h ...

Crusaders
were joined by crowds of debtors in the massacres of Jews at London and York in 1189–1190. In 1275,
Edward I of England Edward I (17/18 June 1239 – 7 July 1307), also known as Edward Longshanks and the Hammer of the Scots ( la, Malleus Scotorum), was King of England This list of kings and queens of the begins with , who initially ruled , one of th ...

Edward I of England
passed the Statute of the Jewry which made usury illegal and linked it to
blasphemy Blasphemy is an insult that shows contempt, disrespect, or lack of reverence concerning a deity A deity or god is a supernatural being considered divinity, divine or sacred. The ''Oxford Dictionary of English'' defines deity as "a God (male de ...
, in order to seize the assets of the violators. Scores of English Jews were arrested, 300 were hanged and their property went to
the Crown The Crown is the state State may refer to: Arts, entertainment, and media Literature * ''State Magazine'', a monthly magazine published by the U.S. Department of State * The State (newspaper), ''The State'' (newspaper), a daily newspaper i ...

the Crown
. In 1290, all Jews were to be expelled from England, allowed to take only what they could carry; the rest of their property became the Crown's. Usury was cited as the official reason for the
Edict of Expulsion The Edict of Expulsion was a royal decree issued by King Edward I of England Edward I (17/18 June 1239 – 7 July 1307), also known as Edward Longshanks and the Hammer of the Scots ( la, Malleus Scotorum), was King of England from 1272 ...
; however, not all Jews were expelled: it was easy to avoid expulsion by converting to Christianity. Many other crowned heads of Europe expelled Jewish people, although again converts to Christianity were no longer considered Jewish. Many of these forced converts still secretly practiced their faith. The growth of the Lombard bankers and
pawnbroker A pawnbroker is an individual or business (pawnshop or pawn shop) that offers secured loans to people, with items of personal property used as Collateral (finance), collateral. The items having been ''pawned'' to the broker are themselves c ...
s, who moved from city to city, was along the
pilgrim A pilgrim (from the Latin Latin (, or , ) is a classical language belonging to the Italic branch of the Indo-European languages. Latin was originally spoken in the area around Rome, known as Latium. Through the power of the Roman Rep ...

pilgrim
routes. In the 16th century, short-term interest rates dropped dramatically (from around 20–30% p.a. to around 9–10% p.a.). This was caused by refined commercial techniques, increased capital availability, the
Reformation The Reformation (alternatively named the Protestant Reformation or the European Reformation) was a major movement within Western Christianity in Vatican City Vatican City (), officially the Vatican City State ( it, Stato della Cit ...

Reformation
, and other reasons. The lower rates weakened religious scruples about lending at interest, although the debate did not cease altogether. The 18th century papal prohibition on usury meant that it was a sin to charge interest on a money loan. As set forth by
Thomas Aquinas Thomas Aquinas (; it, Tommaso d'Aquino, lit=Thomas of Aquino, Italy, Aquino; 1225 – 7 March 1274) was an Italian Dominican Order, Dominican friar, Philosophy, philosopher, Catholic priest, and Doctor of the Church. An immensely influential ...

Thomas Aquinas
in the 13th century, because money was invented to be an intermediary in exchange for goods, it is unjust to charge a fee to someone after giving them money. This is because transferring ownership of property implies the right to use that property for its purpose: "Accordingly if a man wanted to sell wine separately from the use of the wine, he would be selling the same thing twice, or he would be selling what does not exist, wherefore he would evidently commit a sin of injustice."
Charles Eisenstein Charles Eisenstein (born 1967) is an American American(s) may refer to: * American, something of, from, or related to the United States of America, commonly known as the United States The United States of America (USA), commonly known a ...
has argued that pivotal change in the English-speaking world came with lawful rights to charge interest on lent money, particularly the 1545 Act, "An Act Against Usurie" ( 37 Hen. VIII, c. 9) of King
Henry VIII Henry VIII (28 June 149128 January 1547) was King of England from 22 April 1509 until his death in 1547. Henry is best known for Wives of Henry VIII, his six marriages, including his efforts to have his first marriage (to Catherine of Aragon ...

Henry VIII
of England.


