These laws generally prohibit charging interest rates above a certain percentage.
2006-08-02 07:06:01 · 4 answers · asked by timm1776 5 in Social Science ➔ Economics
Personally, I think usury laws work contrary to their stated purpose. Usury laws are meant to protect borrowers, but what do they really do? They discourage legitimate financial institutions from competing with loan sharks (loan sharks don't care about usury laws, and their borrowers are very unlikely to report them). Usury laws also do nothing to curb demand for loans among subprime borrowers.
A better alternative to usury laws would be a program similar to Fannie Mae or Sallie Mae. It would create a liquid secondary market for subprime loans in a way that Fannie Mae created a secondary market for home mortgages and Sallie Mae, for student loans. Legitimate lenders would be more amenable to underwrite subprime lending if they knew they could sell their loans in bulk. But, alas, a program like this would require money, while passing usury laws costs nothing out-of-pocket...
2006-08-02 07:31:27 · answer #1 · answered by NC 7 · 0⤊ 0⤋
I don't generally support them.
They made sense when the financial insitutions were not sufficiently developed to offer a well-functioning market. Now, they're no longer necessary except in extremely isolated communities (ie, where there is an effective monopoly on part of the lender).
Lenders generally base their rates off only two criteria: 1) Risk compensation and 2) cost of funds. Those borrowers with a high risk profile are thus charged a higher rate.
When you cap this rate, you only cut off market access for the highest risk borrowers.
A case can be made if the profitability exceeds a certain level beyond cost of funds - this would force only the more efficient companies to stay in business. However, a careful analysis would be required to make sure the law is carrying out its intent of preventing predatory lending, rather than merely cutting off market share.
2006-08-02 14:34:24 · answer #2 · answered by Veritatum17 6 · 0⤊ 0⤋
I would support them if they made they the maximum allowed interest rate 0%.
Interest rate (usury) is not allow according to the Bible.
2006-08-02 19:17:57 · answer #3 · answered by Shelby M 1 · 0⤊ 0⤋
Definitely. These payday loan places with their 1000%+ interest rates make me sick. All they do is take advantage of the desperate or stupid. Would people otherwise turn to loan sharks? Possibly some, but not very many.
2006-08-02 23:36:37 · answer #4 · answered by amokemit 1 · 0⤊ 0⤋