Usury involves lending money at an extremely high interest rate, one that is either not permitted by law or deemed too high for the borrower to feasibly pay back. What constitutes usury varies from country-to-country, as in some countries charging any interest at all is forbidden, while in others the amount of interest charged must be morally or ethically justifiable. This is of course, difficult to determine. Someone who practices usury is called an usurer or a loan shark.
Usury in the United States
Usury is determined by the individual states across the United States. Usury laws determine the maximum level of interest that may be charged on a loan. Each state has its own individual statute which identifies the level of interest that is considered illegal. Lenders who charge more than an illegal interest rate risk losing the money they have loaned, as lenders are not allowed to sue a borrower who cannot repay the debt incurred. Charging an illegal interest rate effectively cancels out the legitimacy of the loan.
Types of Usury
Companies in the business of loaning money, such as banks and consumer loan businesses are restricted in the amount of interest they can charge. This also applies to loans between private persons, such as family members or friends. For instance, if you agree to loan an acquaintance $2,000, the amount of interest you charge on the loan cannot exceed the state usury statute. People who charge excess interest and then threaten to extort the individual who cannot pay back the money may be accused of usury. The people likely to borrow money from someone who will charge them more interest than the state usury statute usually do not qualify for a bank loan or other form of credit, leading them to feel as though they have no other option. This may occur in organized crime circles, where loan sharks rely on income from high interest rates as a source of income.
Examples of Usury
“Rent-to-own” schemes are a common example of a grey area when it comes to usury. Rent-to-own (RTO) agreements involve businesses that charge for the rental of goods such as electronics, furniture, and appliances. Approximately three million people generate four billion dollars worth of revenue for the RTO industry each year. An RTO contract permits a consumer to rent something for one week or one month. By the end of the specified period, the customer may choose to end the agreement or continue renting the item by providing another payment. The contract must be renewed a specified number of times – often totally a period of a year and a half – before the consumer legally owns the rental item. However, the total price paid for the item is usually far greater than the actual cost of the item. Had the item been sold as a credit sale, it would be considered a violation of state usury laws.
Usury is a crime that involves charging above and beyond a determined level of interest. In the United States, this level is determined by state usury laws. Usury is often committed by loan sharks, who are likely to work within organized crime networks and loan money to people who don’t qualify for legitimate loans. Rent-to-own schemes are one example of a grey area when it comes to state usury laws.