Christianity


Bible

The
Old Testament The Old Testament (often abbreviated OT) is the first division of the Christian biblical canon A biblical canon or canon of scripture is a set of texts (or "books") which a particular Jewish or Christian religious community regards as aut ...
"condemns the practice of charging interest on a poor person because a loan should be an act of compassion and taking care of one’s neighbor"; it teaches that "making a profit off a loan from a poor person is exploiting that person (Exodus 22:25–27)."


Church councils

The
First Council of Nicaea The First Council of Nicaea (; grc, Νίκαια ) was a council of Christian bishops convened in the Bithynia Bithynia (; Koine Greek Koine Greek (, , Greek approximately ;. , , , lit. "Common Greek"), also known as Alexandrian dialec ...
, in 325, forbade
clergy Clergy are formal leaders within established s. Their roles and functions vary in different religious traditions, but usually involve presiding over specific rituals and teaching their religion's s and practices. Some of the terms used for ind ...
from engaging in usury At the time, usury was
interest In and , interest is payment from a or deposit-taking financial institution to a or depositor of an amount above repayment of the (that is, the amount borrowed), at a particular rate. It is distinct from a which the borrower may pay the len ...

interest
of any kind, and the canon forbade the clergy to lend money at interest rates even as low as 1 percent per year. Later
ecumenical council An ecumenical council (or oecumenical council; also general council) is a conference of ecclesiastical dignitaries and theological experts convened to discuss and settle matters of Church doctrine and practice in which those entitled to vote a ...
s applied this regulation to the
laity In religious organizations, the laity consists of all members who are not part of the clergy Clergy are formal leaders within established religions. Their roles and functions vary in different religious traditions, but usually involve presidin ...
.Noonan, John T., Jr. 1993. "Development of Moral Doctrine." 54 Theological Stud. 662. Lateran III decreed that persons who accepted interest on loans could receive neither the
sacrament A sacrament is a Christian Christians () are people who follow or adhere to Christianity, a monotheistic Abrahamic religion based on the life and teachings of Jesus in Christianity, Jesus Christ. The words ''Christ (title), Christ'' and ...
s nor Christian burial. The
Council of Vienne The Council of Vienne was the fifteenth ecumenical council of the Catholic Church The Catholic Church, often referred to as the Roman Catholic Church, is the List of Christian denominations by number of members, largest Christian churc ...
made the belief in the right to usury a
heresy Heresy is any belief or theory that is strongly at variance with established beliefs or customs, in particular the accepted beliefs of a church or religious organization. The term is usually used in reference to violations of important religi ...
in 1311, and condemned all secular legislation that allowed it. Up to the 16th century, usury was condemned by the Catholic Church, but not really defined. During the
Fifth Lateran Council The Fifth Council of the Lateran, held between 1512 and 1517, was the eighteenth ecumenical council of the Catholic Church The Catholic Church, often referred to as the Roman Catholic Church, is the List of Christian denominations by num ...
, in the 10th session (in the year 1515), the Council for the first time gave a definition of usury: The Fifth Lateran Council, in the same declaration, gave explicit approval of charging a fee for services ''so long as no profit was made'' in the case of
Mounts of Piety Mount is often used as part of the name of specific mountains, e.g. Mount Everest. Mount or Mounts may also refer to: Places * Mounts, Indiana, a community in Gibson County, Indiana, United States People * Mount (surname) * William L. Mounts ( ...
:
Pope Sixtus V Pope Sixtus V (13 December 1521 – 27 August 1590), born Felice Piergentile, was head of the Catholic Church The Catholic Church, also known as the Roman Catholic Church, is the , with 1.3 billion Catholics . As the world's old ...

Pope Sixtus V
condemned the practice of charging interest as "detestable to God and man, damned by the sacred canons, and contrary to Christian charity.


Medieval theology

The first of the scholastic Christian theologians,
Saint Anselm of Canterbury Anselm of Canterbury (; 1033/4–1109), also called ( it, Anselmo d'Aosta, link=no) after his birthplace and (french: Anselme du Bec, link=no) after his monastery A monastery is a building or complex of buildings comprising the domestic q ...
, led the shift in thought that labelled charging interest the same as theft. Previously usury had been seen as a lack of
charity Charity may refer to: Giving * Charitable organization or charity, a non-profit organization whose primary objectives are philanthropy and social well-being * Charity (practice), the practice of being benevolent, giving and sharing * Charity (virtu ...
. St.
Thomas Aquinas Thomas Aquinas (; it, Tommaso d'Aquino, lit=Thomas of Aquino, Italy, Aquino; 1225 – 7 March 1274) was an Italian Dominican Order, Dominican friar, Philosophy, philosopher, Catholic priest, and Doctor of the Church. An immensely influential ...

