Usury

[Gabriela]

This is an outstandingly clear, simple article explaining a much-misunderstood topic: http://www.hprweb.com/2015/09/economic-injustice-hidden-in-plain-sight/#comment-195217

An excerpt:

What is Usury?
Because usury was often associated with interest, the two soon become synonymous. Without making the distinction the prohibition becomes nonsensical, and usury simply becomes charging an inordinately high rate of interest. But the distinction is more nuanced than that.

In addressing the sin of usury in the Summa Theologiae3, St. Thomas makes a very important distinction. He points out that there are two types of goods that can be borrowed/lent. There are those that are consumed with their use, and those that are not (we would call these productive goods). For example, a bottle of wine is consumed with its use, and a plow is not. When someone “borrows” a bottle of wine, to consume the wine is to use it. When the bottle of wine is “borrowed,” ownership of it actually is transferred, and one would not return the same bottle of wine, but instead some other just medium of exchange (money, a similar valued bottle of wine, etc.). In the second case of the plow, one would borrow the plow, and then return it once he was finished with it.

Understanding this distinction between the two types of goods is important because in the first case, to charge for both the bottle of wine, and for them to drink it, is to charge for what is essentially the same thing. This price for a consumable product’s use is called “usury.” On the other hand, because the plow is not consumed by its use, one may both borrow and return the plow. It is also just to charge for its use because of the “cost” to the lender (e.g. wear and tear on the plow, personal loss of not having the plow, transportation costs, etc.).

St. Thomas also adds an important corollary to this by saying that every transaction, including borrowing and lending, must be to the mutual advantage of both parties. This means that neither party should shoulder an unfair portion of the burden. When the transactional burden is greater for one of the parties, then this constitutes an offense against commutative justice.4

The point of this corollary is that if paying more for something than it is worth, or selling a thing for less than it is worth, is unjust, then there can be fees associated with borrowing. The lender should never end up in an inferior position than he would have been had he not made the loan. He should be compensated to make up for damage or loss of profit. This is why there has always been a distinction in classic Catholic thought between usury and interest. Usury consists in the “intention of gain” while interest is a compensation for loss.

Finally, we must say a word on interest itself. It has been thought that legitimate interest comes from two sources. With the rise of modern economies, the question of whether licit interest might include not just immediate costs (dammum emergens), but also loss of forgone profits (lucrens cessans) as well was visited. It certainly seems reasonable that if the lender can demonstrate the ability to use the funds in a productive way, then there is nothing inherently unjust about including both under “costs” for the lender.

Money: Consumable or Productive Good
While it may now be clear that usury attached to consumable goods is wrong, one can rightly ask which kind of good money is. After all, the whole argument against usury depends on the assumption that money is not a productive asset. But money is a fixed medium of exchange, and can only be sold (lent) for its fixed price. Owning money means simply that one has the right to use the money to buy something. In other words, ownership and use cannot be separated. Once money is lent, the borrower is now the owner.

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In a culture that is completely consumer driven, usury is ubiquitous. So much so that to turn away from it now could have profound effects. Take for instance the Credit Card industry. It is usurious at its roots. They charge a fee (presumably related to their cost of lending) to the seller (usually 3%) when a credit card is used. They then charge interest to the consumer (usually in the neighborhood of 10%-20%, sometimes more) in order to turn a profit on their lending. But because their presence allows more consumption, we tolerate the usury, and even turn a blind eye.

Another area is the Home Mortgage market. Again, there is a mixture of legitimate interest and usury in this industry. Most mortgage companies will charge fees upfront, referring to them as “Origination Fees,” in order to cover their cost in lending. Above that, everything else is usury.

First of all, the borrower almost always pays significantly more than the just price—meaning the price of the home at the time of payoff, even if one added in costs associated with lending. A typical home mortgage is really the bank purchasing the property, and then reselling it to the buyer at a higher price paid at a future date. This total price is usually well above the actual market value.

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In his latest social encyclical, Laudato Si’, the Holy Father spoke of the “grave problem” of a lack of housing for all members of society, and offers some solutions.10 But unless one of the main causes is rooted out, namely that a basic need such as shelter has become an opportunity for an upward wealth redistribution, then any solution is little more than a Band-Aid.

Likewise, many of the environmental problems that he mentioned are a result of over-consumption, especially in the First World. Imagine the change in unnecessary consumption if there were a change in the amount of available consumer credit, which would most surely come about if usury were removed from the picture.

Obviously, usury is not the cause of all our social ills, nor would changes in its practice solve the world’s problems, but it is a serious source of injustice that affects both First and Third World countries. If what St. Thomas says, namely that a in a society where unjust exchange transactions dominate, eventually all exchange will cease,11 then the Church, in her concern for the common good, ought to be making her explanations of this injustice more widely known.

Perhaps, this is more of a sign of the current disunity in the Church, but a moral consensus about the issue of usury, in and of itself, can have a tremendous impact. A number of large Wall Street banks have begun to offer Sharia compliant banking as a concession to Islamic teaching on usury.12 While there are some differences in the Muslim understanding of usury, they are still forbidden from charging riba (usury), or profit on loans. There is no reason that the Church should not expect similar results if she were to make a unified effort to fight this unjust practice.