USURY. The practice of lending at interest which exceeds a lawful or reasonable rate. For an account of professional money lenders, legal rates of interest and legal control over usurious transactions, see MONEY-LENDING.
A long legal development has accompanied the allowance of interest against defaulting creditors. By Roman law the default ing party to a contract was compelled, beyond fulfilment of the agreement, to pay compensation for the difference (id quod interest) to the creditor's position caused by his default. This difference could be based on actual loss accrued, and also on the profit that might have been made had performance been carried out. Mediaeval lawyers used the phrase dam= et interesse for such compensation, and for damages and indemnity generally. Thus interesse became applied to the charge for the use of money, disguised as an indemnity for failure to perform a contract. At English common law an agreement to pay interest was only im plied when supported, as in the case of negotiable instruments, by mercantile usage, or by the constant practice of a trade or business, or by the course of dealing between the parties. Otherwise an express agreement was required. By the Civil Procedure Act of 1833, provision was made for the allowance of interest at a rate not exceeding the current rate of interest upon debts evidenced by a written instrument from the time when their payment became due and in debts not so evidenced from the time a written de mand for their payment had been made. In the United States the law regarding the allowance of interest has been more liberal. When there is default in the payment of a money debt, interest at the legal rate is allowable as damages for the delay in pay ment. Many States upon a similar theory allow interest upon
unliquidated contractual demands where the default consists in something other than a failure to pay money. As in England. no interest is allowable upon claims for damages consequent upon a tort, but in America interest upon damages for torts to property is generally allowed. In both countries compound interest is only claimable by express agreement or by established mercantile practice.
In the United States a most significant development in the field of usury is the attempt to control the lending of small sums of money at usurious rates. The early statutes were in effective to prevent usurious interest being demanded of neces sitous borrowers, fixing rates of interest so prohibitively low as to drive the business outside the law. To remedy this situation a Uniform Small Loan Law, since adopted in many States, required licenses of lenders making loans under $300, supervised the con ditions under which such loans were made, and permitted an in terest rate not exceeding 31% a month on unpaid balances. This legalizing of the small loan business at adequately remunerative rates has been highly effective, driving the illegal and extortionate lender from the field and opening it to the lawful investment of capital. See Ham, Small Loan Legislation (1922). (J. M. LA.) In the United States, where a penalty for usury is fixed both by State and Federal statutes, it is well settled that the penalty fixed by Federal legislation is superior to and exclusive of any State penalty.