By JLP | October 14, 2009
In the last post, one of the questions I asked Charles Geisst was about usury laws. For those of you not familiar with the term, usury laws are essentially caps on the rate of interest that lenders are allowed to charge borrowers. In the past, usury laws were set at the state level but have pretty much disappeared over the last few decades.
Charles Geisst is calling for national usury laws. EDIT: He doesn’t mention a specific rate in his book, so I sent him an email and asked him what kind of rate he was talking about. His response: “Probably set it to float at about 400 basis points above conforming mortgage rate[s].”
My question to you is:
I hate regulation but in this case I think some sort of cap is a good idea. Here’s why I think this way:
Extremely high interest rates are usually charged to those who have no business borrowing money in the first place. The high interest rate, though compensating the lender for the increased risk of loaning money to people of limited means, only seems to insure that the borrower will default or at least not be able to meet the payments, requiring them to take out another loan. Peolpe who borrow money at extremely high interest rates are almost destined to fail.
Of course the issue with placing caps on interest charges, is that it will force payday lenders out of business. It will also most likely lead to loan sharks—a sort of black market for money. But, for all I know, those people may already exist.