Thomas Aquinas
, the leading scholastic theologian of the
Roman Catholic Church The Catholic Church, also known as the Roman Catholic Church, is the largest Christian church, with 1.3 billion baptised Baptism (from the Greek language, Greek noun βάπτισμα ''báptisma'') is a Christians, Christian ...

Roman Catholic Church
, argued charging of interest is wrong because it amounts to "double charging", charging for both the thing and the use of the thing. Aquinas said this would be morally wrong in the same way as if one sold a bottle of wine, charged for the bottle of wine, and then charged for the person using the wine to actually drink it. Similarly, one cannot charge for a piece of cake and for the eating of the piece of cake. Yet this, said Aquinas, is what usury does. Money is a medium of exchange, and is used up when it is spent. To charge for the money and for its use (by spending) is therefore to charge for the money twice. It is also to sell time since the usurer charges, in effect, for the time that the money is in the hands of the borrower. Time, however, is not a commodity for which anyone can charge. In condemning usury Aquinas was much influenced by the recently rediscovered philosophical writings of
Aristotle Aristotle (; grc-gre, Ἀριστοτέλης ''Aristotélēs'', ; 384–322 BC) was a Greek philosopher A philosopher is someone who practices philosophy Philosophy (from , ) is the study of general and fundamental quest ...

Aristotle
and his desire to assimilate
Greek philosophy Ancient Greek philosophy arose in the 6th century BC, at a time when the inhabitants of ancient Greece were struggling to repel devastating invasions from the east. Greek philosophy continued throughout the Hellenistic period The Hellenistic p ...
with
Christian theology #REDIRECT Christian theology #REDIRECT Christian theology Christian theology is the theology of Christianity, Christian belief and practice. * help them better understand Christian tenets * make comparative religion, comparisons between Christia ...
. Aquinas argued that in the case of usury, as in other aspects of Christian revelation, Christian doctrine is reinforced by Aristotelian
natural law Natural law ( la, ius naturale, ''lex naturalis'') is a system of law based on a close observation of human nature Human nature is a concept that denotes the fundamental disposition A disposition is a quality of character, a habit A habit (or ...
rationalism. Aristotle's argument is that interest is unnatural, since money, as a sterile element, cannot naturally reproduce itself. Thus, usury conflicts with natural law just as it offends Christian revelation: see
Thought of Thomas Aquinas This article contains a selection of thoughts of Thomas Aquinas Thomas Aquinas (; it, Tommaso d'Aquino, lit=Thomas of Aquino, Italy, Aquino; 1225 – 7 March 1274) was an Italian Dominican Order, Dominican friar, Philosophy, philosopher, Cat ...
. As such, Aquinas taught "that interest is inherently unjust and one who charges interest sins." Outlawing usury did not prevent investment, but stipulated that in order for the investor to share in the profit he must share the risk. In short he must be a joint-venturer. Simply to invest the money and expect it to be returned regardless of the success of the venture was to make money simply by having money and not by taking any risk or by doing any work or by any effort or sacrifice at all, which is usury. St Thomas quotes Aristotle as saying that "to live by usury is exceedingly unnatural". Islam likewise condemns usury but allowed commerce (Al-Baqarah 2:275) – an alternative that suggests investment and sharing of profit and loss instead of sharing only profit through interests. Judaism condemns usury towards Jews, but allows it towards non-Jews (Deut 23:19–20). St Thomas allows, however, charges for actual services provided. Thus a banker or credit-lender could charge for such actual work or effort as he did carry out e.g. any fair administrative charges. The Catholic Church, in a decree of the
Fifth Council of the Lateran The Fifth Council of the Lateran, held between 1512 and 1517, was the eighteenth ecumenical council of the Catholic Church The Catholic Church, often referred to as the Roman Catholic Church, is the List of Christian denominations by num ...
, expressly allowed such charges in respect of credit-unions run for the benefit of the poor known as "
montes pietatis A mount of piety is an institutional pawnbroker A pawnbroker is an individual or business (pawnshop or pawn shop) that offers secured loans to people, with items of personal property used as collateral. The items having been ''pawned'' ...
". In the 13th century Cardinal Hostiensis enumerated thirteen situations in which charging interest was not immoral. The most important of these was ''lucrum cessans'' (profits given up) which allowed for the lender to charge interest "to compensate him for profit foregone in investing the money himself." This idea is very similar to opportunity cost. Many scholastic thinkers who argued for a ban on interest charges also argued for the legitimacy of ''lucrum cessans'' profits (e.g. Pierre Jean Olivi and St. Bernardino of Siena). However, Hostiensis' exceptions, including for ''lucrum cessans'', were never accepted as official by the Roman Catholic Church.
Pope Benedict XIV Pope Benedict XIV ( la, Benedictus XIV; 31 March 1675 – 3 May 1758), born Prospero Lorenzo Lambertini, was head of the Catholic Church The Catholic Church, also known as the Roman Catholic Church, is the largest Christian church ...

