If you were listening closely at noon on last Friday and were tuned to Here and Now on public radio, you would have heard my thirty seconds of fame. I said, “Phantom charges, my foot! That’s plain old usury!”
I thought it was just me who missed payments, thus triggering staggering interest charges. So did the host(ess) of Here-Now.org, the noon program on Yellowstone Public Radio, until she had as a guest David Laibson, a professor of economics at Harvard University, who is on leave at the moment. Professor Laibson has just published a study of hidden fees and costs in the Quarterly Journal of Economics (with a co-author, Xavier Gabaix). One shouldn’t need an economist to point these out -- the real need is for a microscope to read fine print. The devil in the details. Or rather the usury in the details.
Robin herself had taken a beloved pet to the veterinarian where the bill turned out to be quite steep. Luckily, she was offered a very nice credit agreement, but she didn’t read it carefully. After a few months of conscientious payments, she missed one. The interest rate immediately skyrocketed. By that time the veterinarian had sold her account to a money company. They were not sympathetic.
When I moved into this house, I was pressed to take homeowner’s insurance but cautioned that if I missed a payment, my policy would be cancelled. I missed the fourth or fifth payment, which I suspect is what usually happened. But I had heard stories about this realtor and knew that most fatal flaws would show up in the first few months. (Blue flames shooting out of electrical outlets, etc!) So I was thinking of it as temporary anyway, while the insurance company was betting that nothing would go wrong for the first year. We both came out okay.
In this state car insurance is mandatory. I would get it anyway. People who wouldn’t get it anyway are only slightly more likely to pay for it at least long enough to get their paperwork set up. Otherwise, they go out there just as much a hazard as ever. It was the insurance companies that pushed the idea, though it was disguised as a public safety and wealth-protection measure.
I paid Staples late by a week on a thirty dollar account and was penalized twenty-five dollars. That’s the last time I used the account. It was all there in tiny fine print which I didn’t read. Same at Home Depot. An insurance payment check went astray -- put in the mail but never came out the other end. Suddenly my policy was cancelled, then -- after an explanation -- re-instated but with a “reinstatement fee.” Airplane tickets lately have been demanding a “fuel surcharge.” The telephone bill and the water and sewer are packed with mysterious charges. I was at the town council meeting where they decided to double the fee for turning water on or off -- for no reason except that “everything is more expensive nowadays and it’s a pain the neck to do it.”
Because Great Falls is a military town with Malmstrom Air Force Base being a big part of the economy, there is always a lot of military news in the paper. Lately there have been stories about the financial predators who specialize in young, inexperienced, strapped-for-cash military folks. People who give you an advance on your paycheck, or loan you money on your car title (keep on driving your car!), or give you rent-to-own furniture that ends up costing three times the normal price. Last week there was a story about a Congress “fed up” with such practices, so they have passed legislation that will cap interest at 36%. Bush is trying to decide whether to sign it and what reservations he will write into the little fine-print codicil that he always attaches.
Typing “usury” into Google brought up “usury” on Wikipedia where I really got the story. The three Abramic religions have all defined the charging of interest as usury, denounced as well by Plato, Aristotle, Cato, Cicero, Seneca, Plutarch, and Guatama Buddha. The big three Abramics are interesting. The Christians hedged that there were certain circumstances when usury might be necessary. The Jews were forbidden to charge interest to other Jews but free to charge interest to any non-Jews. (Now there’s a good way to stir up resentment.)
Only Islam says NO always, anybody, any circumstances -- NO USURY. This gives us a clue about why they have not been eager participants in world trade or willing to join the dominant countries as clients. It also points to why it was the World Trade Towers that were a target.
Wiki says, “The historical rendition of usury as a vile enterprise stems not only from a spiritual view that charging exorbitant interest is a flagrant manifestation of unchecked greed, but carries with it social connotations of perceived “unjust” or “discriminatory” money-lending practices." Speak to that Mandan rancher over in the Dakotas who can’t get a low-cost government loan the same as the other local ranchers.
Saint Thomas Aquinas said expecting a loan to be repaid and then interest on top of that was like charging someone for a bottle of wine and then charging him again for drinking it. He must have been thinking of some restaurants who don’t have a liquor license but allow you to bring your own wine if you’ll pay a fee for them to open it.
It was John Calvin, that hard old Protestant who burned the Unitarian Michael Servetus at the stake, who opened the door to capitalism by defending interest charges. But Dante put usurers in the inner ring of the seventh circle of hell, below suicides but shared by blasphemers and sodomites. Ah. The movie business.
Racketeers must watch out for state laws which set usury rates -- it’s interest below that line and usury above -- but the feds don’t set a line. The military people need a law from the feds because they are in an island of jurisdiction, on federal military land like an Indian reservation. (Does that give you any ideas about why that Mandan rancher has a problem?) BUT the infamous RICO law meant for racketeers (not congressmen) defines “unlawful debt” as money lent at an interest rate more than two times the local state usury rate. Oh, yeah, it’s a federal offense to use violence or threats to collect interest, usurious or not. Though a Montana judge recently put a woman in jail for not paying her penalty as ordered by the court.
Lately a new wrinkle has developed through the credit monitoring businesses that have become so important. Companies are using credit ratings when they hire -- saying they want only reliable people who pay their bills. And the insurance industry has developed sliding scales so that anyone who has a bad credit record will have higher rates for insurance policies. (The problem of not paying off is a whole different sort of criminal behavior.)
The argument defending this usury is that of “freedom of trade,” which says that the person entered into the agreement voluntarily and any laws would be “restraint of trade,” hampering their ability to do business. In short, depriving someone of the right to volunteer for indentured servitude is denying them life options. After all, so many of our ancestors got to America this way.
There’s a lot more in the Wikipedia, valuable stuff that is hard to read and that I can’t paraphrase without possibly changing the meaning. Suffice it to say that we are now a nation built on usury. To stop interest, dividends, futures, stocks and bonds, returns on the many complex forms of investment we’ve devised which are little more than gambling, we would have to paralyze the country in its tracks. The momentum has us and there are no brakes.
It’s harder to get off the money grid than it is to get off the utilities grids. It may take a crash.