Usury still Rules

In the credit crisis – it is notable that it is called this and not the savings crisis - we hear a lot about rates of interest. You’d think that official interest rates were the be-all and end-all of people’s woes or wealth. But there’s much more to effective economic management than the manipulation – legitimate or otherwise - of certain rates of interest as any unreformed Keynesian such as myself will tell you!
Interest - the price charged for the use of money over time - remains a contentious subject. The Medieval Christian Church saw banking as usurious regardless of the rate of interest applied. The Old Testament (Deuteronomy, 23) allowed interest charges only to foreigners! Islamic opinion is that overt charges for the use of money are sinful.
We hear about sporadic action against loan sharks. This is good of course and Birmingham has led the way in this. But as ever the law is weak and stupendous rates of interest can be charged quite legally. Governments refuse to set a legal limit. This allows vulnerable people to become victims of usury – exploited and trapped in perpetual debt.
A survey carried out in Birmingham twenty years ago (and it is still highly relevant today) showed that equivalent annual rates of over 100% for money lending to be common. At a 100% rate debt will double yearly if capital is not repaid.
In fact this little publicised survey found loans with annual rates of over 1000% - in which case debt can increase tenfold in a year. All this points up the importance to small borrowers of joining a Credit Union and avoiding this appalling usury.
There was even one case of loans charged at an annual equivalent rate of 4,822%! To illustrate the financial enslavement consequent upon this unimaginable usury, at this astronomical rate the liability from borrowing £1 would, in the absence of capital repayment, in eight years exceed the entire UK Gross National Product!
And outrageous annual equivalent rates around these levels are still in operation today, being applied by the mushrooming payday loans ‘industry’ with over 200 outfits in operation. For example the Wonga AER is 4,214%. But appalling as this is, it is exceeded by the AER for unauthorised overdrafts charged by some commercial banks!
It is no use wittering on about regulation or private enterprise. The first doesn’t work and the second generates private cash from vulnerable sections of the public.
‘Self regulation’ is a contradiction in terms and official regulation doesn’t work - as we’ve seen no end of times in the areas of finance, domestic fuel prices, petroleum pricing etc. The problems are too deep seated (tax dodging by corporations and rich individuals is another) and represents a character flaw in both individuals and industries.
This is why there is a need to establish publicly owned exemplar institutions, such as municipal banks, that will operate on fair, reasonable and moral bases and draw off some of the captive business from the grasping and cheating sections of the private sector. Until that is done, usury and exploitation will still rule.