There was a time, not too long ago, when if someone loaned you money and charged you 29 percent interest they’d probably be called a “loan shark” and hauled off to jail.
That term, loan shark, is one you don’t hear much these days because the practice of usury has gone all respectable on us. It’s no longer the neighborhood wiseguy or shady character who employs it — it’s used by the bank down the street as well as most major U.S. lenders who issue credit cards.
Usury is the charging of an excessive interest rate on loans. The world’s three major religions — Christianity, Judaism and Islam — each include strict prohibitions against usury, but they’re rarely cited by politicians who regularly use other Biblical passages to justify their stance on issues. In all likelihood, that’s because Jesus, Yahweh and Allah don’t cough up the campaign contributions like the powerful banking industry does.
As wages have stagnated over the past decade while prices continue to rise, many Americans have turned to plastic more and more. While some use cards to get the latest flashy “must have” gizmo like flat-screen TVs and iPhones, others rely on them to cover necessities like medical bills and mortgage payments.
Many of us are living beyond our means, and banks are only too eager to exploit that.
A 2007 report by the Federal Reserve Board revealed there were more than 561 million VISA and MasterCards in circulation, an average of 4.6 credit cards per person. Most Americans carry $8,000 of debt on their cards, some considerably more.
Most creditors operate out of South Dakota and Delaware because their usury laws are virtually non-existent. The two states allow companies to raise their interest rates at any time and there’s no cap, so they can be increased to whatever rate lenders think consumers will tolerate.
This sorry state of affairs sounds like something concocted by the Republican Party of Reagan and Bush, but the Democrats and Jimmy Carter are mostly to blame for this clunker. Although GOP lawmakers were willing accomplices, it was the Democrat-controlled Congress in 1980 that abolished state usury laws. Before then, most interest rates were capped at 18 percent.
Bankers went to Washington and complained that the soaring inflation rate of that era was making it too expensive to lend money and they needed relief or the credit spigot would be turned off. Instead of tying interest rates to some objective measure, Congress basically said the sky’s the limit and Carter complied, signing the bill into law.
Consumers have been paying — literally and figuratively — for the blunder ever since.
Creditors now routinely hike the interest rate if a consumer misses a payment or is late, digging their hole of debt ever deeper. Some critics even say that credit card companies use mailing tactics that try to ensure a payment is late so they also can assess penalty fees.
This obsession with excessive profits actually has hurt banks. Credit cards became an increasingly larger part of their business in the 1980s and ’90s. Now, with the economy tanking and unemployment rising, they’re expecting a wave of people to default and cause write-offs.
As political author William Greider recently said, “Usury, to be clear about it, is rich people taking advantage of poor people by lending them money on terms that are sure to make them fail. … People of great wealth and their institutions like banks naturally have the power to overwhelm people of lesser means. And you can’t allow that in a decent society. It won’t survive.”
President Obama and Congress are promising significant credit card reform this year. The Senate this week is considering a bill that would allow consumers who are late on their credit card payments to revert to their older, lower rates if they pay their bills on time for six months. And more reforms are likely.
The changes can’t happen soon enough for most people. There is such a thing as excessive profit, and it hurts the public interest.
The Old Testament reads, “If one of your brethren becomes poor and falls into poverty among you, then you shall help him, like a stranger or a sojourner, that he may live with you. Take no usury or interest from him; but fear your God, that your brother may live with you.”
I’ve never liked proselytizing, but I’m all for Wall Street types cracking open their Bibles if it helps the common good.
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