USURY (OF., Fr. vsure, from Lat. usury-, use, employment, interest, from nti, to use). Literally. money paid for the use of money, i.e. interest; but in the 'Middle Ages, when such pay ments were prohibited, the word obtained an evil sense, and when in modern times the taking of in terest again became permissible, usury acquired its modern meaning, i.e. interest in excess of a fair return, and, particularly, in excess of a legally determined maximum. The establishment of such a maximum was general in the ancient world: at Roman law it varied, at. different pe riods, from 12 per cent. to 6 per cent.; and when the taking of interest was legalized in the mod ern world, similar limitations were introduced.
In England the act of 37 Henry c. 9, fixed the limit at 10 per cent. This was repeatedly lowered until, by the act of 12 Anne, c. 16, it was fixed at 5 per cent. By these laws usurious con tracts were made wholly invalid and usury was an indictable offense. In most European coun tries (as in the Roman law) usurious contracts were invalid only as regarded the excess of inter est, and contracts in which the lender assumed special risks (e.g. bottomry bonds) were not sub jected to limitation of rate.
In the eighteenth century the usury laws were attacked by economic writers as arbitrary and unwise. It was pointed out that in all credit transactions there was an element of risk; that the risk varied greatly and might, in many cases, justify the taking of interest beyond the legal maximum; and that the effect of usury laws was to impose upon borrowers a higher rate of inter est than they would otherwise be required to pay, in order that the lender might insure himself against the additional risk to which lie was sub jected by the illegality of the contract. In con sequence of these arguments, limitations upon the rate of interest were generally repealed in the nineteenth century. In England this was done by the act of 17 and IS Victoria, c. 90. In France, however, the usury laws were repealed only as regarded commercial contracts.
Adam Smith defended usury laws because they made it more difficult for spendthrifts to borrow money; and in the latter half of the nine teenth century, in connection with the general re action against laissez-faire doctrines, the complete freedom of contract established by the repeal of the usury laws was in its turn condemned by many economists. It was urged that in cases borrowers were at the mercy of lenders and that they should be protected against extortion of unreasonable interest. This theoretical reaction has affected modern European legislation. In Germany, by a law of ISSO, "any person who, by exploiting the necessity, the frivolity, or the in experience of another, causes to be promised to himself or to a third person, for a loan or for de ferred payment of a debt, pecuniary advantages which so exceed the ordinary rate of interest that the circumstances they are in striking dis proportion to the debt," is punished with impiis onment up to six months and fine up to 3000 marks. In England, by an act of Parliament
passed in 1900, it is provided that professional money-lenders shall he registered, and that their contracts shall be subject to judicial revision when the rate of interest appears under the circum stances to be unreosonable. In the United States this latest form of legislation against usury, in which it is left to the courts to determine what is, in each case, a reasonable rate, has not as yet been imitated. In more than one-fourth of the States and Territories (Arizona, California, Colo rado. Connecticut, Florida, Maine, Massachusetts, Montana, Nevada, Rhode Island, Utah. Washing ton, Wyoming) the parties may agree upon in terest above the legal rate. In the remainder of the States and Territories a legal maximum is established for interest OD loans and 'forbear ances' or deferred payments (see table in article INTEREST), but the legal results of contracting for a higher or usurious rate are very varied. In Georgia. Indiana, Kentucky, Louisiana, Maryland, Michigan, New Hampshire, New Mexico, Penn sylvania, Tennessee, Vermont, and West Virginia the creditor can recover principal and lawful in terest. losing only the excess. In Kansas his claim is reduced by double the excess. In Alabama, the District of Columbia, Idaho, Illinois, Iowa, Mississippi, Missouri. Nebraska. New Jersey, North Carolina, Ohio, South Carolina, South Dakota, Texas, Virginia. and Wisconsin. the lender recovers the prineipal only; but in Idaho and Iowa the interest which the lender loses is paid by the borrower to the school fund. In Arkansas, Delaware. Minnesota, New York, North Dakota. and Oregon. the usurious contract is wholly invalid, and the lender is unable to re cover the principal; but in Oregon the principal which Ile loses is paid by the borrower to the school fund. In some of these States money act ually paid on a usurious contract cannot be re covered by the lender; Ind the general rule is to the contrary; and in some States the actual re ceipt of usurious interest exposes the lender to further penalties, e.g. twice the excess in South Carolina, three times the excess in New Hamp shire and Wisconsin, and twice the interest paid in New Mexico and North Carolina. In some other States the lender is liable to prosecution and fine or imprisonment, but suet: prosecutions are rare. In Delaware any person may bring action against a lender who has received usurious interest, and if successful, will receive one-half of the prineipal of the debt, the other half going to the State.