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Do You Believe in Usury? - Zer Netmouse
February 3rd, 2009
07:12 pm

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Do You Believe in Usury?
Poll #1343192 Usury should (or should not) be defined...

Do you believe a certain rate of interest on loans to be excessive?

Never thought about it
2(3.2%)
Maybe
1(1.6%)
No
3(4.8%)
Do you mean sinful?
1(1.6%)
Yes
36(58.1%)
Oh, yeah, high rates of interest suck
11(17.7%)
Indeed! I shall strike down the usurer in his sleep!
8(12.9%)

At what range do interest rates charged on borrowed funds start to seem exessive to you?

0-1%
1(1.7%)
2-5%
0(0.0%)
6-10%
9(15.5%)
11-15%
25(43.1%)
16-20%
13(22.4%)
21-25%
8(13.8%)
26-30%
1(1.7%)
31-40%
1(1.7%)
41-50%
0(0.0%)
Over 50%
0(0.0%)

Do you think governments should have usery laws defining specific limits as to what interest can be charged?

No
4(6.5%)
Yes
44(71.0%)
It Depends
14(22.6%)
Ticky box!
0(0.0%)

Do you think the interest limits on interpersonal loans and on lending institutions should be different?

No, they should be the same
20(33.9%)
Yes, individuals should have greater freedom in making personal loans than lending institutions
27(45.8%)
Yes, chartered lending institutions should have more freedom in making loans than individuals
1(1.7%)
How is that again?
11(18.6%)

Do you know if a certain interest rate is illegal where you live?

No, I don't know
45(71.4%)
Yes, my state maintains an interest rate cap for person-to-person loans
0(0.0%)
Yes, there are state and/or federal limits on interest rates for all people and institutions to prevent loan sharks from abusing the unwary
3(4.8%)
Yes, the federal government proscribes criminal levels of interest, defined in relation to the state limit on interest
0(0.0%)
As far as I know, there are no usury laws in effect where I live
4(6.3%)
Usury laws are complicated and vary depending on whether you are an individual, a state-chartered lending institution, or a national lending institution
1(1.6%)
There are state limits, but any nationally chartered bank is only required to follow the law of its home state
0(0.0%)
The "Depository Institutions Deregulation and Monetary Control Act" of 1980 exempted federally chartered savings banks, installment plan sellers and chartered loan companies from state usury limits and effectively undermined most usery laws
2(3.2%)

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Comments
 
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From:sraun
Date:February 4th, 2009 12:33 am (UTC)
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Re: the personal vs. institutional cap question - the first thing to leap to mind was loan sharks. Loan sharks should be capped - possibly loan sharks should be considered institutions? But, I also think that a person-to-person loan where there is no criminal organization involved should have somewhat greater leeway. I'm not certain how much, but not a lot.
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From:netmouse
Date:February 4th, 2009 12:48 am (UTC)
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So you're defining loan sharks as people who charge really high interest, or as people who have some sort of criminal leverage against the borrower (such as blackmail, threats of violence, etc)? I'm not sure what distinction you're making. Are you saying that as long as it's only an individual with no connections or previous history in lending, they shouldn't be capped, but if they make a practice of it they in effect make of themselves an institution?
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From:kenllama
Date:February 4th, 2009 12:34 am (UTC)
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more precisely on the last question: i know that there are some laws in effect here, but i don't know enough specifics to answer any way other than "i don't know". i do know that the "payday loan" places were until recently exempt from the usury laws, though. (we had a ballot measure to change that in november; i don't know when it takes effect.)
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From:netmouse
Date:February 4th, 2009 12:45 am (UTC)
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According to some quick reading I've done this evening, Ohio has a 21% interest rate cap - loans with higher interest rates cannot be pursued legally in Ohio, *unless* the bank issuing the loan is not located in Ohio and only the borrower is (i.e. most credit card companies), or the lending institution is exempt from usury laws according to the federal law I mentioned that went into effect in 1980.
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From:shekkara
Date:February 4th, 2009 01:34 am (UTC)
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I'm not sure how to answer the interpersonal loan question. If I make a loan to a friend, I don't expect the government to stick its nose into my business. On the other hand, loan sharks are a problem.

I don't actually know the law in the last question, though I always thought that the reason so many credit cards were based out of Deleware had to do with Deleware's less strict laws compared to other states.
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From:netmouse
Date:February 4th, 2009 01:40 am (UTC)
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The last question has checkboxes because more than one answer is right.