Pope Benedict XIV
's encyclical '' Vix Pervenit'', operating in the pre-industrial mindset , gives the reasons why usury is sinful:
The nature of the sin called usury has its proper place and origin in a loan contract…
hich Ij ( fa, ايج, also Romanize Romanization or romanisation, in linguistics Linguistics is the scientific study of language A language is a structured system of communication used by humans, including speech (spoken language), ge ...

hich
demands, by its very nature, that one return to another only as much as he has received. The sin rests on the fact that sometimes the creditor desires more than he has given…, but any gain which exceeds the amount he gave is illicit and usurious.

One cannot condone the sin of usury by arguing that the gain is not great or excessive, but rather moderate or small; neither can it be condoned by arguing that the borrower is rich; nor even by arguing that the money borrowed is not left idle, but is spent usefully…


15th through 19th century

The
Westminster Confession of Faith Westminster is a district in central London, central London, part of the wider City of Westminster. The area, which extends from the River Thames to Oxford Street has many Tourism in London, visitor attractions and historic landmarks, includin ...
, a confession of faith upheld by the
Reformed Church Calvinism (also called the Reformed tradition, Reformed Christianity, Reformed Protestantism, or the Reformed faith) is a major branch of Protestantism that follows the theological tradition and forms of Christianity, Christian practice set ...

Reformed Church
es, teaches that usury—charging interest at any rate—is a
sin In a religious Religion is a social system, social-cultural system of designated religious behaviour, behaviors and practices, morality, morals, beliefs, worldviews, religious text, texts, shrine, sanctified places, prophecy, prophecies, ...
prohibited by the . Concerns about usury included the 19th century Rothschild loans to the Holy See and 16th century concerns over abuse of the zinskauf clause. This was problematic because the charging of interest (although not all interest – see above for
Fifth Lateran Council The Fifth Council of the Lateran, held between 1512 and 1517, was the eighteenth ecumenical council of the Catholic Church The Catholic Church, often referred to as the Roman Catholic Church, is the List of Christian denominations by num ...
) can be argued to be a violation of doctrine at the time, such as that reflected in the 1745 encyclical ''Vix pervenit''. To prevent any claims of doctrine violation, work-arounds would sometimes be employed. For example, in the 15th century, the
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lent money to the Vatican, which was lax about repayment. Rather than charging interest, "the Medici overcharged the pope on the silks and brocades, the jewels and other commodities they supplied." However, the
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switched position and allowed church monies to be used to accrue interest. The Catholic Church has always condemned usury, but in modern times, with the rise of
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capitalism
, the previous assumptions about the very nature of money have been challenged, and the Church had to update its understanding of what constitutes usury to also include the new reality. Thus, the Church refers, among other things, to the fact
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doesn't ban all interest taking (proving interest-taking is not an inherently immoral act, same principle as with
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), as well as the prevalence of bonds & loans paying interest. Because of this, as the old
Catholic Encyclopedia The ''Catholic Encyclopedia: An International Work of Reference on the Constitution, Doctrine, Discipline, and History of the Catholic Church'' (also referred to as the ''Old Catholic Encyclopedia'' and the ''Original Catholic Encyclopedia'') i ...
put it, "Since the possession of an object is generally useful, I may require the price of that general utility, even when the object is of no use to me."
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philosopher
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, writing at the beginning of the 20th century, put the development of economy in relation to usury this way: He further gave the following view of the development of Catholic practice:


