Usury, according to Black’s Law Dictionary, is
1. Historically, the lending of money with interest.
2. Today, the charging of an illegal rate of interest.
3. An illegally high rate of interest.
However, the second and third definitions virtually have fallen into the first, becoming relics of the past. That occurred in part because many state laws on maximum rates of interest have been superseded by federal law, which is friendly to banks. However, some state laws, including ours, set few limits; Washington’s law essentially is a comprehensive list of exceptions to the nominal limit of 12%.102 Therefore, between them they have made the definition of usury law —“A law that prohibits moneylenders from charging illegally high interest rates” — equally quaint. The result is to burden ordinary folk with oppressively high interest expenses.
The national average for credit cards is 14.43%; many, obviously, are far worse. Mortgage and auto loans, which are secured, are available at lower rates — the local average for the former is 4.25%, for the latter 5.87% — but there still is a huge spread between interest paid and interest charged. According to a list in the Sunday Seattle Times, the best money market fund yields 0.28%, with the average at about 0.02%. The national average for a 0ne-year CD is 0.35%; the average savings account pays about .2%.
The rates credit cards charge for cash advances, in other words loans, typically are even higher than the purchase rates. Discover recently sent me several checks, inviting me to use them for “cash when you need it” at the jaw-dropping rate of 23.99%, its “standard APR for cash advances.” Even that “will vary with the market based on the Prime Rate.” The prime rate is 3.25%, the lowest it has been since August, 1955, so the Discover rate has nowhere to go but up.
Pay day loans are far worse. They are short-term loans carrying nominal interest rates which sound high but not outrageous, until one notes that the rate is for a very short time period. Washington allows 15% on a fourteen-day loan, an annual rate of 390%.103 Other states allow higher rates.
Savings rates presumably will rise whenever the economy recovers, narrowing the gap if interest charges don’t also rise. Still, it’s time for Congress and the legislatures to resurrect the concept of usury and impose rational limits on the cost of consumer credit. Not likely, though.
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102. See http://dfi.wa.gov/consumers/interest_rates_exception.htm
103. See http://www.paydayloaninfo.org/state-information/55 , a Consumer Reports site. The rate actually is 391.07% (15% ÷ 14 x 365)
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