In the bankruptcy practice where I work, I am seeing an increasing number clients caught in financial binds caused by usurious home loans. Oregon has an explicit exception to the statutes limiting interest and fees charged on loans set forth in ORS 82.010(4). On the other hand, there are many state and federal statutes including RESPA and HOEPA which have provisions either restricting loan terms or requiring lenders to be explicit when disclosing the costs of a loan. When examining loan documents I sometimes find clear violations of existing laws, but far more often what surfaces is a contract which is legal, but unconscionable.
Usury, once associated with organized crime, has become institutionalized in credit-card lending, subprime home loans, and, increasingly, private student loans. Home loans and easy credit have driven the economy for the last decade, generating obscene profits for banks and lending institutions. Congress, meanwhile, adopted a laissez-faire attitude. If it wasn’t obviously broken, no-one wanted to expend effort to fix it.
The general lack of Federal oversight in the mortgage industry and the ease with which lenders could circumvent the Truth in Lending Act were clearly imprudent, as they allowed unscrupulous mortgage brokers and lending institutions to defraud both homeowners and investors in ways which reverberate throughout the entire American economy. But were any of the actions of either Congress or the loan industry immoral, and if so, against whose standards are they to be judged?
Any moral code which condemns as a sin something which has proven to be disastrous in purely practical terms (as the explosion in subprime mortgages clearly has) is worth revisiting. Examining several historical sources on the subject of usury revealed some useful distinctions between moral and immoral money lending. Under usurious practices considered to be un-Christian, Medieval and early Modern Roman Catholicism included:
• Charging fees for the use of money above and beyond what could be justified by the labor expended in making the loan, risks to the lender, and losses incurred because the lender did not have the use of the money.
• Using a borrower’s distress to force him to enter into an unequal bargain in favor of the lender.
• Creating a loan whose repayment terms cannot be met.
• Making necessities of life, such as shelter, surety for a loan.
• Substituting loans for charity.
• Using indebtedness as a means of coercing others into acting against their own best interests.
The actions of subprime lenders in originating loans pretty clearly violate the first four points. Government policies that used the availability of subprime loans to low-income borrowers as a substitute for direct housing subsidies could be viewed as an abrogation of charity. The encouragement of private usury, in this instance, has become a matter of public policy. Usury cloaks itself in a mantle of social egalitarianism in order to propagate and amplify social inequality.
The last point, coercion, figures prominently in refinancing agreements, often entered into because the homeowner has other unmanageable debts and is subject to abusive collection practices. It is virtually never in a homeowner’s best interests to obligate home equity to pay off unsecured debt, even in those rare cases where the terms of the home equity loan contain no hidden pitfalls or excessive finance charges.
The Bible and the Koran both condemn usury. A cursory survey of historical writings reveals unequivocal condemnations by St. Gregory of Nyssa (379 AD), St. Thomas Aquinas (13th century), Martin Luther (16th century) and Pope Benedict XIV (Vix Pervenit, 1745), among others. Have things change