I received a recent credit card promotion touting the following offers: 0 percent Annual Percentage Rate for 12 months; 28.49 percent APR thereafter for balance transfers. 0 percent for 12 months; 29.99 percent variable APR thereafter for cash advances.
If this strikes you as usurious highway robbery one step short of loansharking, it’s because it is.
Unfortunately, there is no federal law (however, see below) that sets maximum interest rates on all consumer loans. To the extent rates are capped, they are restricted at the state level. The first U.S. usury laws date back to the 18th century when interest rates on loans were limited to a maximum of 6 percent. Some of these laws are still in effect today. However, exceptions have been carved out by state legislatures for payday loans, credit cards, auto loans and more, many big enough to render the concept of usury ludicrous. Most states have exempted banks from their lending laws in order to entice them to set up shop there. Online installment lenders are also exempt from most state lending laws and are allowed to charge rates as high as triple digits. Six states allow interest rates of more than 100 percent. Mississippi, the worst offender of the usury concept, sets its APR rate cap at just over 300 percent. This is not a typo.
Many states have different rate limits for different types of loans depending on the amount and duration of the loan.
The Military Lending Act is the only federal law that governs lending rates. It sets the cap at 36 percent APR for active duty military members and their dependents. The law supersedes all state lending laws. Consumer advocacy groups such as the National Consumer Law Center (NCLC) and the Center for Responsible Lending (CRL) advocate that the 36 percent rate cap should be made applicable to all consumers. While a feeble first step in reining in usury, it would make payday and other high-cost lending nationwide moderately more palatable.
What makes even such a modest reform unlikely is the relative lobbying clout (translation: limited resources) of consumer organizations vs. the massive amounts of money lenders devote to lining the pockets of congressional and state legislative members. The financial sector is far and away the largest source of campaign contributions to federal and state candidates and political parties. No other industry comes close. In the current campaign cycle (2023-24), the top ten financial sector donors alone have thus far showered federal candidates with $320,551,000. In the prior election cycle, the total amount of largesse flowing from banks, payday lenders, credit card companies et al. to federal politicians exceeded $1 billion for the first time. (per Open Secrets). It is destined to go way beyond that this go-round.
Historically, usury used to be a bad word and even worse deed. Both the Old Testament and the Koran condemned it. Interestingly, the overwhelming bulk of campaign contributions from the pro-loansharking crowd find their way into Republican pockets, including those who claim that they live by the Bible.
America is hardly unique in legalizing what by any definition amounts to corruption. The difference here, as opposed to other purported rule-of-law countries, is that our representatives have made it into a high art. Small wonder people like Sen. Bob Menendez (D-NJ) think nothing of stashing (allegedly) ill-gotten gold bars around their houses. Small wonder that so many people feel that “the system” is rigged against them. It is.
Dick Hermann
June 16, 2024
If this strikes you as usurious highway robbery one step short of loansharking, it’s because it is.
Unfortunately, there is no federal law (however, see below) that sets maximum interest rates on all consumer loans. To the extent rates are capped, they are restricted at the state level. The first U.S. usury laws date back to the 18th century when interest rates on loans were limited to a maximum of 6 percent. Some of these laws are still in effect today. However, exceptions have been carved out by state legislatures for payday loans, credit cards, auto loans and more, many big enough to render the concept of usury ludicrous. Most states have exempted banks from their lending laws in order to entice them to set up shop there. Online installment lenders are also exempt from most state lending laws and are allowed to charge rates as high as triple digits. Six states allow interest rates of more than 100 percent. Mississippi, the worst offender of the usury concept, sets its APR rate cap at just over 300 percent. This is not a typo.
Many states have different rate limits for different types of loans depending on the amount and duration of the loan.
The Military Lending Act is the only federal law that governs lending rates. It sets the cap at 36 percent APR for active duty military members and their dependents. The law supersedes all state lending laws. Consumer advocacy groups such as the National Consumer Law Center (NCLC) and the Center for Responsible Lending (CRL) advocate that the 36 percent rate cap should be made applicable to all consumers. While a feeble first step in reining in usury, it would make payday and other high-cost lending nationwide moderately more palatable.
What makes even such a modest reform unlikely is the relative lobbying clout (translation: limited resources) of consumer organizations vs. the massive amounts of money lenders devote to lining the pockets of congressional and state legislative members. The financial sector is far and away the largest source of campaign contributions to federal and state candidates and political parties. No other industry comes close. In the current campaign cycle (2023-24), the top ten financial sector donors alone have thus far showered federal candidates with $320,551,000. In the prior election cycle, the total amount of largesse flowing from banks, payday lenders, credit card companies et al. to federal politicians exceeded $1 billion for the first time. (per Open Secrets). It is destined to go way beyond that this go-round.
Historically, usury used to be a bad word and even worse deed. Both the Old Testament and the Koran condemned it. Interestingly, the overwhelming bulk of campaign contributions from the pro-loansharking crowd find their way into Republican pockets, including those who claim that they live by the Bible.
America is hardly unique in legalizing what by any definition amounts to corruption. The difference here, as opposed to other purported rule-of-law countries, is that our representatives have made it into a high art. Small wonder people like Sen. Bob Menendez (D-NJ) think nothing of stashing (allegedly) ill-gotten gold bars around their houses. Small wonder that so many people feel that “the system” is rigged against them. It is.
Dick Hermann
June 16, 2024
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