Easy Essay – Usury in the Modern World
If you lend money to any of my people, to any poor person among you, you must not play the usurer: you must not demand interest.
If you take another’s cloak as a pledge, you must give it back before sunset. It is all the covering he has; it is the cloak he wraps his body in; what else would he sleep in? If he cries to me, I will listen, for I am full of pity.
(Exodus 22: 24-26)
The above passage is a particularly good example of the Old Testament’s clear prohibition against playing the usurer by demanding interest on loans. In the last issue of The Common Good, Fr. Jim Consedine wrote on this, and he has since asked me to comment as a person who lectures on money and banking at Canterbury University.
Over the centuries many Christian scholars have attempted to explain the prohibition against usury as something that arises from the nature of money itself. Money was said to be barren, for example, and so it was said to be unjust for lenders of money to demand interest for its use.
The reason I like the above quote, however, is that the second half of it offers a far simpler explanation. It refers to a situation where a poor person needs a loan, and has nothing to offer for security except his cloak. This is permitted, but the cloak must be returned before dark since ‘what else would he sleep in?’
In my view, this is the important test. Whether interest on a loan is just or not depends on the impact it has on the borrower. In my view, this means we cannot make a blanket ban against the practice of paying interest, but must look at specific examples to judge whether usury is involved.
Consider, for example, the case where a firm approaches its bank for a loan to purchase new machinery that will generate profits for the firm. There is no compulsion on the firm to ask for the loan, and profits will cover its interest commitments. In this case, it seems to me reasonable for the normal rules of commerce to apply, and interest on the loan should be paid.
Similarly, if a person borrows money to purchase a house, the mortgage is backed by a major asset and the interest payments are covered by the amount saved from not having to pay rent to a landlord. Again this does not seem to me to involve usury.
But consider the case of a poor family facing an unexpectedly large electricity bill in the middle of winter. If the bill is not paid, the electricity will be cut off. Demanding interest on a loan under these circumstances is, I believe, usury. The person is not borrowing to purchase an asset, but needs the money simply to survive.
I think this is a general principle. If a borrower is forced by circumstances, particularly by poverty, to ask for a loan, then the common good demands that the lender must not be allowed to exploit the situation by charging interest or by depriving other basic needs.
Indeed, this principle means we need to go further than this when talking about usury in the modern world. Even when there is no interest charged, is it just to offer loans rather than grants when people are desperate for the necessities of life?
In our own social security system, for example, more and more people are being forced to take out ‘Special Loans’ that must be repaid out of benefits that have already proved inadequate. On the global stage, the campaign to cancel third world debt is based on recognising that the debts are a millstone around the neck of some of the poorest and most vulnerable people on earth.
Our common humanity urges us to hear the cries of the poor suffering from debt, and to respond with compassion.
Paul Dalziel is an economist and a member of the parish community of St Joseph the Worker, Lyttelton.