Modern era

The Congregation of the Missionary Sons of the Immaculate Heart of Mary, a Catholic Christian religious order, teaches that the charging of interest is sin in Christianity, sinful:


Islam

Riba (usury) is forbidden in Islam. As such, specialized codes of banking have developed to cater to investors wishing to obey Sharia, Qur'anic law. ''(See Islamic banking)'' The following quotations are English translations from the Qur'an:
Those who swallow usury cannot rise up save as he ariseth whom the devil hath prostrated by (his) touch. That is because they say: Trade is just like usury; whereas Allah permitteth trading and forbiddeth usury. He unto whom an admonition from his Lord cometh, and (he) refraineth (in obedience thereto), he shall keep (the profits of) that which is past, and his affair (henceforth) is with Allah. As for him who returneth (to usury) - Such are rightful owners of the Fire. They will abide therein. (''Al-Baqarah 2:275'')
Allah hath blighted usury and made almsgiving fruitful. Allah loveth not the impious and guilty. Lo! those who believe and do good works and establish worship and pay the poor-due, their reward is with their Lord and there shall no fear come upon them neither shall they grieve. O ye who believe! Observe your duty to Allah, and give up what remaineth (due to you) from usury, if ye are (in truth) believers. And if ye do not, then be warned of war (against you) from Allah and His messenger. And if ye repent, then ye have your principal (without interest). Wrong not, and ye shall not be wronged. And if the debtor is in straitened circumstances, then (let there be) postponement to (the time of) ease; and that ye remit the debt as almsgiving would be better for you if ye did but know.(''Al-Baqarah 2:276–280'')
O ye who believe! Devour not usury, doubling and quadrupling (the sum lent). Observe your duty to Allah, that ye may be successful. (''Al-'Imran 3:130'')
And of their taking usury when they were forbidden it, and of their devouring people's wealth by false pretences, We have prepared for those of them who disbelieve a painful doom. (''Al-Nisa 4:161'')
That which ye give in usury in order that it may increase on (other) people's property hath no increase with Allah; but that which ye give in charity, seeking Allah's Countenance, hath increase manifold. (''Ar-Rum 30:39'')
The attitude of Muhammad to usury is articulated in his Farewell Sermon, Last Sermon:
Verily your blood, your property are as sacred and inviolable as the sacredness of this day of yours, in this month of yours, in this town of yours. Behold! Everything pertaining to the Jahiliyyah, Days of Ignorance is under my feet completely abolished. Abolished are also the blood-revenges of the Days of Ignorance. The first claim of ours on blood-revenge which I abolish is that of the son of Rabi'ah ibn al-Harith, Rabi'a b. al-Harith, who was nursed among the tribe of Sa'd and killed by Hudhail. And the usury of the pre-Islamic period is abolished, and the first of our usury I abolish is that of Abbas ibn Abd al-Muttalib, 'Abbas b. 'Abd al-Muttalib, for it is all abolished.
One of the forbidden usury models in Islam is to take advantage when lending money. Examples of forbidden loans, such as a person borrowing 1000 dollars and the borrower is required to return 1100 dollars. The above agreement is a form of transaction which is a burden for people who borrow, because in Islam, lending and borrowing are social transactions aimed at helping others, not like a sale and purchase agreement that is allowed to be profitable. Hence, a rule of thumb used by Islamic scholars is, "Every loan (qardh) which gives additional benefits is called usury."


