Usury and payday loans: An unreasonable comparison

A woman wearing a dress made of gold coins. That's exorbitant and unreasonable, at least in most people's minds. Payday lending is neither of those things, as you'll see.

This could be considered exorbitant or unreasonable, much like usury. Payday lending, however, meets neither of those criteria. (Photo: ThinkStock)

Payday lending has been criticized on numerous grounds by a variety of sources, but inevitably these criticisms tend to point back toward a single source: usury. Lending and the charging of interest – even the concept of “exorbitant or unlawful rate of interest,” as a Google search defines usury – very likely predate the creation of the Judeo-Christian Bible and similar monotheistic world religious books. And it is within such books that the staunchest foes of payday lending find their reason for equating payday loans with usury. But as careful examination of both the secular (dictionary) definition of usury and the religious interpretation will show, connecting payday lending and usury is both unreasonable and exorbitant in and of itself.

Payday lending and usury – know your history

While some Judeo-Christian scriptures (such as Exodus 22:25, Ezekiel 22:16-31, Ezekiel 18:8-17) speak toward a ban on usury and charging interest, there are numerous other scriptures that make the distinction that “Hebrews were permitted to make interest-bearing payday loans to non-Jews, but not to fellow Jews.” A commonly misinterpreted Judeo-Christian scripture as it relates to interest and usury is Nehemiah  5:9-10. What is being discussed there is undue taxation, rather than interest-bearing loans, and so it refers to an entirely different animal.

Historically, the Renaissance and Protestant Reformation brought about a sensible re-awakening when it came to the business of charging interest. Religious leaders such as John Calvin, Martin Luther and numerous other luminaries proposed that the only thing that needed regulation was “excessive interest.” By 1461, Pope Paul II gave his blessing to the business of pawnshops. Thus, interest-bearing loans (from which payday lending is a direct descendant) gained popular approval.

The words ‘excessive’ and ‘unlawful’ keep popping up

So perhaps a secular examination is necessary to show that payday lending and usury are two very different things. The Breitbart blog Big Journalism suggests that because various states in the U.S.  set a maximum chargeable fee for payday loans quite specifically, the law is established. So long as payday lenders operate within said laws, they do not fulfill the claim that payday lending is “unlawful” in the usurious sense. In terms of payday lending being “excessive” or “exorbitant,” another Google search returns the following definition for “exorbitant”:

“Greatly exceeding bounds of reason or moderation”

What does “reasonable” mean when it comes to payday lending and usury, asks Big Journalism. Essentially, it’s all relative. If a potential borrower finds the rate charged on payday loans to be unreasonable, then they will more than likely avoid taking out such loans. If a potential borrower wants a loan at what they deem to be a reasonable rate, but a lender determines that rate to be unreasonable for their business, then the lender will not generate the payday loan. An interest rate that is mutually reasonable cuts to the very essence of how a free market economy works. A great number of payday lending transactions occur, so that means borrower and lender have been in agreement regarding reasonable interest rates. Thus, as Big Journalism argues, payday lending is neither unlawful nor unreasonable – and thus it is not an instance of usury.

Returning to Nehemiah 5:9-10

Scripture does not condemn payday lending – where rates are both lawful and reasonable as per the above example. It forbids usury, as do numerous secular laws worldwide. They are distinctly separate concepts. The danger in payday lending is when a borrower uses such loans in an irresponsible manner (for impulse purchases, or taking more than they know they’ll be able to repay by the maturity date). Responsibility falls upon the borrowers to make decisions that best suit their financial situations. The vast majority of payday lenders have income requirements in place to guard both the business and the consumer against a ruinous financial situation. As various studies show that 94 percent of payday loans are repaid on time, the safeguards in place appear to be both lawful and reasonable. It doesn’t take someone with the qualifications of Big Journalism to reason that such is the case.

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