Usury

[Genesis315]

The Fifth Lateran Council defined what usury is:
Lateran V:

For, that is the real meaning of usury: when, from its use, a thing which produces nothing is applied to the acquiring of gain and profit without any work, any expense or any risk.

papalencyclicals.net/Councils/ecum18.htm

In other words, one can charge interest on productive loans for work or expense involved in the loan (including opportunity cost), and/or to cover risk. Interest in excess of this is usury and in some circumstances, this can rule out any interest at all, as the quote at the end of my post notes (and those circumstances were much more common in the past).

In addition to the Catholic Encyclopedia article posted earlier in the thread, here’s another good article on this:
catholicculture.org/cultu…cfm?recnum=646

And a good summary from the article:
article:

I]t is usury to take any interest at all upon the loan of a piece of property, which (a) is of no use except to be used up, spent, consumed; (b) is not wanted for the lender’s own consumption within the period of the loan; (c) is lent upon security that obviates risk; (d) is so lent that the lender forgoes no occasion of lawful gain by lending it.

 

[StGerardMajella]

The argument I am facing is that there is no legitimate use of interest. Their strict definition is that interest IS synonymous with usury. My argument is that the church now defines usury as EXCESSIVE interest. I realize that presents the problem of when does interest become excessive. My problem is that I cannot find a definitive decree of the definition.

In our modern economy, banks lend money to entrepreneurs for equipment, buildings, working capital, to manage receivables and inventory, and to acquire other businesses.

The bank benefits from a modest amount of interest, but also assumes risk in the transaction in the event of slow repayment or even default. The business benefits from increased profits, hiring more workers, acquisition and use of new assets such as buildings and equipment, and the ability to expand into new, untapped markets.

Ready access to capital - i.e., funds in the form of low interest loans - is paramount to the success of many businesses, especially those that are capital-intensive, such as manufacturers. Entrepreneurs are generally wise to cultivate close business relationships with their financiers.

In this manner, lending on interest is favorable to both parties.

I think the error comes into play when lenders are taking egregious advantage of borrowers - especially poor individuals, as in the case of high interest loans – as is found with title pawn lenders, sub-prime mortgage lending, pay day loans, etc. In today’s parlance, we refer to this as predatory lending, where the lender is taking clear advantage of the borrower with high rates of interest.

 

[ericc]

I believe the gist of it is “Unjust Profit”.

It is meaningless to attach some sort of interest rate which varies depending on the borrower credentials and the risk perception of the lender. In ancient days Jews can not charge interest within the tribe but they can charge foreigners. It is not clear why but from the risk perspective, your own tribesmen in a nomadic environment really has no place to go should they abscond. In addition, they need protection from their tribe against other tribes. Also, they are not allowed to marry outside their tribal family.

But those were ancient days with non-existent banks where you can earn interest on idle monies. In fact you need to incur costs to hoard it. In the modern world, there is no idle monies. With inflation, not charging interest means your money will decline in value.

Justifiable profit include a recovery for the risk, effort and capital invested by the lender. Some people think the capitalist should not expect a profit but the reward for entrepreneurship is actually profit, not salary or interest. It is the payback for all the preparation to reach a profitable venture after multiple failures and hardwork.