I would like to see a reinstatement of our Usury Laws

[Winterblues]

IMO anything over Ten Percent Interest should be illegal. These Credit Card Companies that suck people in with easy Credit and then charge thirty percent interest should be sent to jail. I believe a major part of the Credit Crunch in America is because people are leveraged up to their ass with Credit Card Debt at Usurious rates and find it difficult to make their other essential payments such as power and heat and home payments. What was the justification anyway for eliminating Usury Laws?

[Joanne98]

1. me too

[rubberducky]

2. Fun to think about, but will never, ever happen. "they will steal the"pennies" from our eyes.

[Phoebe Loosinhouse]

3. I agree. nt

[El Pinko]

4. That's only part of the problem.

In my case, the interest rates were not so high (until they decided that I was overextended and suddenly jacked them up to 28%, even though I never even made a late payment)

The problem is, the card companies all knew exactly what my income was (about $25 K/yr. at the time) and yet they continued to keep offering me credit, and increasing my limits.

At the same time, my pay never went up. The card companies also had access to my credit report, and knew I had $20K in student loans, and they knew what my other card balances were, but they KEPT OFFERING ME MORE.

But that's the plan, keep offering people more credit until they are trapped into paying the minimum every month for the rest of their lives. with no hope of ever paying it back, because they have to use the CARD to even buy groceries.

There needs to be a law about lending people more than they can possibly ever afford to pay back, too.

[DangerDave921]

17. Did the companies make you use the card?

You make it seem like the company forced you to use it. Of course they OFFERED you higher limits, but you're the one who decides to use the card. And when you use a credit card, let's me clear on what this is -- you are borrowing money from someone else. Plain and simple.

You remind me of the married man explaining his affair to his wife. I told the young lady I was married, but she just kept coming on to me. She knew I was married but she wouldn't quit. LOL

[El Pinko]

18. I didn't blame the company. I said there should be regulations preventing excessive lending.

There is no reason they should be able to knowingly lend to people that they know are overextended already.

And this topic is nothing like your analogy. Adultery is a black and white issue - either you are doing it or you are not.

Debt is not like that at all. A person who can handle payments on a $3k debt may not be able to handle paying down a $15k debt.

You remind me of the people who thought it would be a great idea to deregulate the lending "industry". And look at all the good it's gotten us.

[DangerDave921]

19. lending was not deregulated

It was actually regulated in favor of poorer people. If you think back, there was a time when lenders were roundly criticized for not lending to poorer people, minorities, those with poor credit, etc. And government strongly encouraged lenders to lend to those people so as not to be discriminatory. Which was done. And now there are a ton of folks who can't pay back the loans.

All I'm saying is you have to acknowledge personal responsibility along with the greed of the credit card companies. Yes, they dangle easy money in front of you. But you can always decline using it.

If credit card companies start imposing bright line limits to lending, then I guarantee there will be howls from some quarters that a vast segment of society is being denied credit cards.

[El Pinko]

22. That may be so, but I won't be among them.

Beyond a certain point, extending credit is nothing more than a form of servitude.

Lending the poor more than they can ever afford to pay back is not doing them any favors.

(although it might not be happening as much in the future anyway...)

[DangerDave921]

27. agreed

Being in debt is being in servitude.

I didn't even own a credit card till I was 30. And even now I don't carry more than $1000 or so at a time, and even that is rare. Living within one's means is paramount.

However, my wife has her eyes set on these diamond ear rings for her b-day. That may have to go on the card!

[Winterblues]

26. But there are laws regulating how she can re-act over it

She can't for instance take a knife and stab you or cut off your wanger. There don't seem to be any laws left that can regulate the amount of financial "punishment" these lenders can pile onto you..

[shraby]

5. Actually anything over 7% should be considered usury

or at least nothing should be allowed over 5% above what the banks are willing to pay on a savings account.

[Winterblues]

6. I used the ten percent figure because that is what was the law in the past.

I do think seven percent should be considered robbery as well though.

[Winterblues]

7. I wonder if Jesus ever said anything about Usury?

:shrug: Modern day "Christians" probably don't want to know though.

[jakem]

10. Nah. I am sure Jesus is too busy deregulating and hunting moose.

[TahitiNut]

24. (lol!) Indeed ... ANY interest charge is 'usury' according to Jesus.

If a man asks for your jacket, give him your cloak. If a man you to walk a mile with him, walk ten miles.

... and all that.

The notion of charging another person interest on a loan was 'sinful' to the original Christians. (Didn't you ever wonder why the Jews were the "money-lenders" in anti-semitic countries?)

[An Intellectual]

8. Pardon my language, but why the FUCK do we allow them to charge interest at all??

The capitalists are rich enough; they don't need any more money.

[Warpy]

9. So they'll lend us money, silly

A society based on pure altruism will only work when human beings become purely altruistic.

I do peer to peer loans through Kiva and a couple of other microlenders. The interest is 16%. That sounds outrageous until you realize that big banks will simply not lend to poor people and what few people do get loans for going concerns will pay 30% or higher.

