Usury

Strictly, Usury is a general term for a lender taking unethical advantage of borrowers.  Nearly always, this takes the form of exorbitant interest rates although technically there are other abuses.  The bible speaks against it and Nicea banned clergy from collecting interest on loans, and from the 12th century, required that all Christians practicing usury be excommunicated.  (this was often interpreted to mean collecting any interest at all, effectively banning Christians from the banking industry--opening the door for Jews). 

Most states have limits on the interest a lender may charge a borrower.  These rates vary.  Minnesota had a very low rate: 8%, while most other states had higher limits.  First of Omaha, which was able to run a nice credit card business in Nebraska, where the limit was 16%, tried to expand into Minnesota, but discovered that there wasn't much profit to be made when they were limited to 8% interest.  So they sued and in 1978 the Supreme Court decided that a bank could charge up to whatever the limit in their home state allowed, irrespective of where the loan was being made.  Within a few days, a great many banks had legally incorporated in states with higher limits and several states, attempting to corner the market on this new business, including South Carolina and Nevada, did away with the limit entirely.

Prior to this misguided supreme court decision, very few people had a credit card and the vast majority of legal loans were business and mortgage loans.  But afterwards they sprang up like weeds, and the brand new predatory lending industry came into being.   Today, the average household credit card debt is about $7K and the average individual with credit card debt has $11K of it.   A high fraction of this is interest on unpaid interest.

Predatory lending serves no public need whatsoever and creates a lot of misery and corruption.  It should be banned.  Credit cards are useful, but there needs to be a mechanism to limit abuse.  Usury limits will do both things.   Limiting interest to about 8% above inflation is enough for the lenders to make a small profit, but too low to make extremely short term loans profitable, and will force the lenders to be diligent about who they are lending to.  For most people, requiring their credit card to be paid off at the end of the month, or whenever their paycheck is issued, is the right limit.  The new Consumer Financial Protection Bureau has already done a great deal of good, but republicans have been too successful at weakening it.