Pope Francis denounces usury [CC]

[Inisfallen]

One of the problems with payday loans is that there are huge recordkeeping and other costs associated with making very small loans. While I agree that the interest charged is outrageous, I really don’t know what the alternative is. Because I certainly wouldn’t lend my money to the type of people who take out payday loans.

They’re not that risky. Here’s how they work:

The lenders only lend to people with jobs (they are “payday” loans, after all).

Usually, they only lend to people who get paid via direct deposit.

The borrower must grant the lender access to the borrower’s bank account, the account into which the borrower’s pay is deposited.

Seconds (literally) after the borrower is paid by his or her employer, the lender withdraws the loan payment.

That’s it. The lender is getting its money, no matter what.

 

[7_Sorrows]

Not allowed to charge interest on loans. The borrower and lender agree on a fixed amount to be provided in consideration of loaning the money (the same principle happens when a depositor puts money into the bank as well, by the way)

thanks for the explanation.

 

[seekerz]

But what if one looks at “usury” as the cost of borrowing? Is it any different than the cost of doing business, which keeps people employed? Everyone and everything has a cost. This is not against God’s laws.

Perhaps EXCESSIVE usury is the real issue. I’ll agree that it doesn’t serve any societal purpose of anyone charging higher interest once a contract has been agreed upon and after the money has been lent. It’s totally unfair to put another in further debt than necessary.

Better yet, just forgive the loan altogether. Why stop with no interest?

Usury already refers to excessively high interest rates, so no need to condemn “excessive usury”. It is usury itself which rightly deserves condemnation.

 

[seekerz]

One of the problems with payday loans is that there are huge recordkeeping and other costs associated with making very small loans. While I agree that the interest charged is outrageous, I really don’t know what the alternative is. Because I certainly wouldn’t lend my money to the type of people who take out payday loans.

When loans drive people deeper into poverty, then they don’t need to be made at all. There needs to be some alternative - perhaps some sort of charity or co-op.

In some parts of Africa, there is a tradition where people of similar socioeconomic backgrounds organize in groups where members pays small sums (at weekly/monthly intervals) toward a larger pool that is then paid out in turn to each member. Repayment is mainly enforced by community bonds and concerns for one’s reputation; also the sums paid into the pool are usually quite small but then the wait for pay-out can also be quite long.

 

[ProVobis]

Usury already refers to excessively high interest rates, so no need to condemn “excessive usury”. It is usury itself which rightly deserves condemnation.

I stand corrected. You are right.

 

[nishkalank]

Capital is one of the factors of production. As land deserves rent and the labour wages and the enterpreuner, profit, Capital deserves interest. So taking interest is not at all wrong or sinful. The problem is exploiting the situation by charging exhorbitant rate of interest. As regards loan to individuals the owner of the capital should not exploit the poor condition of the lonees. The rate should be very reasonable specially when the loan is not for investment and business to make profit. It is a matter of conscience. Pope"s reference may be regarding unreasonable exploitation by the lender.

nishkalank

 

[markomalley]

Capital is one of the factors of production. As land deserves rent and the labour wages and the enterpreuner, profit, Capital deserves interest. So taking interest is not at all wrong or sinful. The problem is exploiting the situation by charging exhorbitant rate of interest. As regards loan to individuals the owner of the capital should not exploit the poor condition of the lonees. The rate should be very reasonable specially when the loan is not for investment and business to make profit. It is a matter of conscience. Pope"s reference may be regarding unreasonable exploitation by the lender.

nishkalank

Pope Benedict XVII. The nature of the sin called usury has its proper place and origin in a loan contract. This financial contract between consenting parties 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. Therefore he contends some gain is owed him beyond that which he loaned, but any gain which exceeds the amount he gave is illicit and usurious.

II. 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, either to increase one’s fortune, to purchase new estates, or to engage in business transactions. The law governing loans consists necessarily in the equality of what is given and returned; once the equality has been established, whoever demands more than that violates the terms of the loan. Therefore if one receives interest, he must make restitution according to the commutative bond of justice; its function in human contracts is to assure equality for each one. This law is to be observed in a holy manner. If not observed exactly, reparation must be made.

