Usury: Difference between revisions

Revision as of 03:34, 17 October 2006

Revision as of 15:44, 17 October 2006

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In addition to the defense of interest as such, the practice of charging ''high'' interest rates is defended by those who point out that such rates reflect the very fact that the loans are being given to creditors with a high risk of default (in a [[competitive]] debt market the interest [[spread]] simply covers the credit risk). Economists of the [[Austrian school]] say that there is no such thing as a "just" interest rate separate from the [[free market]] equilibrium determined by the [[time preference|time-preferences]] of individual lenders and debtors. (Other free market theorists take a similar view on the merit of an unregulated debt market, but may not explain the subjective estimate of a worthwhile interest-rate bargain through time preference.)

The fallacy of such rationalizations becomes evident when one considers the interest rates charged on many credit cards, even to those whose credit is deemed excellent by more reasonable lenders. Over two decades of deregulation have aggravated the situation, and predatory lenders are now commonplace.

=== Adverse selection and enforcement methods ===