The Influence of the Repeal of the British Usury Laws
The recent few years have experienced a dramatically high growth in the interest rates globally, which is also believed to have reach a historically high rate. This growth, with specific reference to the existing interest law, has resulted in serious concerns related to the development of credit markets.
The reasons behind the efforts on developing credit markets is essentially due to the reason that in quite a few jurisdictions, the restrictions on usury or the interest have normally stayed at the lower level of interest rates that were formerly established. The ultimate outcome of this is that debtors who are keen on paying the competitive rate for the money, often are realizing that they are officially inept of obtaining any form of financing. Eventually, they are left with the choice of either evading the law for getting the money they are in need of , or becoming prey to the other borrowers who would not be ready to offer that much, but who have the official permission to carry out such transactions due to the non-uniformity of the existing usury laws.
Regardless of the misrepresentations in the credit market, which are primarily a result of the ceilings placed on the interest rates, usury laws are seen to be continued in several jurisdictions even today. The primary aim of this essay is to offer an understanding and outlook related to the value of such limitations upon interest rates. In order to understand this, a brief reviewing of the history of usury laws and the explanation as applicable, the role played by interest rates, and a few of the outcomes of the restrictions that are placed on interest rates are presented in this essay.
Usury Laws – Historical Overview
The origins of the usury laws are essentially believed to have their roots in the dawn of documented history. Both the legal as well as the religious limitations on the interest rates were apparently believed to have been in circulation since the ancient times. According to recorded history, the Babylonians were the first people who actually allowed credit while also limiting the interest rate. One of the most primary records of the Bible, precisely in the Deuteronomy 23:19-20, it is stated that while an individual is restricted from lending money on the basis of usury to their own family members, they might to do so with strangers.
In the ancient Greek empire, Aristotle regarded money as being a highly sterile element, and that the generation of money out of money was atypical and rightly reviled. During the Roman Republic era of history, interest charges were completely banned, while the same was allowed during the Roman Empire.
During the early middle Ages, several religious leaders have been known to have deal with the subject in a highly exhaustive manner, and finally concluded in the same way as the Roman Republic as to stating that charring interest on loans was not the right thing and hence such a practice should not be entertained in the society at any cost. The ruthless mistreatment of the poor people by the rich and the powerful creditors who typically lend money on which they chare interest was regarded to be a highly sinful deed to the believers of that particular time period.
The people of Christianity strongly believed that humbleness and charity were the greatest virtues of humankind and thus ignored all sorts of earthly pleasures resulted out of the contemporary goods. Secular legislation replied to the influence of Church upon people and, typically, the terms interest rates and usury became popular as being synonymous to one another. The augmented economic activity along with the progress made by human beings in terms of individual freedom, which was majorly a result of the Renaissance, ultimately forced the myriad ranges of alternations that have taken place in the existing views concerning interest rates.
Legal precincts on interest payment were commonly eased during the 18th century; however, the notion about protecting the people who were in a position to obtain funds as debt from being troubled for the payment of large amounts of money as the interest for the money borrowed continued even after this. Eventually, several countries across the globe continued legally permissible usury rates at “rational” levels. In Great Britain, usury laws have been in practice since the 19th century colonial days. However, post the high degree of pressured the was created during the early years of the 19th century, the usury laws were repealed by Great Britain along with also several other trade related restrictions in the year 1854 to be precise.
The impact of the usury laws on the economy at large
Almost for a considerable part of history since the early l920s, the usury laws have been apparently very ineffective in nature, predominantly due to the interest ceilings that were constantly maintained at levels that surpassed the rate of interest that prevailed in the market. Regardless of this, with a boost in the inflation, and eventually a steep hike in the interest rates, since the late l960s, the usury laws have displayed a considerable impact on several of the global credit markets.
The impact of these laws on almost all of such credit markets have been considerably subjective and random in nature, and also have been weighed as having the maximum impact on the people seeking credit, who are normally the ones who are under the greatest risk.
According to Professor Roger Miller, the legislation pertaining to usury legislation, more often than not, is believed to be having negative impact essentially upon those whom are otherwise regarded to be protected by such laws. He demonstrates this inference by referring to the experience that the state of Washington D.C., wherein the consumer loans offered by credit card companies were normally at an average rate of 18 % per year. Consumer advocates however strongly opined that such rate was really too massive, and that poor people would be helped by a much lesser interest charge.
In the year 1968, the extreme interest rate was decreased by vote to about 12 %. Yet, even at such low rates of interest the extent of credit that was sought by consumers surpassed the supplied interest rate, and the customers possessing the feeblest rate of credit worth were the ones who were denied credit at the interest rate of 12 percent. Examples of a few consumers who come into this category of credit seeking lot are welfare mothers, people having past records of unstable job, and senior citizens among others were all those who belonged to this particular category of consumers. On the other hand, people of benefited from the decreased interest rates were those who are affluent, the ones with a great employment, and those who had the highest likelihood of the capacity to repay the credit taken.
More often than not, the borrowers classified as high risk, precisely the ones to whom credit is refused by the legal creditors due to the presence of usury laws, try getting the money elsewhere from the so called loan sharks who take no heed of the legally prescribe interest rate ceilings. The price that such susceptible debtors have to pay, for their act of seeking credit at awfully high rates of interests, which is considered illegal, and the competition existing amidst such unprincipled creditors is very narrow; and thus, in quite a few cases, the interest rates may be many times at a level that would have prevailed if there was no ceiling that was present on the interest rates.
There is a strategic role that is played by interest rates in any economy. The interest rates are the prices, and, as applicable in the case of any other prices, they aid a controlling function. They are the prices which allocate the funds that are readily available, and thus have a command over the resources, in terms of challenging uses.
Typically, the term “interest rate” is seen being used with specific reference to the return obtained over the marketable securities or a credit given out in the form of money. However, the idea of “interest rate” is possibly applicable to almost all sorts of goods in the market. They essentially reveal the price that is paid by the consumers for the very convenience of advance availability, the choice for more definite instead of the consumption rights that have very minimal chances, and the overall ability of the economy to utilize the available resources in such a way that they boost the overall output in the end.
Bowsher, Norman N. "Usury Laws: Harmful When Effective?" Research Publication. 1974. Web. 11 April 2016. <https://research.stlouisfed.org/publications/review/74/08/Usury_Aug1974.pdf>.
Crossway Bibles. The Holy Bible - English Standard Version. Wheaton, Illinois: Good News Publishers, 2007. Web.
Homer, Sidney. A History of Interest Rates. New Brunswick, New Jersey: Rutgers University Press, 1993. Print.
Miller, Roger L. Economics Today. San Francisco: Canfield Press, 1973. Print.