In literature

In ''The Divine Comedy'', Dante Alighieri, Dante places the usurers in the inner ring of the seventh circle of hell. Interest on loans, and the contrasting views on the morality of that practice held by Jews and Christians, is central to the plot of Shakespeare's play "The Merchant of Venice". Antonio is the merchant of the title, a Christian, who is forced by circumstance to borrow money from Shylock, a Jew. Shylock customarily charges interest on loans, seeing it as good business, while Antonio does not, viewing it as morally wrong. When Antonio defaults on his loan, Shylock famously demands the agreed upon penalty: a measured quantity of muscle from Antonio's chest. This is the source of the metaphorical phrase "a pound of flesh" often used to describe the dear price of a loan or business transaction. Shakespeare's play is a vivid portrait of the competing views of loans and use of interest, as well as the cultural strife between Jews and Christians that overlaps it. By the 18th century, usury was more often treated as a metaphor than a crime in itself, so Jeremy Bentham's ''Defence of Usury'' was not as shocking as it would have appeared two centuries earlier. In Honoré de Balzac's 1830 novel ''Gobseck'', the title character, who is a usurer, is described as both "petty and great – a miser and a philosopher..." The character Quilp, Daniel Quilp in ''The Old Curiosity Shop'' by Charles Dickens is a usurer. In the early 20th century Ezra Pound's The Cantos#XLII–LI (Fifth Decad, called also Leopoldine Cantos), anti-usury poetry was not primarily based on the natural law, moral injustice of interest payments but on the fact that excess capital was no longer devoted to artistic patronage, as it could now be used for capitalism, capitalist business investment.


Usury law


Usury and the law

"When money is lent on a contract to receive not only the principal sum again, but also an increase by way of compensation for the use, the increase is called ''interest'' by those who ''think'' it lawful, and ''usury'' by those who do not." (William Blackstone's ''Commentaries on the Laws of England'').


Canada

Canada's Criminal Code limits the interest rate to 60% per year. The law is broadly written and Canada's courts have often intervened to remove ambiguity.


Japan

Japan has various laws restricting interest rates. Under civil law, the maximum interest rate is between 15% and 20% per year depending upon the principal amount (larger amounts having a lower maximum rate). Interest in excess of 20% is subject to criminal penalties (the criminal law maximum was 29.2% until it was lowered by legislation in 2010). Default interest on late payments may be charged at up to 1.46 times the ordinary maximum (i.e., 21.9% to 29.2%), while pawn shops may charge interest of up to 9% per month (i.e., 108% per year, however, if the loan extends more than the normal short-term pawn shop loan, the 9% per month rate compounded can make the annual rate in excess of 180%, before then most of these transaction would result in any goods pawned being forfeited).


United States

''Usury laws'' are State law (United States), state laws that specify the maximum legal
interest rate An interest rate is the amount of interest In finance Finance is the study of financial institutions, financial markets and how they operate within the financial system. It is concerned with the creation and management of money and investm ...
at which loans can be made. In the United States, the primary legal power to regulate usury rests primarily with the states. Each U.S. state has its own statute that dictates how much interest can be charged before it is considered usurious or unlawful. If a lender charges above the lawful interest rate, a court will not allow the lender to sue to recover the unlawfully high interest, and some states will apply all payments made on the debt to the principal balance. In some states, such as New York (state), New York, usurious loans are voided ''ab initio''. The making of usurious loans is often called
loan shark A loan shark is a person who offers loan In finance Finance is the study of financial institutions, financial markets and how they operate within the financial system. It is concerned with the creation and management of money and inv ...
ing. That term is sometimes also applied to the practice of making consumer loans without a license in jurisdictions that requires lenders to be licensed.


Federal regulation

On a federal level, Congress has never attempted to federally regulate interest rates on purely private transactions, but on the basis of past U.S. Supreme Court decisions, arguably the U.S. Congress might have the power to do so under the interstate commerce clause of Article I of the Constitution. Congress imposed a federal criminal penalty for unlawful interest rates through the Racketeer Influenced and Corrupt Organizations Act (RICO Statute), and its definition of "unlawful debt", which makes it a potential federal felony to lend money at an interest rate more than twice the local state usury rate and then try to collect that debt. It is a federal offense to use violence or threats to collect usurious interest (or any other sort). Separate federal rules apply to most banks. The U.S. Supreme Court held unanimously in the 1978 case, ''Marquette Nat. Bank of Minneapolis v. First of Omaha Service Corp.'', that the National Banking Act of 1863 allowed Banking in the United States#The dual banking system, nationally chartered banks to charge the legal rate of interest in their state regardless of the borrower's state of residence.''Marquette Nat. Bank of Minneapolis v. First of Omaha Service Corp.'', . In 1980, Congress passed the Depository Institutions Deregulation and Monetary Control Act. Among the Act's provisions, it exempted federally chartered savings banks, installment plan sellers and chartered loan companies from state usury limits. Combined with the ''Marquette'' decision that applied to National Banks, this effectively overrode all state and local usury laws. The 1968 Truth in Lending Act does not regulate rates, except for some mortgages, but requires uniform or standardized disclosure of costs and charges. In the 1996 ''Smiley v. Citibank'' case, the Supreme Court further limited states' power to regulate credit card fees and extended the reach of the ''Marquette'' decision. The court held that the word "interest" used in the 1863 banking law included fees and, therefore, states could not regulate fees.ABA Journal, March 2010, p. 59 Some members of Congress have tried to create a federal usury statute that would limit the maximum allowable interest rate, but the measures have not progressed. In July 2010, the Dodd–Frank Wall Street Reform and Consumer Protection Act, was signed into law by President Obama. The act provides for a United States Consumer Financial Protection Bureau, Consumer Financial Protection Bureau to regulate some credit practices but has no interest rate limit.


