Sunday, 19 December 2010

Interest: a real injustice to the poor

Meanwhile, back in the real world, here is something the churches surely ought to have got their teeth into long before now:
Rising levels of poverty are putting millions at risk from spiralling debts, with the Government facing renewed calls to crack down on lenders who make large profits by exploiting the poor.
Those on benefits and the working poor are at greatest risk, according to new government figures which show that the number of payouts to people forced to appeal for emergency financial help from the Government has almost trebled in only five years.
The Bible is quite clear:
O Lord, who may abide in your tent? Who may dwell on your holy hill? [Those...] who do not lend money at interest, and do not take a bribe against the innocent. (Psalm 15:1,5)

Calvin was wrong on this, Luther was right, and the more that money-lending has become part of our social fabric, the worse things have got, not least for the poor.
If you want to see other stuff I’ve written on this subject, just click on the ‘labels’ below.
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  1. I guess this means that my bank manager is doomed by jesus for the crime of giving me a mortgage.

    I just saw an advert on TV for short-term loans. The APR was 2278%.


  2. Kevin, what I would say is that the system is genuine example of 'structural sin'. It is also a reason why your house is so expensive!

  3. Thanks for bringing this up. I wrote a short piece on this myself a couple of months ago when someone in a blog conversation on sexuality asked whether I was against charging interest on the grounds that the OT forbade it (you can imagine the type of conversation).

    On digging a little deeper I was amazed to find that, thanks largely to Calvin of all people, "Christian thinking" on this subject did an almost complete about-turn. No doubt this was useful in relation to the European empire-building that was going on at this period. The effects of this have been plain to see, yet Christians and the churches are so complicit in this system I can't see much happening, theologically speaking, to change this yet. I do wonder whether our Muslim neighbours might not have a better appreciation of the moral aspects of this than we do.

  4. So what do you suggest churches do John? If you're saying we should speak up against money lending fine but if you're saying we should ask the government to say what is an unfair/fair rate of interest - you're into tricky waters. First - who decides what's fair and what isn't? is 5%, 10%, 20%, 100% - what is the limit and why/who says?
    Second - is it the government's place to influence a private transaction between two conscientious individuals? If I happily decide to take on the debt at the rate stipulated, whose fault is that? Or let's look at it another way if I decide to gamble my entire stipend, should the government come and say no? Where does it stop?

    Kip' Chelashaw

  5. I like the google ads above this post offering payday loans!

    I do hope the credit card companies are considered among those making large profits from exploiting the poor.

  6. Revsimmy, thanks for the link to your article. You aren't by any chance working in the same bit of the New Forest where my friend Derek Clacey used to be?

    I think you and I are in agreement on the usury thing, and on the Muslims having the better of us in this instance.

  7. Kip Hop, I am certainly saying the church should speak up against money lending.

    I am not saying the government generally ought to say what is an unfair rate, but as someone else has observed, when you hit an APR of 2278% on loans to the desperate poor, something should be done!

    Regarding your question as to whether "a private transaction between two conscientious individuals" ought to be allowed or not, this was Calvin's argument, I think. And look where it got us.

    The problem is, when money can be lent at interest without risk to the lender, then there will always be people ruthless enough to lend to those desperate (or stupid) enough to borrow.

  8. Chris H, thanks for spotting the business with the adverts. I have just found out how to block them!

  9. There are two sides to the problem. On the one hand there is unscrupulous lending at exorbitant rates to those whose earnings make it likely they will struggle to repay their debts - e.g. unsecured loans to people with a poor credit history.

    On the other hand unscrupulous borrowing is just as much a problem. We live in an instant society that demands everything now, and has dispensed with the ideas of saving, prudence and delayed gratification.

    But lending itself is a necessary tool for companies being able to meet their demands for liquidity, for industrial expansion etc. Don't you think?

  10. unwise borrowing, rather, not unscrupulous

  11. Kip, don't stop,

    Here's a thought as to what churches could do, encourage our people to pay off their loans before buying something else. Tear up our credit cards, and rather than giving a new big screen TV for your wife for Christmas, pay off her student loans instead.

    If we create in our congregations a culture that values debt-free living, we will a not only be cultivating a culture of generosity, but also a culture with the means to be generous.

    Thank you Vicar for the posts, I enjoy your blog very much.

    Yours in Christ,

  12. Thanks for picking this up, John, and for your excellent resources. It's certainly a point where Christianity as a matter of “religion“ in the narrow sense, which the English love to reduce it to, is useless, but approached as a way of life it would help a lot.

  13. John

    I'm with you on the problems of money-lending. However, while money-lending was forbidden within Israel (between fellow Israelites) it was not forbidden for an Israelite to lend at interest to a foreigner.

  14. John, that's quite true, but the Israelite was regarded as a 'brother', and this also moves us to the question, "Who, then, is my neighbour?"

  15. I have no problem with interest. My (paltry) savings attract none at all. By the way - does anyone here really know how Muslim mortgages work? I'd love to know.

