Usury - a modern discussion is needed

[tafan]

I think there is need of a modern discussion of the church’s teaching on usury. Very little teaching seems available on this subject. Belloc wrote a very good paper on it in the 30s and it is one of the few written that I have come across on a Catholic moral perspective.

reactor-core.org/belloc-usury.html

Here is a brief summary of Belloc’s take on charging interest:
a) productive loans - one person lends money to another person for a business enterprise. In this fashion, there is no prohibition of interest or limits to the amount that can be charged. It is between the two parties. If I lend you $100,000 to start a business and the business profits $50,000/year, there is nothing wrong with me collecting $25,000 each year in addition to any principal payments. But if the loan becomes un-productive, it is no longer morally licit to collect any interest at all.
b) Non-productive loads - this would include all of today’s consumer loans and mortgages. Belloc stated charging any interest at all was wrong.

Belloc’s description of productive loans struck me as much closer to an equity investment in a business than a loan to the business. But, nevertheless, his positino seems perfectly reasonable. When a business fails, a creditor should be allowed access to the business assets as a means of collecting his principal, but after that all interest should stop. This is pretty much the way corporate bankruptcy works today.

For non-productive loans, his point of view is more problematic. Now, Belloc did admit that our economic system did not support the correct way of doing things. But beyond that, some non-productive loans are very useful (in particular mortgages) in the achievement of a just society. And prohibiting the collection of interest on mortgages would simply make it impossible for anyone to borrow money to buy a home, which would really hurt in the just distribution of property. So prohibiting lending money at all at interest for non-productive loans seems wrong, and I think the Church would agree with that.

But then the question becomes, how much interest can be charged. Recently on EWTN radio I heard one of the hosts on Catholic Answers defend 28% credit card interest on the basis that it was a high risk loan and the lender can legitimately charge interest at those rates if the risk level was sufficient. I think this answer was wrong.

I think that a lender can charge an amount of interest to cover the time value of money (ie inflation expectaions) and to compensate him for the risk he is taking of losing is money, provided the rate does not reach the level such that the interest itself makes it prohibitively difficult for the borrower to ever repay with great distress. 28% interest would certainly be too high, regardless of the risk. Rates charged at pawn shops and payday advance business would likewise be too high to be moral. I have heard one priest explain it this way before, but I can really find no real source for up-to-date catholic teaching on the matters.

Was wondering what everyone’s thoughts was on this, as I think it should be a much bigger issue in our society today and the church should be much more vocal about its position.

 

[Ron_Conte]

Usury can be divided into two types, one of which is intrinsically evil, and the other of which is not intrinsically evil, but is immoral because of the circumstances.

First, when usury is excessive interest charged when goods or money are loaned, the morality of the act depends on the degree of interest, which is a circumstance. But charging interest is not intrinsically evil, for Sacred Scripture permits lending at interest.

[Deuteronomy]
{23:19} You shall not lend money, or grain, or anything else at all, to your brother at interest,
{23:20} but only to a foreigner. For you shall lend to your brother whatever he needs without interest, so that the Lord your God may bless you in all your works in the land, which you shall enter so as to possess it.

Second, when usury is a type of theft, then the act is intrinsically evil and always immoral, regardless of intention or circumstances. In this case, the lender (or creditor) requires both a payment for the goods, in an amount which meets or exceeds the value of the goods, and also the return of the goods.

 

[RB2]

You know I came upon this topic subject before reading the first post and was
going to post Bellocs article.But someone beat me to it.

One of the reasons for something like a 28% interest rate was the breadth and depth to which credit and credit cards were extended to nearly everyone in 90’s and beyond(sound familiar to the housing mess?).

 

[tafan]

Ron,

Your last paragraph, the intrisically evil explanation is fine and is rather easy to apply. Although I figure a lot of pawn shop owners would not like it.

Your non-intrinsically evil explanation helps very little. The issue is how to define excessive interest. This is what really needs to be determined these days. Some level of moral definition seems to be needed in our society.

 

[tafan]

One of the reasons for something like a 28% interest rate was the breadth and depth to which credit and credit cards were extended to nearly everyone in 90’s and beyond(sound familiar to the housing mess?).

Makes no difference why it was done. I understand a lot of those credit card loans entailed a very high degree of risk. But I am positing the idea that even compensation for risk does not justify a rate for which the interest payment itself places an undue burden on the borrower.

 

[RB2]

Sorry, Tarfan
dont really want to engage.

 

[IntegraCatholic]

For non-productive loans, his point of view is more problematic. Now, Belloc did admit that our economic system did not support the correct way of doing things. But beyond that, some non-productive loans are very useful (in particular mortgages) in the achievement of a just society. And prohibiting the collection of interest on mortgages would simply make it impossible for anyone to borrow money to buy a home, which would really hurt in the just distribution of property. So prohibiting lending money at all at interest for non-productive loans seems wrong, and I think the Church would agree with that.

Simply because something is expedient for someone at a particular time doesn’t make it moral. Workers in the 19th century under unbridled capitalism would work for pennies a day in inhumane conditions because it was either that or starve and have your family starve with you. Even though the person agreed to it, it didn’t make the salary just. Just because someone may agree to pay usury on a loan doesn’t make the usury just.