Texas

State law in Texas also includes a provision for contracting for, charging, or receiving charges exceeding twice the amount authorized (A/K/A "double usury"). A person who violates this provision is liable to the obligor as an additional penalty for all principal or principal balance, as well as interest or time price differential. A person who is liable is also liable for reasonable attorney's fees incurred by the obligor.


Avoidance mechanisms and interest-free lending


Islamic banking

In a partnership or joint venture where money is lent, the creditor only provides the capital yet is guaranteed a fixed amount of profit. The debtor, however, puts in time and effort, but is made to bear the risk of loss. Muslim scholars argue that such practice is unjust. As an alternative to usury, Islam strongly encourages charity and direct investment in which the creditor shares whatever profit or loss the business may incur (in modern terms, this amounts to an equity stake in the business).


Interest-free micro-lending

Growth of the Internet internationally has enabled both business micro-lending through sites such as Kickstarter as well as through global micro-lending charities where lenders make small sums of money available on zero-interest terms. Persons lending money to on-line micro-lending charity Kiva (organization), Kiva for example do not get paid any interest, although the end users to whom the loans are made may be charged interest by Kiva's partners in the country where the loan is used.


Non-recourse mortgages

A non-recourse loan is secured by the value of property (usually real estate) owned by the debtor. However, unlike other loans, which oblige the debtor to repay the amount borrowed, a non-recourse loan is fully satisfied merely by the transfer of the property to the creditor, even if the property has declined in value and is worth less than the amount borrowed. When such a loan is created, the creditor bears the risk that the property will decline sharply in value (in which case the creditor is repaid with property worth less than the amount borrowed), and the debtor does not bear the risk of decrease in property value (because the debtor is guaranteed the right to use the property, regardless of value, to satisfy the debt.)


Zinskauf

Zinskauf was a financial instrument, similar to an annuity, that rose to prominence in the Middle Ages. The decline of the Byzantine Empire led to a growth of capital in Europe, so the Catholic Church tolerated zinskauf as a way to avoid prohibitions on usury. Since zinskauf was an exchange of a fixed amount of money for annual income it was considered a sale rather than a loan. Martin Luther made zinskauf a subject of his Treatise on Usury and his Sermon on Trade and Usury and criticized clerics of the Catholic Church for violating the spirit if not the letter of usury laws.


See also

* Chrematistics * Christian finance * Contractum trinius * Debt trap * Debt trap diplomacy * Greed * History of banking * History of pawnbroking * Loansharking (traditional occupation of Mafiosi) * Money changing * Payday loans * Predatory lending * Credit card interest * Title loan * Usury Act 1660


References


Further reading

* * * * * * * * * * * * * * *


External links


Usury is Riba in Islam, this is an exclusive site on the subject of Riba (ar-Riba, usury, interest), answering the logic and reasoning for the prohibition of usuryWhat Love Is This? A Renunciation of the Economics of CalvinismDr. Ian Hodge on UsuryS.C. Mooney's Response to Dr. Gary North's critique of Usury: Destroyer of NationsUsury laws by state.
(Beyond the Pale exposition, friends-partners.org)
Thomas Geoghegan on "Infinite Debt: How Unlimited Interest Rates Destroyed the Economy"
{{Debt Usury, Medieval economics Economic bubbles Property crimes Negative Mitzvoth