Posted: Apr 09, 2010 7:54 pm
by Mister Agenda
By usury is charging interest meant or charging too much interest? If the former, lending will become an activity with no material benefits to the lender, and people will find it very difficult to borrow any money at all. If the latter, surely how much is too much would depend on the situation, but certainly one motivation to charge lower interest would be confidence that one's loan will be repaid on time and one motivation to charge higher would be lack of same. The reason people turn to black market loans (loan sharks) is because legitimate sources don't trust them to be good for it.

As far as not allowing a lender to recoup their loss if it involves eviction to seize the collateral for the loan, that's one way to go, but as a result a home would no longer be considered collateral for a loan, and home loans would be much harder to obtain. Some sort of insurance to cover the risk comes to mind, but such insurance would be very risky (and therefore expensive or hard to qualify for), given the borrower having the option of choosing not to repay the loan.

The lower the interest rate the less motivation to lend. The higher the risk of nonrepayment, the less motivation to lend. The more difficulty recouping losses if the loan is defaulted on, the less motivation to lend. There are plenty of other things people with money to invest can do with it besides loaning it at interest.

These are all things that can be changed by decree, but doing so has consequences that may be worse than the original problem. Assuming both sides of a loan contract are competent to manage their affairs and weigh advantages and risks at an adult level and neither side is being fraudulent, and no criminal acts are involved, the least harmful thing might be to honor their choices and accept that the outcome won't always be ideal. Most countries have trial-and-errored their way into their current lending policies and have evolved practices that are somewhere between outlawing usury and letting people sell themselves into slavery, and that arguably work well enough most of the time. No doubt there's room for improvement, which can be explored by making incremental changes, seeing what happens, an adjusting one's course accordingly.