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Word History: Usury

February 22, 2011

Usury (pronounced /ˈjuːʒəri/, from Medieval Latin usuria, “interest”, or from Latin usura, “interest”) originally was the charging of interest on loans; this included charging a fee for the use of money, such as at a bureau de change. In places where interest became acceptable, usury was interest above the rate allowed by law. Today, usury commonly is the charging of unreasonable or relatively high rates of interest.

Each U.S. state has its own statute which dictates how much interest can be charged before it is considered usurious or unlawful.

If a lender charges above the lawful interest rate, a court will not allow the lender to sue to recover the debt because the interest rate was illegal anyway. In some states (such as New York) such loans are voided ab initio.

In the 1996 Smiley v. Citibank case, the Supreme Court further limited states’ power to regulate credit card fees, extending the reach of the Marquette decision. The court held that the word “interest” used in the 1863 banking law included fees, and, therefore, that states could not regulate fees.

Some members of Congress have tried to create a federal usury statute that would limit the maximum allowable interest rate, but the measures have not progressed. In July, 2010, the Dodd–Frank Wall Street Reform and Consumer Protection Act, was signed into law by President Obama. The act provides for a Consumer Financial Protection Agency to regulate some credit practices, but does not have an interest rate limit.

Related: Whatever Happened to Usury Laws?
http://www.bankruptcylawmaryland.com/blog/whatever-happened-to-usury-laws/

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