The interest covers the organizations on the ground in the third world plus the cost of processing the loans. I'm not getting rich off the poor.

The only thing that induces people who have money to risk it on other people is the prospect of having that money grow. That's the nature of the world we live in.

However, that interest needs to be limited. Anything above 25% is usury, and that 25% should be the upper limit for the highest risk loans of all.

[An Intellectual]

11. I see your point. However...

... Don't you run into a slippery slope? If banks and other lenders don't want to lend to the poor due to risk, and that fact makes it acceptable to profit off of the poor by charging them high interest rates, why isn't it acceptable to greatly profit off of the very, very poor?

Using your logic, hy have an interest-rate limit at all, considering there's always going to be a group of people to whom no one is going to want to loan money at a lower interest rate?

[Warpy]

14. Loan sharking does exist in poor countries

even as the legalized loan sharking of car title and payday loans exists in our own poor neighborhoods.

Microlenders attempt to compensate for that fact by lending at non usury rates. Our own microlender was supposed to be the Small Business Administration, an outfit that has become hopelessly corrupted by too many years of neglect combined with GOP cronyism.

Loan sharking needs to be illegal.

[DangerDave921]

15. What?

Why would anyone lend a total stranger money with no interest? What motive would there be to do so? Unless it's loaning money to your kid, there is no reason to lend someone else money (and risk losing it) if you're just going to get back the same amount.

[An Intellectual]

23. Maybe the government should be lending instead? We have to stop thinking of everything in terms...

...of profit.

[DangerDave921]

25. Profit is the lynchpin of transactions

Every person who starts a business (except for charities) does so in an attempt to make a profit. The guy who opens up his coffee shop down the street at 6:00 a.m. doesn't do it to be nice. He does it to attract customers and, therefore, make a profit. There is nothing wrong with profit. It motivates people to develop new goods and services that benefit all of us.

If no one makes a profit, where does the federal government get money to do the lending that you envision?

[Cessna Invesco Palin]

30. Wow.

In one sentence you've summed up everything that is wrong with the understanding of economics in some quarters of DU. Congrats.

[SOS]

12. Federal usury laws were gutted in 1978

That's why the criminals are all incorporated in Delaware and South Dakota.
Time to reinstate the law.

[Winterblues]

13. Under Carter??? I thought they were killed under Nixon.

Carter had a Democratic Congress at the time as well. Why would "Democrats" do such a thing?

[SOS]

16. It was the Marquette SC decision of 1978

Full details here:
http://www.pbs.org/wgbh/pages/frontline/shows/credit/more/rise.html


December 18, 1978

[Winterblues]

20. How long had States been able to set rates higher than federal rates?

It sounds like certain states already were charging higher rates and it was only when those rates extended beyond their state boundries that it was questioned and deliberated in court. Since the Supreme court ruled that if a state had such rates and you had a card from that state you still had to pay such interest even though you no longer lived in that state. Once the Supreme court ruled such it pretty much eliminated Federal Laws on the matter. How long though had individual states been able to by pass those Laws?

[Nye Bevan]

21. The problem with usury laws

Say the fair market interest rate is 7%. Imagine a borrower with a very poor credit rating; say his credit score corresponds to a 9% probability each year that he defaults on his debt. It only makes sense for a lender to advance a loan to this borrower if they can charge an interest rate of 16%; 7% to cover the market rate of interest plus 9% to cover the default probability on the loan.

To illustrate this: when lending $100 for 1 year to a borrower with perfect credit, at 7% interest, the lender will end up being repaid $107. When lending $100 to the risky borrower, at 16% interest, the lender will end up with:-

- if the borrower does not default: $116 (91% probability);
- if the borrower defaults: $16 (9% probability)
(this assumes that in the event of default only the principal is unpaid).

So the expected (probability weighted) return to the lender is ($116 * 91%) + ($16 * 9%) = $105.56 + $1.44 = $107, which is the same as in the 7% loan to the borrower with perfect credit.

Now assume that there is an iron-clad usury law capping interest rates at 10%. In this case our hypothetical borrower simply will not be able to get a loan through normal channels, as nobody would be allowed to charge a market (risk-adjusted) interest rate. He may well end up turning to an illegal loan shark charging several *hundred* percent per year who would beat him up if he does not pay.

This example shows that capping interest rates is not a good idea. However, there are plenty of abuses that *should* be addressed by laws: late fees and "over limit" fees should be capped; grace periods should not be reduced; "cross-default" provisions should be severely restricted; all interest rates should be fully and accurately disclosed, and lenders could be prohibited from arbitrarily raising interest rates (for example, interest rate increases could be permitted only if market interest rates have risen).

ON EDIT: corrected math mistake in first paragraph and expanded the example.

[DangerDave921]

28. excellent points

Increased interest rates merely reflect the lender taking a higher risk. Well put.

[NAO]

29. Retroactive Penalties for Usury Crimes!

[Cessna Invesco Palin]

32. Is this satire? n/t

[JDPriestly]

31. So would I. Prime rate 2% and some credit cards charging 27%?

That's criminal!!!!