Interest and Usury
Even though we don’t take the bait, credit card offers come several times each week for many of us, promising large credit lines and low interest rates. Credit cards are becoming increasingly important in our economic life these days. When I do our weekly shopping at the super market, it seems that many people are paying with credit cards. Credit checks are becoming the norm for renting an apartment, and a good credit history is built by using a credit card. In most cases, credit cards are needed to rent cars and hotel rooms, to buy airline tickets and even to rent movies. Last year the New York Times (21 November 2004) reported that there are 144 million people in the US with credit cards, and that a typical household has eight credit cards, with roughly $7500 of debt on each of them. By contrast, in 1990, just 15 years ago, 82 million people had credit cards. Today, according to the Federal Reserve Bank, there is approximately 800 billion of consumer credit card debt. Credit cards are a major and growing industry.
Banks have been able to shape our economic life to make credit card use very difficult to avoid.
It is really no surprise that credit cards are commonplace. They are easy to get, easy to use and popular. Banks have been able to shape our economic life to make credit card use very difficult to avoid. Though the first credit cards were issued in the 1950s… the way has been cleared now for banks to charge any rate they want, making credit cards extremely profitable.
And profitable they are. In 2003, according to the New York Times report, credit card issuers make $2.5 billion before taxes, every month. Credit cards are not issued on how often or how hard one works. They are issued on the rather elusive criteria of what makes a good ‘credit risk’. In the past credit cards typically had a rate of around 18-20% and a $20-25 annual fee and an applicant either qualified or didn’t. Nowadays, credit card companies use statistical models to set rates and fees making it easier for anybody to get a credit card. Issuers will simply set higher interest rates for those with a higher risk – including people who may not have qualified before. This method allows banks to profit while still protecting themselves from default. Profit is what drives the bank’s analysis. What really matters is whether or not you will, statistically speaking, make money for the bank.
Banks are looking for what are called ‘revolvers’ – people who carry high monthly balances, but are unlikely to default. The finances charges and interest rates on these high monthly balances create huge profits.
Banks are looking for what are called ‘revolvers’ – people who carry high monthly balances, but are unlikely to default. The finances charges and interest rates on these high monthly balances create huge profits. Those who pay of their balances every month are much less lucrative and therefore the banks aren’t looking for them. Banks even encourage high monthly balances by extending large lines of credit and requiring as little as 2% for a monthly payment. In addition to this, the banks create huge profits by assessing huge fees and hiking up interest rates astronomically when a payment is late or missed. Moreover, because of the relatively recent practice of ‘universal default’, banks will raise interest rates when somebody is late with or misses payments on any bill. A late phone bill can result in higher credit cards interest rates, even if that particular person was never late with the credit card payment. This, combined with the fact the US Supreme Court deregulated credit card fees in 1996, allowing the banks to charge whatever they like for fees, means that the banks can make huge profits when customers are even a minute late with their payments. More and more, the bank’s profits from credit cards is based on practices which are less prudent for credit card holders at best, or exploiting the weaknesses of credit card holders at worse.
Credit cards are increasingly necessary because our economy is driven, not by the actual needs of people as Catholic social teaching would have, but by consumption. Credit cards make this consumption possible…. To put it simply, credit cards allow people to live beyond their means and beyond their labour, to consume more than they would otherwise, by constantly borrowing (for a credit card is nothing other than an unsecured loan) simply to spend. This is what our economic life today is built upon: the fragile notion of economic growth based not on actual labour but on acquisition. And with credit cards, as such a powerful economic engine, debt. So, we must have a credit card and borrow more and more money to buy more and more things, powerless to do anything except accept the increasingly higher interest rates and fees banks set to increase profits. The cycle continues and we are trapped.
It is not difficult to see how such a situation can hurt the poor. The ease with which people can get credit cards means that people with low incomes are prey as well. For those who don’t have money, credit cards are an easy way of getting spending power. Credit cards provide a way to bridge the gap when someone loses a job, gets laid off, or gets hours cut. They provide a means to take care of medical expenses when you don’t have health insurance. In these ways, credit cards often act as something of a safety net, especially for those whose financial situation allows for little flexibility.