  16. John PR

    I'm more than happy with your suggestion that churches should speak up against debt etc. What I'm most uneasy about is your comment that
    "when you hit an APR of 2278% on loans to the desperate poor, something should be done!" My concerns relate to that latter clause - what is the something you suggest should be done? And what would be the biblical basis for that action?


  17. John (PR), wrong Forest, I'm afraid. I am in Leicestershire, in the National Forest area. One of my parishes is on the edge of Charnwood Forest. Another one is home to the Islamic Foundation, which includes the largest Islamic Institute of Higher Education in Europe. So I am quite well placed to research Islamic finance (though I haven't yet done so in any detail).

    John (Thomas). My understanding is that Islamic finance is based on the principle of shared risk. So both the lender and borrower participate in the profits of any transaction on an agreed basis, but also share losses. The Islamic Bank of Britain states:
    "Central to Islamic finance is the fact that money itself has no intrinsic value. As a matter of faith, a Muslim cannot lend money to, or receive money from someone and expect to benefit – interest (known as riba) is not allowed. To make money from money is forbidden – wealth can only be generated through legitimate trade and investment in assets. Money must be used in a productive way."

    Some more detail can be found in the "Principles" section of this Wikipedia article.

  18. The shift in the position on charging interest of the Reformers came about because of a recognition of the reason for the OT prohibition on interest. In ancient times, all loans were basically "payday loans" - desperate poor people seeking a loan so as to be able to buy food. God forbade the charging of interest to prevent a crushing burden of debt that would come. (In the 50's, there was a song called "Sixteen Tons," about a coal miner in a company town who loaded 16 tons of coal a day - but the debts he incurred from the company store buying food and supplies only meant he got deeper in debt each day).

    During Reformation times, the economy had changed. The chief capital was no longer land but money, and borrowing money was not sought so much by an impoverished worker for food, but by an entrepreneur who wanted to begin a business. Most states had usury laws that capped interest to prevent virtual enslavement, and the creation of limited liability corporations meant that an entrepreneur was not risking his entire future on his effort.

    The Roman Church had forbidden Christians charging each other interest. Because the Jews were available as bankers, Many Christian business people and leaders had borrowed money from them - and that fueled a good deal of the ant-Semitic atmosphere prevalent at that time and for many centuries after.

    "Pay Day loans" ought to be forbidden, and there should be limits on the interest charged. To do away with interest, however, would be to lose the potential funding required for businesses to be created or to grow.

    Doing away with interest altogether might solve some problems, but I am sure it would create others.

  19. John T, I did look up online how Muslim mortgages work. It is quite complicated and there are two kinds!

    You'll find a brief explanation here. Whether it is more or less expensive than buying a house with a standard mortgage I don't know, but the key things are (a) less variability in repayments and (b) no penalties for paying early.

  20. Kip-hop, the magistrate is "God’s servant, an agent of wrath to bring punishment on the wrongdoer". It is wrong to charge 2000% interest. If someone needs a loan that desperately then they should not have someone take advantage of them. Therefore the government should not allow it.

    That'd be my view and the basic reason for it, but I'm not in a position to enter into a protracted discussion of this point.

  21. Charlie, I'm not sure I can entirely agree. Certainly Martin Luther was a Reformer who took a totally different view on this.

    The problem is not with borrowing capital for investment. I invest, but (as the saying goes) the value of my shares can (and does!) go down as well as up. It seems to me this is perfectly legitimate - and it was Luther's position also. If there is a profit, I am entitled to a share (even at a percentage fixed in advance). If there is a loss, however, I must be prepared to share the loss.

    Therefore I cannot agree that "To do away with interest, however, would be to lose the potential funding required for businesses to be created or to grow."

  22. I too don't want a protracted discussion especially as it is the season of peace and goodwill. Nevertheless, the question still remains says who that 2000% is wrong? In my mind three broad options exist in answer to this question

    a) a private individual
    b) the majority/a group of people "out there"
    c) the Scriptures

    If we are relying purely on a) or b) then we're in tricky waters and face many theological dangers not least of which is relativism.

    Happy Advent.


  23. KC

    There are many things where there is no definite verse to say they are wrong. The sense of justice written on the human heart should guide. For Christians with a renewed heart and sensitive to the voice of the Spirit such innate sense of justice should be considerably more alert. This spirit led intution can lead us to be sure 'such and such is wrong'.

    Yes, mistakes can be made. Nevertheless the leading of the Spirit, deep reflection on Scripture, the balancing wisdom of spiritual men are God's way of guiding us on many issues where there is no 'text'.

    In this case, an OT concern about usury though not binding will at least guide reflection.

  24. One of the people I have been watching in the US is Elizabeth Warren. This is an interview she had with Bill Maher some months ago.

    K. Round
    Jax, Florida

  25. It is a sad fact of life that more people are finding themselves in financial difficulties, partly due to the current sititation economies are facing around the world and the recent unprecedented availablility of credit to just about everyone, without any regard to considering if the person could actually afford to make the repayments.