Usury Redux: Notes on The Scholastic Analysis of Usury by John T. Noonan

I summarize the key points of the scholastic theory of usury following The Scholastic Analysis of Usury by John T. Noonan. Usury is the sin of taking interest on a loan without a just title. According to Scholastic moral theology, interest on loans may be justified by the extrinsic titles to damnum emergens and lucrum cessans, i.e. for losses incurred or for profits lost. Implications of this teaching are discussed with regard to other contracts, such as partnerships, the census contract, bills of exchange and “dry exchange,” insurance contracts, and the so-called triple contract. Also discussed are the changes in the practices of confessors that occurred between 1822 and 1836.usury, commutative justice, Catholicism

History of Usury: The Transition of Usury Through Ancient Greece, The Rise of Christianity and Islam, And the Expansion of Long-Distance Trade and Capitalism

Society and its ideas, markets, and institutions are in the constant process of change. These transforming factors contribute to the evolution of economics. Usury is one prominent economic issue that demonstrates this evolution. As it has developed, usury, the lending of money at interest or excessive interest, has been debated for almost two millennia. During the lifetime of Aristotle, 384-322 B.C., the lending of money for profit was believed to be unnatural and dishonorable. Aristotle and his beliefs of usury provided a foundation of ideas for future perspectives on the practice. This negative connotation associated with usury continued in history as is evident in the development and spread of Christianity and Islam during the Middle Ages. The Christian church drew on biblical passages and moral and religious reasons to define usury as a sin. The Church placed a ban on the practice of usury to prevent this “evil”. In Islam, the Quran and the teachings of the Prophet Muhammad led Muslims to also view usury as a crime. [excerpt

BAANKRUPTCY-Usury-Plaintiff\u27s Claim for Compound Interest Ruled Usurious; Simple Interest Disallowed to Give Effect to State\u27s Deterrence Policy

Usury is the charging of interest for the use of money as a rate in excess of that permitted by statute. The Bankruptcy Act allows the trustee-in-bankruptcy to plead the defense of usury to a creditor\u27s claim. A debtor-in-possession in a Chapter XI proceeding, who has all the rights and powers of the trustee, may also assert the defense of usury. There is, however, no federal usury statute and the Bankruptcy Act defines neither usury nor its effect. To resolve the usury issue the bankruptcy court has to look to the law of the jurisdiction in which the loan arose. The conflict among the state jurisdictions as to the effect given to an usurious loan obscures bankruptcy\u27s traditional distinction between the allowance and the enforcement of a claim. Relying on an unconstrued and unenforced criminal usury statute to invoke local deterrence policy, the court deprived a good faith lender of the proper determination of his ratable share in the bankruptcy distribution

Interest rate restrictions in a natural experiment: loan allocation and the change in the usury laws in 1714

This article studies the effects of interest rate restrictions on loan allocation. The British government tightened the usury laws in 1714, reducing the maximum permissible interest rate from 6% to 5%. A sample of individual loan transactions reveals that average loan size and minimum loan size increased strongly, while access to credit worsened for those with little social capital. Collateralised credits, which had accounted for a declining share of total lending, returned to their former role of prominence. Our results suggest that the usury laws distorted credit markets significantly; we find no evidence that they offered a form of Pareto-improving social insurance.Economic development, banking, financial repression, usury laws, credit rationing, natural experiments, lending decisions

Usury, Calvinism, and Credit in Protestant England: from the Sixteenth Century to the Industrial Revolution

