A Response Concerning Price Controls On Interest Rates

I received an Email expressing concern that I was advocating price controls when I stated that interest rates should be capped at 10%. I was. I have no reservations over the federal government when they take steps to “provide for the common good” as is directed by the preamble of our constitution. I also look to the oath of office sworn by our presidents and senators to defend against all enemies both foreign and domestic. Let me outline the reasons I have against usury (the practice of lending money at astronomically high rates).

Let us first look at the religious reasons

1) Jews are forbidden to lend at interest to one another. Exodus 22:25; Deuteronomy 23:19-20, Leviticus 25:35-37.

2) The Prophet Ezekiel includes usury in a list of “abominable things,” along with rape, murder, robbery and idolatry. Ezekiel 18:19-13.

3) Medieval Canon Law Usury is punishable by ex-communication

4) 1306-1321 Dante pens “The Inferno,” in which he places usurers at the lowest ledge in the seventh circle of hell – lower than murderers. “to live without labor was denounced as unnatural, and so Dante put usurers in the same circle of hell as the inhabitants of Sodom and other practices of unnatural vice”

5) 1483-1547 Martin Luther compared the taking of usury with theft and murder, as does the Scriptures.


But, let's go in another direction. How about our own history

1) Early 18th Century American colonies adopt usury laws, setting the interest cap at 8%.

2) After 1776 all of the States in the Union adopt a general usury. Most states set the interest limit at 6%.

So apparently our forefathers had no qualms about price controls when it came to interest rates and what would be considered usury. As we became more liberal with the concept of loaning money it soon caused our society to make money more available by making it more attractive for the banks to lend out, Thus allowing the banks to make more money off of our money that was sitting in their vaults.

1) Early 1900's a move to deregulation causes 11 states to eliminate their usury laws. Nine more states raise the usury cap to 10% or 12%. Banks are not making personal loans. “Salary Lenders” fill the need by “purchasing” a worker’s future wages in exchange for a high fee – equal to a lending rate of 10% - 33%.

2) 1916 A Uniform Small Loan Law allows specially-licensed lenders to charge higher interest rates—up to 36%—in return for adhering to strict standards of lending.

Obviously these practices help set the stage for the great depression loans were made at high rates, and the money used to buy stocks that when the paper tower collapsed, worthless stocks became as worthless as the paper loans used to purchase them. People ended up upside down with no way of paying off their debts. You would have thought we would have learned our lesson, but, no the great depression was alleviated by of all things World War 2. And when that was over......

1) 1945 - 1979 All states adopt special loan laws that cap interest at higher than the general usury rate—at 36%—but cap it nevertheless.

2) 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.

3) 1980 Congress preempts state interest rate controls on all first lien mortgages. This enables predatory mortgage lenders to make seemingly affordable loans, like adjustable rate and interest-only loans that lead to foreclosure for many.

4) 1994 Congress adopts the Home Ownership and Equity Protection Act of 1994, which provides some substantive protections to home mortgage borrowers with interest rates or points that are extraordinarily expensive, but sets no limits on what can be charged for these loans.

5) 1994 -2005 Many states and cities try to protect their citizens by adopting state statutes and local ordinances to curb predatory lending, but preemption claims by the federal government impede their efforts. Numerous bills are introduced in Congress to protect consumers in a wide range of transactions, including rent-to-own, credit cards, payday lending, and predatory mortgage lending, but none of these bills makes it to a hearing.

6) 2001 - 2007 Predatory and mainly subprime lenders make home loans to people who cannot afford them, boosting their own profits in the short term. Many of these loans are packaged and sold to Wall Street.

7) 2005 after extensive pressure from the industry, the federal government changes bankruptcy laws, making it harder for consumers to discharge debts and get a clean start in bankruptcy.

8) 2006 Congress passes the “Talent Amendment” which to caps interest on loans made to active military personnel and their families at 36%, reacting to findings that high-cost payday lenders had been targeting the military.

9) 2007 Foreclosure rates begin to increase dramatically as a result of predatory mortgage lending. The launch of Americans for Fairness in Lending (AFFIL), a national multi-organization collaborative message and action campaign designed to raise public awareness and generate outrage about predatory lending.

10) 2008 Unpaid mortgages cause mortgage-backed securities on Wall Street to continue to "go bad," triggering widespread economic downturn in both the United States and around the world. Some commercial and investment banks go bankrupt, and some are the object of government "bailouts."

So how can we stand by and watch the financial system wreck havoc on our economy. Think of this when loans were at rates of 12 -16% Banks paid us 5-6% interest on our savings. As loan rates have climbed what has happened to our return rate? How much do you get paid on money sitting in your savings account? Your Money Market account? Or your CD's?

Price controls on banks? Maybe if they lent their money more responsibly..... They wouldn't need it. Maybe if we look deeper into who owns the banks...... we will see more politicians and lawyers. Just think our forefathers thought 6% interest was too much, now we have 36% and more.... Remember Income tax was originally set at 3% and how much do you pay now? Maybe we should set price controls.