According to usurylaw.com (which may or may not be correct), Delaware limits interpersonal oans to 5% above the federal interest rate, but "Banks, savings and loans, and credit unions that are state-chartered are not subject to the usury laws that are on the books in Delaware for other types of person, non-commercial loans. Likewise, loans that are made by federally chartered financial institutions are not subjected to the statutory provisions in Delaware that pertain to usurious interest rates and related lending practices and procedures."

Michigan also has fairly strict interpersonal usury laws, and similar exceptions for state and nationally chartered lending institutions.
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From:shsilver
Date:February 4th, 2009 01:52 am (UTC)
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From:encorecrazay
Date:February 4th, 2009 02:04 am (UTC)
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In Texas, personal loans start getting regulated when they exceed 10%.
From:nicegeek
Date:February 4th, 2009 02:03 am (UTC)
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"At what range do interest rates charged on borrowed funds start to seem excessive to you?"

I don't think this one can have a simple answer; interest rates compensate the lender against the chance of the borrower defaulting, so they have to be viewed in light of the length of the loan, the borrower's history of paying their debts responsibly, whether there's any collateral, and what the current macroeconomic conditions are.

"Do you think governments should have usury laws defining specific limits as to what interest can be charged?"

Interest rate limits are a two-edged sword. Their intent is to keep "predatory" lenders from taking advantage of people who don't know what they're getting into. However, their side-effect is that people who might have only been able to get loans at a rate above the limit will not be able to get loans at all. While this keeps some irresponsible or uneducated people from taking out loans that they would not have been able to afford to pay back, it also makes it harder for those who have tarnished their credit history to get second chances from reputable lenders, which pushes them toward shady dealers where the late fees aren't just monetary.

Given the above, I think it's probably better not to limit interest rates. Having the rates be legal means that there will be more lenders for the borrowers to choose from, which puts them in a stronger bargaining position. However, it's critically important that they be educated enough to shop around for their loans. I also think that it would be appropriate to ban lending clauses that penalize early prepayment, since these serve to lock the borrower in if they later find a better deal.
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From:netmouse
Date:February 4th, 2009 02:13 am (UTC)
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I agree with you with regard to prepayment penalty clauses past a reasonable minimum processing time to keep paperwork/processing costs down (reasonable to me is 2 or 3 months).

I have to admit, I wonder if there's not an interest rate that actually raises the chance that someone will default on a loan, i.e. "take the money and run" rather than pay such an expensive loan back.

But, seriously, you don't have a problem with it if someone is charging 45-75% interest on a loan?

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From:dd_b
Date:February 4th, 2009 02:42 am (UTC)
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Sure, the interest total on a home mortgage is huge -- but that's also over 20-30 years! Not having the money for 20 years is worth something; people wouldn't do it if they didn't get something for it.
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From:theinterest
Date:February 4th, 2009 02:39 am (UTC)

All interest is usury

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At my blog page: http://wherestheinterest.com/2009/02/01/minn-ag-sues-allina-for-violating-state-usury-laws/, I talk about what is usury. Or rather, if we think of usury as "high" interest rates, the rate doesn't really matter.

From my blog:
"Let’s crunch some numbers. Say you have $10,000 in medical debt at 8% interest and you agree to pay this off in 10 years. You’ll pay $4559.31 in interest over that time. Now, how about we change the terms to 18% interest for 4 1/2 years. The amount of interest paid will be $4661.75.

So, is the amount of the interest rate really the problem? Sure, the payment will be larger for the shorter term, higher interest rate loan, but does that really mean that 18% is that much worse or more usurious then 8%? No."

And as for the other discussion on the value of interest rates, I invite you to watch a few videos on my blog. While you're at it. Learn how your money is all based on debt, or rather just the principal amount of this debt, and you'll begin to ask, "Where's the Interest?"

http://www.wherestheinterest.com
[User Picture]
From:netmouse
Date:February 4th, 2009 02:58 am (UTC)

Re: All interest is usury

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However, if you have $10,000 in medical debt at 8% interest you have agreed to pay off in 10 years BUT you pay it off in 4 1/2 years, you will have paid substantially less interest than for the 18% loan, especially if you paid it off in chunks big enough to re-ammortize the load along the way.
From:sethb
Date:February 4th, 2009 02:58 am (UTC)

Re: All interest is usury

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If I agree to pay $10,000 at 8% in 10 years, and I make larger payments (so it's paid off in 4.5 years) then the total interest I pay is a lot less. "Total interest paid" is irrelevant, money has time value.

Or would you consider that lending somebody $10,000 at 1% interest, with only interest payments ($100/year) due for the next 10,000 years, is evil because the total interest payments will be $1 million?

Go win the Russian million-dollar lottery and report back.
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