This study analyses the impact of Protestantism on interest rates in England from the 16th century to the Industrial Revolution. One of many myths about the usury doctrine - the prohibition against demanding anything above the principal in a loan (mutuum) - is that it ceased to be observed in Reformation Europe. As several authors have demonstrated, however, early Protestant Reformers, beginning with Luther, had essentially endorsed the long established Scholastic usury doctrines. The one major exception was Jean Calvin. Though retaining a strong hostility against usury, he permitted interest on commercial loans, while forbidding usury on charitable loans to the needy. That view may have been partly responsible for a crucially important breach in civil support of the usury doctrine. The first, in 1540, was an imperial ordinance for the Habsburg Netherlands permitting interest payments up to 12%, but only for commercial loans. In England, Henry VIII's Parliament of 1545 enacted a statute permitting interest payments up to 10% (on all loans); any higher rates constituted usury. But, in 1552, a hostile Parliament, with radical Protestants, revoked that statute, and revived it only under Elizabeth, in 1571. Since the maximum rate was also taken to be the minimum, subsequent Parliaments, seeking to foster trade, reduced that rate: to 8% in 1624, to 6% in 1651 (ratified 1660-61), and to 5% in 1713: a rate maintained until the abolition of the usury laws in 1854. The consequences of legalizing interest payments, but with ever lower maximum rates, had a far-reaching impact on the English economy, from the 16th century to the Industrial Revolution. The first lay in finally permitting the discounting of commercial bills. Even if medieval bills of exchange had permitted merchants to disguise interest payments in exchange rates, the usury doctrine nevertheless required that they be non-negotiable, held until maturity, since discounting would have revealed the implicit interest. Evidence for the Low Countries and England demonstrates that discounting, with legal transfers either by bearer bills or by endorsement, with full negotiability, began and became widespread only after the legalization of interest payments in both countries. The importance for Great Britain can be seen in the primary role of its banks during the Industrial Revolution: in discounting commercial bills, foreign and domestic, in order to finance most of the working capital needs for both industry and commerce. The second is known as the Financial Revolution; and its late introduction into England, from 1693, was in part due to the limits imposed on interest rates. In its final form (1757), it meant the establishment of permanent, funded, national debt based not on the sale of interest-bearing bonds but on perpetual annuities or rentes. The origins can be found in 13th-century northern France and the Low Countries in reaction to the vigorous intensification of the anti-usury campaign by the new mendicant orders, the Franciscans and Dominicans. Fearing for their mortal souls, many merchants refused to make loans and chose to finance town governments instead by purchasing municipal rentes (annuities). In 1250, Pope Innocent IV ruled that no usury was involved, because those buying rentes could never demand redemptions. Instead, they were licitly purchasing future streams of income. Continuing debates were not finally resolved until the issue of three 15th-century papal bulls (supporting Innocent IV). By the 16th century, the finances of most western Europe states had become largely dependent on selling both life and perpetual annuities. England was thus a late-comer, in importing this system of public finance. Fully immune to the usury laws, this Financial Revolution permitted the English/British governments to reduce borrowing costs from 14% in 1693 to just 3% in 1757, so that the British economy could finance both 'guns and butter', without crowding out private investments. Furthermore, since these annuities (Consols) were traded internationally on both the London and Amsterdam stock exchanges, they were a popular form of secure investments, which became, with land, the most widely-used collateral in borrowing for the fixed capital needs of the Industrial Revolution.usury, interest, annuities, bonds, public finance, bills of exchange, discounting, Scholastics, Old and New Testaments, Calvin, Luther, Protestant Reformers, Dissenters, Financial Revolution, England

Abusive Credit Card Practices and Bankruptcy: Hearing Before the S. Comm. on the Judiciary, 111th Cong., March 24, 2009 (Statement of Associate Professor Adam J. Levitin, Geo. U. L. Center)

The Marquette decision created a regulatory arbitrage possibility that set off a regulatory race to the bottom. Congress should act to close this loophole. There is a reasonable debate to be had on usury regulations, but that is one that should be held in legislatures, not determined by the Supreme Court\u27s interpretation of a hoary statute. A 1970s interpretation of an 1863 law should not be what determines 21st century consumer credit regulation. Congress should permit the states, the laboratories of democracy, to go further than S.257 if they wish in regulating high-interest-rate consumer credit. This essential consumer protection power should be restored to the states. S.257 offers an important protection to consumers and responsible creditors, eliminates an incentive to game the bankruptcy system, and encourages responsible lending. These protections will help ensure fairer, safer, and sounder consumer credit. Now, more than ever, consumers and creditors need reforms that will create a fair and sustainable credit system. I urge the Congress to pass S.257