April 24, 2009 – Friday

Usury
Category: News and Politics
“The rich ruleth over the poor, and the borrower is servant to the lender”
Proverbs 22:7

“If you have lions and zebras, and the lions are eating too many zebras, you can’t tell the lions to stop eating too many zebras. You have to build a fence, the lions won’t build one themselves.”
A ditty I read somewhere that I can’t find 😉

Usury:

1. The practice of lending money and charging the borrower interest, especially at an exorbitant or illegally high rate.

2. An excessive or illegally high rate of interest charged on borrowed money.

3. Archaic. Interest charged or paid on a loan.

“What do Hammurabi, Plato, Charlemagne, Dante and Queens Mary and Elizabeth have in common? They all condemned, outlawed or regulated the charging of interest on loans. In fact, until the early 1900s interest rates in the United States were kept at or near 10%. And until 1979, loan laws provided some interest rate cap in every state.

Then everything changed. Governments and banks put profits before people. And now the lending industry is spiraling out of control.”

James M. Ackerman, Interest Rates and the Law: A History of Usury, 1981, Arizona St. L.J.61 (1981)

Here’s why:

1978 – The US Supreme Court decides that national banks may export the state interest rate law of their home state into any state where they do business. In response, South Dakota eliminates its interest rate caps. Several credit card issuing banks move to South Dakota and operate nationally with no interest rate cap.

We have gone from two types of lending in our society, legal lending, and illegal loan sharking.

Now we have many kinds, but in general I like to break them down to these three:

1. Bank lending, mortgages, car loans, business loans …
2. Credit Cards
3. Payday loans (AKA Legal Loan Sharking)

Back to history:

1980 – South Dakota’s economy was a mess. So was Citibank (Hmmmm), and they called on South Dakota. The bank had lost more than $1 billion on its audacious foray into the credit card business, and the future looked even worse. The trouble, simply put, was that the rate of inflation exceeded the amount of interest Citibank was allowed to charge its credit card customers under New York usury laws.

But the bankers saw opportunity and salvation in the plains of South Dakota. Within days of those first phone calls, a team of top executives arrived from New York with a proposal for Mr. Janklow: If South Dakota would quickly pass legislation that would enable Citibank to move its credit card operations to the state, they would bring hundreds of high-paying white collar jobs to the state.

The unlikely alliance would clear the way for Citibank to turn a money-losing credit card operation into a vastly profitable business. “All of their senior people used to say it,” Mr. Janklow said. “That South Dakota saved Citibank. I believe it did. That South Dakota saved Citibank.”

Link

What was once offered to only the best customers was being offered to everyone. The saying used to be, the loan must be paid, in 1980 it became, just keep paying on the loan. And since then, that’s what most of us do, every month, month in, and month out. Talk about a money maker.

I’m not sure if you realize this, or not, but the profit of lending money is so high, that we, Americans, have gone from being a country that investes in manufacturing to a country that invests in finances. If you think NAFTA killed manufacturing, it was already dead.

And with money, comes power, political power. Why haven’t loop holes in credit card lending been fixed? Lobbying! Money!

Today Obama met with credit card lenders, and laid down the line. Since the crash last year credit card companies have been jacking up rates. Why? They can. They can even jack it up on past due amounts. So, if you are charged one percent this month, next month they change what you owed last month.

Read that again, and tell me how that is legal. It is!

Here’s another one. Let’s say you have a $5,000 credit limit on your card. You’ve been trying to pay down your card, you’re unsure about you job, so you have your card down to $3,000. You get a letter in the mail telling you that your limit has just been dropped to $1,500, you owe $1,500 RIGTH NOW!

You don’t have it, you’ve been paying $300 a month, and think you can go a little higher, but not $1,500 RIGHT NOW.

From that day forward you will be charged a penalty on what you owe above your limit, and your interest rates will probably go up 36%. With penalties, more like 56%.

This is legal right now.

I am glad that Obama is getting involved. There is a bill that just passed the House, and the Senate has a bill ready as well.

What do you think? Should we be protected from usury? Has the finaincial industry destroyed manufacturing?

Peace,
J

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