III. By these remarks, however, We do not deny that at times together with the loan contract certain other titles-which are not at all intrinsic to the contract-may run parallel with it. From these other titles, entirely just and legitimate reasons arise to demand something over and above the amount due on the contract. Nor is it denied that it is very often possible for someone, by means of contracts differing entirely from loans, to spend and invest money legitimately either to provide oneself with an annual income or to engage in legitimate trade and business. From these types of contracts honest gain may be made.

Encyclical Vix Pervenit, 3 (1745)
​

[bibledrb]Ezekiel 18:8[/bibledrb]
[bibledrb]Leviticus 25:35-38[/bibledrb]
[bibledrb]Luke 6:34-35[/bibledrb]

At some point in recent decades, the condemnation transformed from lending money at ***any ***interest to being lending money at **excessive **interest. I’m not sure when that transformation happened.

 

[JimG]

Pope Benedict XVII. The nature of the sin called usury has its proper place and origin in a loan contract. This financial contract between consenting parties 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. Therefore he contends some gain is owed him beyond that which he loaned, but any gain which exceeds the amount he gave is illicit and usurious.

II. 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, either to increase one’s fortune, to purchase new estates, or to engage in business transactions. The law governing loans consists necessarily in the equality of what is given and returned; once the equality has been established, whoever demands more than that violates the terms of the loan. Therefore if one receives interest, he must make restitution according to the commutative bond of justice; its function in human contracts is to assure equality for each one. This law is to be observed in a holy manner. If not observed exactly, reparation must be made.

III. By these remarks, however, We do not deny that at times together with the loan contract certain other titles-which are not at all intrinsic to the contract-may run parallel with it. From these other titles, entirely just and legitimate reasons arise to demand something over and above the amount due on the contract. Nor is it denied that it is very often possible for someone, by means of contracts differing entirely from loans, to spend and invest money legitimately either to provide oneself with an annual income or to engage in legitimate trade and business. From these types of contracts honest gain may be made.

Encyclical Vix Pervenit, 3 (1745)
​

[bibledrb]Ezekiel 18:8[/bibledrb]
[bibledrb]Leviticus 25:35-38[/bibledrb]
[bibledrb]Luke 6:34-35[/bibledrb]

At some point in recent decades, the condemnation transformed from lending money at ***any ***interest to being lending money at excessive interest. I’m not sure when that transformation happened.

Yes. Paragraphs I and II that you quoted above say that demanding repayment of ANY amount over the amount loaned is usurious. But paragraph III seems to then contradict that. I guess I’m not understanding it. Am I going to have to make restitution to the bank for the 0**.**25% interest they pay me on my savings?

 

[twoshoes]

Pope Francis denounced usury as “a dramatic social ill” in his public remarks at the end of his general audience in January 29. As he does each week, the Pope acknowledged several …

More…

Jesus wasn’t very fond of it either, when he upset all the money changers tables in Our Fathers Temple.

 

[twoshoes]

Over 30% interest? You have no idea. Payday loans typically have interest rates of several hundred percent, annualized. They are absolutely predatory lending, preying on desperate people who have no other choice.

This is the problem, you give them an inch and they will steal a mile, especially from the poor and uninformed.

 

[ProVobis]

Am I going to have to make restitution to the bank for the 0**.**25% interest they pay me on my savings?

You restitute enough on your income tax return, I would think.

 

[markomalley]

Yes. Paragraphs I and II that you quoted above say that demanding repayment of ANY amount over the amount loaned is usurious. But paragraph III seems to then contradict that. I guess I’m not understanding it. Am I going to have to make restitution to the bank for the 0**.**25% interest they pay me on my savings?

Like I said, at some point (and I can’t see exactly when that point was), the position changed to “no excessive interest.”

Having said that, I think the thing he is talking about is some variant of what is known today as “Islamic banking” – where the fees are separated from the loan itself.

