I just posted this in the comments section of Dan’s article to which Travis just referred:
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1. Caps on interest rates will cause credit rationing – meaning limiting access to credit. This means that for all of the examples of people stuck with high interest credit card debt, you need the alternate scenario to be what their situation would have been if they had no way to get a credit card at all. The alternate scenario is not a credit card at 10%. For some, this is a feature, not a bug (i.e. living beyond their means) but for others (just trying to pay their bills) this is a personal tragedy involving eviction, loss of utilities, etc. Is that better or worse than what we have now?
2. Usury can only exist in the presence of market power or collusion. If many banks across the country are charging about the same rate to the same people, I’m more inclined to call that a market rate, otherwise one of these banks could lower it from 21% to 19%, advertise and get all of the ‘profitable’ customers. Those who claim a high interest rate is usury need to explain why this isn’t happening. Are the big banks colluding? If a high risk borrower with a lot of debt and a 21% interest rate is so profitable, why doesn’t a small local bank then offer 19% to steal them away and make the profit? There are, literally, thousands of banks in the US, so I have difficulty believing that market power exists in setting interest rates, thus I have difficulty calling it usury.
3. The reason why I am opposed to the actual setting of an interest rate cap is that I think we will take the most marginalized and move them from a high market interest rate to a true situation of usury. When someone cannot go to the market to get a loan, and they need money to pay their bills, they go to more, ahem, ‘creative’ means – i.e. illegal. *Then* you have market power and usury. Tony Soprano can charge whatever interest rate he likes and he doesn’t use actuarial tables. This happens because we limit the interest rates banks can legally charge, then the highest risk people are denied credit altogether. Those who are truly in need either don’t pay their bills and are evicted, or they go to payday lenders and loan sharks. I’d rather have the status quo.
Now, I have no problem in raising awareness about interest rates and the concept of usury. Re-introducing it to our vocabulary is a good idea in my opinion. Actually setting caps on interest rates is a bad idea.
What do I propose instead?
1. Let business be business and charity be charity. We, the church, should steal their customers. People living beyond their means need financial counseling and the act of discipline and contrition in paying off the debt they got themselves into is probably a good thing. People truly in need the church needs to help pay their bills without debt – as a previous commenter noted, this isn’t sustainable for them anyway.
2. We need to advocate for education and jobs. People with a steady income are generally lower credit risk and get lower rates for short term borrowing.
3. Address the materialism and other idols we know exist in our communities. Many Americans do live beyond their means on cheap credit. Even for those with manageable interest rates, this is not good for their soul.
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