What is Usury and Why is it a Criminal Offense?

What is usury? It is when somebody charges excessive interests on another individual who borrows money from him or her. The interests are exagerated charges on loans, equity or currency conversion. 

Interest is the compensation given to the lender by the borrower for usage of money. The full amount borrowed has to be paid by the borrower at an agreed specified time. In addition to this, the interest is also provided at the agreed time of payment. Interest is the term used for lawful added charges. Usury is the term used for unlawful and unreasonable added charges.

State laws indicate the maximum legal interest rate that can be added on loans and other business transactions held under contract. Purely private transactions usually are left alone by the laws unless arguments break out between the loaner and the borrower requiring lawful intervention. It is illegal to lend money and charge more than two times the usury rate indicated by state or federal laws. Unreasonable loaners who lend the money and attempt to collect the principal sum with the unreasonable interest rate will be guilty of unlawful debt.

It is a violation of the law to use force, violence or intimidation in order to collect usurious interest of any form. Loan sharking is the term used to define the act. Loan sharking is usually used together with coercive tactics by the loaner but it is also applicable in non-coercive usury.

Lenders' Arguments for Usury

Loaners also have their defenses. One is that there should be liberty in trade since borrowers have entered voluntarily into the contract and all details have been shown including usurious debts. Second, loaners debate that all the parties involved are part of a greater risk. Loaners may be subject to default borrowers who will not be able to pay their debt including the primary sum. Third, loaners also claim that high interests also are reinvested in the economy thus helping solve the problems of poverty and poor trade.

Arguments Against Usury

For the first defense, some borrowers may have been incapacitated to voluntarily enter into an usurious contract. Incapacitated is described as the borrower driven by necessity or duress. For the second defense, there is still a greater risk for the borrower since the primary sum provided is not sufficient to compensate for the time and effort required to come up with the usurious charges. For the third defense, it is still up to the loaner if the returned sum is reinvested into the economy. There is no guarantee that a private investor will engage in the same manner again.

Sanctions for the Crime

Usury offenses can be penalized by fines and imprisonment. For repeated offenses, a usurer can be imprisoned for as long as three years. If added criminal offenses of fraud, theft and smuggling are included, jail time can last up to twenty years. Fines can range anywhere from $1,000 to $1,000,000. Also depending on the profit made, some penalties require that the excess debt be returned to the borrower with added fines from the usurer for offenses.

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