Unprofitable Lending: Modern Credit Regulation and the Lost Theory of Usury

67 Pages Posted: 28 Feb 2008 Last revised: 25 Feb 2009

See all articles by Brian McCall

Brian McCall

University of Oklahoma - College of Law

Date Written: February 25, 2008

Abstract

With almost daily news stories about the crisis in our credit markets, it seems inevitable that a new political and academic debate about credit regulation is commencing. With Americans paying billions of dollars in finance charges every year and some loosing their homes, it is time to ask fundamental questions about the liberality of credit supply and terms. Rather than readjusting usury limits or tinkering with disclosure requirements, it is time to reassess America's philosophy of lending. Although the current socio-economic belief that more credit is better has held dominance for several centuries, history offers an alternative theory. Surprisingly, a serious analysis of this scholastic theory of usury has been virtually absent from academic debates about credit for the past several decades. This article argues that the confusion and ineffectiveness of usury laws could be corrected by a return to the principles of the scholastic theory of usury. This article identifies contemporary academic, political and public dissatisfaction with the current state of credit regulation. It surveys some of the recent data demonstrating the rising levels and costs of consumer debt. Next, the historical approaches to usury that predated the scholastic theory are introduced to set the context for a presentation of the scholastic theory itself. The article outlines the scholastic theory of usury as a synthesis of biblical principles, natural law reasoning and Roman law concepts. The scholastic theory is shown to have developed while remaining true to its core principles from the fourth to the sixteenth century. The new economic environment of the sixteenth century caused some usury theorists to develop a troubling subjective theory of usury which eventually displaced the original principles. After examining this history, the article articulates core principles of the scholastic theory which are then applied to modern commercial and consumer lending transactions. The article concludes that modern credit regulation would greatly benefit from a return to the scholastic principles of usury regulation.

Keywords: Usury, Credit Regulation, Predatory Lending, Consumer Protection, Law and Philosophy, Scholastic Theory, Finance Law, Law and Religion

Suggested Citation

McCall, Brian Michael, Unprofitable Lending: Modern Credit Regulation and the Lost Theory of Usury (February 25, 2008). Cardozo Law Review, Vol. 30, No. 2, 2008. Available at SSRN: https://ssrn.com/abstract=1098954

Brian Michael McCall (Contact Author)

University of Oklahoma - College of Law ( email )

300 Timberdell Road
Norman, OK 73019
United States

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