 

[tafan]

Sorry, Tarfan
dont really want to engage.

I am not looking to argue, rather trying to figure something out. I don’t know if my position is correct from a catholic moral teaching standpoint. I believe it is, but would like some supporting documentation. It seems like a very pertinent discussion. Payday loan places, credit card rates and practises, etc are proliferating. Congress is talking about more regulation. But at the heart of lots of the issues is, “what constitutes usury?”. And I just don’t see that question being addressed.

 

[tafan]

Simply because something is expedient for someone at a particular time doesn’t make it moral. Workers in the 19th century under unbridled capitalism would work for pennies a day in inhumane conditions because it was either that or starve and have your family starve with you. Even though the person agreed to it, it didn’t make the salary just. Just because someone may agree to pay usury on a loan doesn’t make the usury just.

Very good point and I wholeheartedly agree.

 

[Just_Lurking]

The Catholic Church has never once admitted that it was wrong in regards to a past doctrinal teaching, and I don’t think it is going to start now. Thus, I predict there will be no official Church update about usury.

 

[Listener]

I think perhaps the Church has forgotten that usury used to be a sin. I believe that many of the interest charges today are simply outrageous, and no sane person would put him/herself in a position where they have to be paid. On the other hand, try to get a bank to pay even 2% interest if you give them your money!

To back up my opinion, I would like to quote from a 1908 Catholic Catechism:

1. What does the Seventh Commandment forbid?
The Seventh Commandment forbids us to injure our neighbor in his property by robbery or theft, by cheating, usury or in any other unjust way.

6**. Who are guilty of usurious practices?**

1. Those who exact unlawful interest for money loaned; 2. Those who purchase in large quantities articles of food and other necessaries, in order to obtain more than a just price for them; 3. In general, those who in trade take unfair advantage of their neighbors ignorance or necessity.

They say that church teaching never changes, but I believe that the original teaching on usury has either changed or has been ignored.

 

[Ron_Conte]

Ron,

Your last paragraph, the intrisically evil explanation is fine and is rather easy to apply. Although I figure a lot of pawn shop owners would not like it.

Your non-intrinsically evil explanation helps very little. The issue is how to define excessive interest. This is what really needs to be determined these days. Some level of moral definition seems to be needed in our society.

There are three fonts of morality. The third font is the circumstances, which is good if the reasonably anticipated good consequences morally outweigh the reasonably anticipated bad consequences. A judgment of the prudential order is needed in order to determine whether the third font is good or bad. There is no one set definition that will determine the moral evaluation of the third font. It is not like the second font (moral object) in which the act is always immoral if the moral object is evil.

Whether or not the interest is excessive depends on many different factors, such as risks, ability to pay, inflation, other economic circumstances, etc. There is no getting around the fact that sometimes the moral evaluation of an act is complex and subject to varying judgments by faithful and reasonable persons.

 

[Deo_Volente]

Grace & Peace!

First, when usury is excessive interest charged when goods or money are loaned, the morality of the act depends on the degree of interest, which is a circumstance. But charging interest is not intrinsically evil, for Sacred Scripture permits lending at interest.

[Deuteronomy]
{23:19} You shall not lend money, or grain, or anything else at all, to your brother at interest,
{23:20} but only to a foreigner. For you shall lend to your brother whatever he needs without interest, so that the Lord your God may bless you in all your works in the land, which you shall enter so as to possess it.

I would take a closer look at this passage from Deuteronomy–because there is this implication: to charge interest to someone is to assume that that person is a foreigner. It is to assume a fundamental cultural or even ontological alienation–or worse, it is to create that alienation where it did not previously exist. In modern terms, it is to disenfranchise and disempower. To the extent that any of us have borrowed from a bank or have a credit card, Deuteronomy says one of two things: either we have been unjustly charged interest by our brothers, or we are cultural aliens in our own land. The latter assertion leads to this question, “What land are we actually living in? And whose is it if not ours?”

I would argue that the construction of this sort of alienation, as well as the institutionalization of this alienation (which has led to the recasting of the citizen in the role of a mere consumer) is also sin.

Under the Mercy,
Mark

All is Grace & Mercy! Deo Gratias!

 

[tafan]

Ron Conte:

Whether or not the interest is excessive depends on many different factors, such as risks, ability to pay, inflation, other economic circumstances, etc. There is no getting around the fact that sometimes the moral evaluation of an act is complex and subject to varying judgments by faithful and reasonable persons.

I am not asking for a definitive statement that X is too much interest. It seems to me that some level of guidance as should be provided. I agree that risk, inflation and ability to repay should all be taken into account, that is pretty much spelled out in my first post. The problem is that there is no Church guidance on even these three elements. As I said before, years ago I heard one priest explain it in a way that made a lot of sense. An interest rate can be charged which compensates the lender for his risk and for inflation, but this does not allow for it to be so high that the interest places an undue burden on the borrower. Obviously, these parameters would be different for every loan. But is this formulation accurate church teaching? That is really the answer that I am looking for.