Debt Term

Usury describes loans with excessive interest rates or fees, benefitting the lender and exploiting the borrower. Sometimes calling loan terms usury or usurious is a moral or ethical statement, sometimes it is a legal statement when debt terms are a matter of law.

Debt and lending has been around almost as long as civilization. So has the religious assessment of charging interest. See the Wikipedia entry on Usury for a brief history. Today, Islam strictly forbids charging any interest on debt – in other words, all conventional lending is usury – although workarounds have been developed by Islamic banks.

Many countries regulate the maximum interest that can be charged. In the US that regulation lies with the 50 states. But, state regulations of interest rates tend to have very little practical impact. From FindLaw:

…nationally chartered banks may charge the highest rate allowed in the bank’s home state. This is why so many banks are located in states like Delaware and South Dakota, which have very liberal or nonexistent usury laws. So even if you live in a state that has a very low usury limit, it typically has no bearing on the interest you pay on your credit card.

And local banks can charge the same interest as national banks as the result of a 1980 federal bill. Only federally chartered credit unions have a mandated maximum of 18% annual interest.

Don Gooding

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