 

[seekerz]

This is the problem, you give them an inch and they will steal a mile, especially from the poor and uninformed.

You are correct, and they seem to target the desperate and the impulsive - most ads I see highlight the word “easy” (prefacing the terms: loan, money, cash etc). Yes, people are responsible for the decisions they make, but encouraging people to make terrible financial decisions so that one can profit from it, is at least in poor taste if not downright immoral.

 

[SuperLuigi]

but encouraging people to make terrible financial decisions so that one can profit from it, is at least in poor taste if not downright immoral.

Ordinarily, a loaner would not willingly give money to a person who couldn’t (or wouldn’t) pay them back, because it’s a lost investment for them.

But enter government and political activists who think it’s some offence against “equality” if poor people can’t get loans and then they force the banks to loan out the money, it screws up the market and puts poor people in a dire situation.

You are correct, and they seem to target the desperate and the impulsive

A person has the right to negotiate for better deals so long as they are being hones about the product, but I think you’re talking more so about predatory lending, which I can see people doing if their insurance is a bailout by John Q. Taxpayer.

 

[JimG]

Well, people think nothing of using credit cards routinely which charge exorbitant rates of interest. And they think nothing of carrying a balance month to month, which means they are voluntarily paying those high rates. They are volunteering for usury.

And many people put all of their purchases on their debit cards, if not their credit cards. The debit card replaces a check or cash. But still–if everyone had to use actual cash for every purchase, I think we would all be spending a lot less money. We would all be personally better off, but the economy would take a hit because there would be less spending.

Going back to the Church’s prohibition of usury, it made sense to me in the context of a society in which money was entirely non-productive, sort of like holding gold that could not be invested.

But it makes no sense to me at all in a society in which the value of money by government policy decreases every year by at least 3%. That means if I have any savings at all (i.e. by lending money to the bank), I need to get at least 3% interest just to break even.

 

[Bklynguy]

So then what is a fair rate to charge someone who has no credit and no real collateral?

 

[seekerz]

Ordinarily, a loaner would not willingly give money to a person who couldn’t (or wouldn’t) pay them back, because it’s a lost investment for them.

But enter government and political activists who think it’s some offence against “equality” if poor people can’t get loans and then they force the banks to loan out the money, it screws up the market and puts poor people in a dire situation.

A person has the right to negotiate for better deals so long as they are being hones about the product, but I think you’re talking more so about predatory lending, which I can see people doing if their insurance is a bailout by John Q. Taxpayer.

Yes I am talking about predatory lending and no, I am not referring to ability to pay but simply to the worsening of clients’ already desperate straits by assuming very high interest debt.

 

[twoshoes]

You are correct, and they seem to target the desperate and the impulsive - most ads I see highlight the word “easy” (prefacing the terms: loan, money, cash etc). Yes, people are responsible for the decisions they make, but encouraging people to make terrible financial decisions so that one can profit from it, is at least in poor taste if not downright immoral.

There use to be laws against this type of usury. This is what happens when money is equated to free speech.

I have removed myself from all borrowing, if I don’t have the money I don’t buy it. It really becomes very liberating when you are not a slave to your credit score.

 

[mpabst]

Over 30% interest? You have no idea. Payday loans typically have interest rates of several hundred percent, annualized. They are absolutely predatory lending, preying on desperate people who have no other choice.

So my question would be, in a true free economy, couldn’t another company come in at a lower more “reasonable” interest rate to put the predatory lender out of business?

 

[ProVobis]

So my question would be, in a true free economy, couldn’t another company come in at a lower more “reasonable” interest rate to put the predatory lender out of business?

Yes, but a free economy would take the money-printing Fed out of the equation and let all money borrowing to be private and come out of private saving. Even the fractional reserve system set up by the banks distorts the free market to some extent, as that introduces risks as well. Circulation of existing money is the preferred way of stimulating growth but that tends to be a circular argument of sorts. It’s an interesting area of economics.