Usury Law, Payday Loans, and Statutory Sleight of Hand: Rediscovering a Common Language of Debt

“Usury Law, Payday Loans, and Statutory Sleight of Hand: Rediscovering a Common Language of Debt”

Christopher L. Peterson

Historically, the American people and their leaders have vigorously condemned usurious lending. The founding fathers of our nation adopted aggressive interest rate caps of between eight and five percent annually in all thirteen original states.

This fundamental American moral commitment evolved out of Judeo-Christian teachings on the danger and immorality of usurious lending to vulnerable families. In nearly a dozen different passages, the Bible emphatically directs Christians that usury is a grave sin. In all but the most recent fifteen years, American usury law gave voice to this biblical and family value.

In an empirical study of state usury laws, Professor Christopher Peterson demonstrates that many jurisdictions have recently lost sight of their moral heritage on usury. The study surveys the price limit on typical “payday” loans, defined as loans of $325 with an initial duration of 14 days, in all fifty states in 1965 and 2007.  In 1965, all fifty states had a usury limit with the national median interest rate cap of 36%. But in 2007, the national median limit has risen to an astonishing 391%, with several states having no limit whatsoever. Moreover, all of the usury limits allowing interest rates of over 300% are written with misleading accounting and terminology favored by special interests.

Fortunately, a growing number of legislatures including Georgia, New Hampshire, North Carolina, Ohio, Oregon, and the U.S. Congress (in loans to military personnel) are returning to historical American values by reestablishing traditional usury limits.

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