Of course with that money comes the interest, which ensures that the poor get poorer and the rich get richer. Many people without large incomes juggle their bills, paying this one this month and that one the next, unable to afford to be able to pay all of them every month, but not wanting to get too far behind on any of them. This is reflected in the fact that the highest percentage of households with one or more payments overdue 60 days or more is found at the bottom of the income range. Clearly practices like universal default disproportionately affect the poor. The bottom of the income range also has the highest percentage of households with a debt level that is equal to or exceeds 40% 0f their income. Both of these figures have been increasing since the early nineties. Taken together they point to the fact that those who are near or below the poverty line are especially sensitive to interest rates. With so much debt, in relation to what is already low income, the working class and the poor find themselves increasingly at the whim of the banks and their profit motive. With interest rates that are high to begin with, and are ratcheted up quickly like practices of universal default, they are unable to get any relief. Certainly part of the increase over the past several years in people filing for personal bankruptcy protection is related to this unjust system.
We have seen the oppressive effects of interest rates the world over as nation after nation has become trapped by heavy international debt. Forced to service that debt rather than take care of their people, these nations sink deeper and deeper into poverty, depending more and more on the wealthier nations and their banks.
The prophet Ezekiel says that the just person ‘does not charge for profit, does not charge interest (1`8/8) and condemns the charging of interest as one of the ‘appalling crimes’ (18/13).
Scripture and tradition of the Church suggest that the responsibility for this injustice lies in that which underpins not only the credit card system but our entire economy: interest. Exodus, Leviticus and Deuteronomy forbid the charging of interest on loans. Some translate the operative Hebrew word neschech as ‘usury’ in the modern sense, as exorbitant interest, but it actually refers to any interest. Literally the word means ‘something bitten off’ and is directly relayed to the Hebrew word for a snake bite. Recognising the disproportionate damage interest does to the poor, these prohibitions relate to charging the poor or other Israelites interest.
The prophet Ezekiel says that the just person ‘does not charge for profit, does not charge interest (1`8/8) and condemns the charging of interest as one of the ‘appalling crimes’ (18/13). St Luke writes ‘and if you lend to those from whom you hope to get money back, what credit can you expect? Even sinners lend to sinners to get back the same amount. Instead…lend without any hope of return.’ (6/34-5)
Here then we have clear condemnations of the charging of any interest, condemnations which would provide the basis for clear Christian teaching that the charging of any interest on a loan is sinful. This teaching of the Early Church (it should be noted that other religions had similar teachings) was later codified in canon Law and by St Thomas Aquinas. Martin Luther initially condemned interest as immoral on scriptural grounds and some Anabaptist groups tried to organise their economies in accordance with scripture. Over time, however, the longstanding tradition of the Church was whittled away, allowing more and more exceptions, scriptural condemnation not withstanding.
It remains true however that in our economy today it is difficult to steer clear of the charging of interest via the credit card. The Catholic Worker does not have any credit cards and tries hard to avoid them, but we must depend on the kindness of friends to rent a truck to deliver this newspaper to the post office. We are all tied up in this system and it is up to each of us with the help of prayer and serious and thoughtful consideration to decide what we can do, how we can best limit our participation in this social sin, and how we can work for its non-violent end.
Speaking to the US Bishops in 1976, Dorothy Day reminded them of the way ‘the prophets of Israel and the Fathers of the Church regarded usury as a serious sin…yet people live today on interest, they live on their investments. And when you speak about these things they react in a state of shock, because it is the whole American way of life.’ She called us to repent of the ways credit cards, those ubiquitous vehicles for interest, have corrupted our economic life, of the ways they enslave and oppress increasing numbers of people, especially the poor. We must repent, so as not to become the person Isaiah speaks of ‘whose deluded heart has led him astray.’ (14/40) We must always remember that the way things are now is not the way they have always been or must always be. If we seek, with Peter Maurin, to ‘build a new society within the shell of the old,’ we must heed Dorothy Day’s words.
Reprinted from The Catholic Worker, New York, May 2005.