Usury

Definition of Usury

Usury is a rate of interest in excess of that permitted by law, according to William J. Miller. Usury may negate repayment of the excessive interest, or even the principal. In many jurisdictions usury laws or statutes do not apply to business (corporate or company) borrowings.

Introduction to Usury

Usury, in law, a payment of interest, by a borrower to a lender for the use of money, in excess of the amount fixed by statute. In the U.S. the permissible maximum interest rate varies among the states. In the early 1980s, several states had removed all ceilings on interest rates. The remainder of the states fix a legal interest rate, which determines the amount that is collectible in the absence of a definite agreement between the parties, and some states fix a maximum interest rate that may be charged by agreement, or contract, between the parties. In 1981, for example, the legal rates ranged from 5 to 12 percent, and maximum contract rates ranged from 7 percent to an unlimited amount.

Penalties for violations of the usury laws vary. In most states the penalty is loss of interest by the creditor; in some states the creditor can recover principal and legal interest, losing only the excess interest; and in a few states a usurious contract is wholly void and the creditor forfeits both interest and principal.

The charging of different prices for sales on credit or installment payments, as compared with sales for cash, does not make a transaction usurious. Service charges incurred in making the loan likewise are not usurious, unless they can be shown to be a disguise for excessive interest. Only in modern times has payment of interest for the use of money been considered a legitimate form of income. The term usury was formerly applied to any kind of interest, and not, as at present, to excessive interest charges.” (1)

Usury in 1889

The following information about Usury is from the Cyclopaedia of Political Science, Political Economy, and the Political History of the United States by the Best American and European Writers:

“Instead of the prohibition of interest which prevailed in mediæval times, most modern states have established fixed rates of interest, the exceeding or evasion of which, by contract or otherwise, is declared null and void, and is usually punishable as usury. It the fixing of the rate is intended to depress the rate of interest customary in the country, it uniformly fails of its object. If governmental control were great enough, vigilant and rigid enough, which is scarcely imaginable, to prevent all violations of the law, it is certain that less capital would be loaned than had been, for the reason that every owner of capital would be largely interested in employing his capital in production of his own. More capital, too, would go into foreign parts, and there would be less saved by those not engaged in any enterprise of their own. All this would happen to the undoubted prejudice of the nation’s entire economy.”

The Legal History of Usury

This general section provides an overview of Usury and its historical context.

Illicit Commercial Gain (Rib) in Islamic Law

See the main entry of this legal history topic.

Usury in the Medieval and Post-Medieval Roman Law

See the main entry of this legal history topic.

Resources

See Also

• History of Law
• Interest Rate Risk
• Excess Return
• Debt
• Marine Interest
• Banks
• Effective Interest Rate
• Riskless Rate Of Return
• Hot Money
• Discount Rate

Notes and References

1. Information about Usury in the Encarta Online Encyclopedia

Guide to Usury

Further Reading

• Usury in the Oxford International Encyclopedia of Legal History (Oxford University Press)
• The Oxford Encyclopedia of American Political and Legal History (Oxford University Press)
• Usury in the Dictionary of Concepts in History, by Harry Ritter
• A Short History of Western Legal Theory, by John Kelly