It was a fusty old concept, straight out of the Bible but also traceable to earlier authorities. It had quite a bit of currency back before you could walk into a room full of consumers and say 17 percent without anybody blinking.
But that was months ago, way back before inflation, bankers and the Federal Reserve Board began altering people's notions about acceptable interest rates -- before state legislatures began nudging usury ceilings skyward or even eliminating them in the case of South Dakota.
The idea of protecting consumers from high interest rates even when it meant they couldn't borrow money was a durable notion. That very durability may mean that the concept of usury will survive the beating it is taking now.
"Anything that's been that persistent thoughout history, one cannot easily dismiss," said Bill Bosies of the American Bankers Association. But Bosies noted, "I think we're looking at a situation where traditional fixed usury ceilings are not as visable as they've been."
If so, we are looking at a major transformation in one of the world's earliest legal concepts.
"Originally all interest was considered to be usurious. Money was considered to be barren and should bear no fruit," said Sidney Moore, a Georgia attorney who specializes in the debtor side of consumer credit.
"You can go back to the writings of Plato and Aristole and find that the bias against making money by lending money is not based so much on religious grounds as a belief that lending money was not a particularly productive enterprise."
The Old Testament's hard-headed position was: "Unto a stranger thou mayest lend upon usury; but not unto thy brother thou shalt not lend upon usury."
That was amplified by the Christians, whose attitude was "that money was evil . . . that to make money out of money by charging interest on a loan was the sin of usury," according to historian Barbara Tuchman in her book "A Distant Mirror."
"No economic activity was more irrepressible than the investment and lending at interest of money," wrote Tuchman. "It was the basis for the rise of Western capitalist economy and the building of private fortunes . . . Nothing so vexed medieval thinking . . . as the theory of usury. Society needed moneylending while Christian doctrine forbade it."
To get around the dilemma, "for practical purposes, usury was considered to be not the charging of interest per se but charging at a higher rate than was decent," according to Tuchman. In 14th century Europe, "this was left to the Jews as the necessary dirty work of society, and if they had not been available they would have had to be invented," she said.
In a handful of countries such as Saudi Arabia, where Islamic law is the common law of the land conservative Moslem scholarship holds that a prohibition in the Koran precludes charging any interest. In practice, however, interest is charged, although the practice might not survive a court test, according to Sharif Hassan, an attorney at the World Bank.
The concept of usury followed the Europeans to the New World. By that time, 6 percent was a generally accepted ceiling among the English, and 6 to 8 percent ceilings were generally adopted in the colonies, Moore said.
The English also exported to the United States something called the "time price doctrine," said Moore. Basically this doctrine held that if a seller sold his wares for cash, then one price applied. If the price was to be paid over a period of time, it could be sold for a higher price. "The difference between the cash price and the time price would not be considered interest" and therefore exempt from usury ceilings, Moore said.
It was the time price doctrine that allowed almost unlimited finance charges on pedal sewing machines and other products of the industrial revolution -- a time when merchants began to understand the time-price doctrine for the bonanza it was.
"Most states did not move to regulate time price sales until the 1950s and 1960s," Moore said. "What happened was that the courts began to reverse themselves and hold what previously had been held to be a time-price sale to in fact be a loan." What quickly followed were state laws governing retail installment sales and motor vehicle sales and bringing them under usury ceilings.
There was another major development during the early part of the century, said Moore. At the 8 and 10 percent rates prevailing it was impractical to make unsecured loans and loans for a short time. "The result was a tremendous amount of loan sharking," he said. In response, small loan acts were adopted allowing small loans for a short time period to be made at higher interest rates.
As late as the end of the 1970s, 8 to 10 percent usury ceilings were common. Since that time, however, lenders have been successful in getting the ceilings lifted much higher or eliminated altogether in a number of states. In the District of Columbia, for instance, the usury ceiling on mortgage loans went from 8 percent to 10 percent in 1974. Then, in early 1979, rates were raised to 11 percent. Last fall the city council raised them again to 15 percent.
Since then Congress has effectively removed interest rate ceilings on mortgage loans. Loans climbed as high as 17 percent.
"The big push now is market rates -- you've got to let the market set the rates," said Moore. "Usury now no longer has religious overtones and it frustrates the markets, but the reasons for having usury laws is still there."
Lenders have argued that keeping interest rates low, if it dries up all loans, is no favor to the consumer. "Usury celings are not protection for consumers," said Bosies. "When rates are at celings, what tends to happen is that loans dry up, and consumers don't get the money.
In South Dakota, where all ceilings were eliminated, "a lot of the demand to eliminate ceilings came from people who were consumer-oriented," said Jack Oberlitner, South Dakota's secretary of economy and tourism development. "It was realized by the banking community and the consumer community that either we eliminate usury rates or we're not going to have any capital available in the state."
But that may not be the worst outcome, according to Moore, whose practice is defending consumers who have gotten strung out on credit. Usury ceilings are still necessary to protect buyers who may be "in such financial strats they will sign anything to get money" and "a large contingent of people, including upper income people, who sign contracts but don't know what they mean," he said.
Moore previously practiced in Arkansas, which has had a 10 percent ceilings on consumer loans in its 100-year-old constitution. There, he said, he saw few loan collection cases.
"Everybody seemed to have a little savings because you have to have that rather than borrowing to meet emergencies," he said. "The thing that impressed me so much was that, whereas in Arkansas everybody seemed to be getting along without borrowers, in Georgia where there are (higher rates and numerous loan companies), they are eating people alive."
"Last year there were 83,000 pieces of civil litigation filed in the Fulsom County (Atlanta) courts, most all of which were collection cases," he said. There is a tremendous volume of litigation, harassment and foreclosures. You really have wonder if it is worth it to have the availability of so much consumer credit."