Usury and Catholic Social Thought: Where Do We Go from Here?

Where Do We Go from Here?

What does this all mean for the place of usury in Catholic social thought? Where do we stand with regard to our understanding of usury in the Catholic tradition—and where should we go from here? To answer this, this essay begins by identifying key changes in Christian understandings of usury up through the end of the usury debates, and notes the decisive role that extrinsic titles to gain on a loan played in ending those debates. Specifically, it explains that these titles were useful conceptual tools that enabled scholars in the late medieval and early modern eras to recognize instances in which gain beyond the principal need not be a form of theft, but that the titles themselves did not add up to positive justifications for those gains, or to a full theory of justice in lending that could be used to concretely identify usury.

This essay then introduces a sampling of recent Catholic scholarship on usury and argues that because this continues to focus on the scholastic titles to gain, it tends to aim toward the very goal that ultimately proved unreachable centuries ago: a theory of usury that could be used to discriminate between loan types in advance, and thus translated into civil law. Moreover, a narrow focus on the grounds for declaring interest licit continues to frame usury largely as a personal sin, and stymies discussion of its impersonal and structural dimensions; this essay suggests that this approach thus explains some of the disconnect between literature on usury and the wider field of CST.

With this in mind, this essay then employs a natural law methodology to propose that the core sin of usury be understood as exploitation of the poor through lending, and that this be identified and measured in practice today with reference to the true end (or purpose) of finance—which, drawing upon the social encyclical Caritas in veritate, this essay identifies as integral human development. In this perspective, usury describes lending that is not properly ordered to the end of finance because it does not serve the true development of the borrower, and instead profits creditors at the expense of debtors’ flourishing precisely because of the latter's vulnerability. While such an articulation of usury would mark a departure from the strict terms of the scholastic debate, it is in keeping with both the underlying principles driving the scholastics to develop the extrinsic titles in the first place and with the treatment of usury found within scripture and the early church, which condemned the exploitation of the poor. Such an approach is also consonant with the emphasis on protecting the vulnerable in recent magisterial references to usury.

The final part of this essay identifies key advantages offered by indexing our understanding of usury to the purpose of finance and evaluating its presence primarily with respect to the loan's impact upon the borrower (rather than the intentions or situation of the lender). Overall, this approach offers a way to begin to bridge the gap between scholarship on usury and the field of CST: Letting the principles of CST (starting with integral human development) inform analyses of usury not only stands to enrich this literature directly, but in turn to render it more relevant to and available for use by scholars of CST working on economic issues. This approach also broadens the implications of this literature beyond mere legislation, and suggests that usury may be combatted—and just lending promoted—in all of the venues in which the tradition's understanding of finance as a tool ordered to integral human development is taught and put into practice, including in business schools and in church-supported microfinance and alternative lending programs. Finally, this account of usury also directs attention to its more impersonal and structural dimensions, and helps bring into focus the role that background social institutions such as bankruptcy law play today in legitimating and perpetuating the exploitation of the poor through lending.

The Path Dependency of the Conversation Thus Far

Before turning to the future of usury in CST, it will be helpful to assess its current status: Where does the teaching stand now? The last papal pronouncement on usury was Benedict XIV's Vix Pervenit, which in 1745 reiterated that ‘any gain which exceeds the amount he [the lender] gave is illicit’—and that this remains true even if the interest charged is modest, the borrower is wealthy, and the loan funds have been put to productive use. ¹² At the same time, the document also acknowledged the existence of ‘certain other titles—which are not at all intrinsic to the contract’ that legitimate ‘honest gain’ on a loan, as well as the existence of non-loan contracts used to ‘invest money legitimately’. ¹³ Without naming any of these contracts or identifying any specific titles, Vix Pervenit reiterated that to be valid, these must maintain equality between what is given and what is received. While these claims have never been formally rescinded or amended, neither have they been reaffirmed with any further explicit teachings on the subject; rather, magisterial references to usury now largely appear in passing, and could easily be read as presuming a more popular definition of usury as merely excessive interest.

Where has this left Catholic scholarship on usury—how is the sin itself understood now? Unfortunately, this is not clear; as one scholar recently lamented, ‘We have no theory of usury that is simultaneously coherent and practical.’ ¹⁴ The proposal here is that this is in no small part due to the path dependency of the conversation, which remains focused on the goal of establishing a theory of justice in lending using extrinsic titles to gain.

The Utility and Limits of Extrinsic Titles to Interest

Usury has long been considered a case of intrinsic evil: Alongside other intrinsic evils such as murder and torture, it was understood as an action that can never be justified because its very object—that is, the ‘end’ of the action itself—is always impermissible. ¹⁵ However, the category of intrinsic evil is in some ways circular, in that it is generally applied after the moral analysis of a particular physical act is concluded, and as a result does not itself explain whether a given act is itself sinful. (Viewing murder as intrinsically evil does not yet help us discriminate between acts of murder and acts of justified self-defense, for example—further criteria are needed for this. ¹⁶ ) What were the criteria that explained why usurious lending is sinful, and which could be used to discern its presence in finance?

Before the debates over usury really got going, the answer to this seemed clear: Usury was present whenever a lender sought to make a profit on a loan by receiving more in return than the principal. Originally understood as a failure of charity that stemmed from greed, usury was eventually classified as a form of injustice based in theft. As historical scholarship on the theme explains, this understanding flowed from a set of presuppositions common before modernity: that loans were a form of personal assistance sought by those in need, such as after a crop failure; that (unlike land or livestock) money itself was sterile and could not accordingly offer usufruct, or the right of use and of its fruits; that the amount of wealth in the world was limited and financial transactions were accordingly zero-sum, with profit for one party being ‘taken’ from another; and regarding the general disreputability of finance and money-making as a profession. ¹⁷ Together, these assumptions led to the view that interest was not a price for any legitimate service offered by the lender, but a form of theft. In Thomas Aquinas's memorable formulation, money is more akin to wine than to a house, which can be rented out and returned. In the case of the house, the price for its use reflects the fact that the contract benefits the borrower who gains shelter during the rental and inconveniences the lender, who must vacate the house during that same period. The very purpose of wine, in contrast, is to be used up; to demand that the borrower pay back more than the original wine is to ‘ask for double payment’ and ‘sell what does not exist’, and to compensate the lender when they have not been inconvenienced (as long as the bottle of wine is returned to their cellar in the end). In Thomas’ view, only those ‘under a certain necessity’ agreed to such terms. ¹⁸

It was not long, however, before each of these presuppositions came into question. As mercantile activity became both more common and more complex in the late medieval and early modern eras, so did merchants’ needs for insurance and financing. Moreover, in the contracts merchants sought, money seemed increasingly to function more like a house than like wine, and as something that could in fact offer usufruct. As a result, theologians and canonists gradually developed various ‘extrinsic titles’ to gain above the principal, which authorized what we now call interest based on a consideration of the situation of the lender and borrower (and which were thus ‘extrinsic’ to the loan itself). Examples of such titles included the poena (penalty), punitively charged to borrowers who failed to repay at the determined time, and damnum emergens (damage or loss that occurs) and lucrum cessans (profit ceasing), which compensated a lender for the profits they would miss out on while deprived of their funds. Theologians also focused on identifying and extending the inner logics at work in profit and loss sharing contracts such as the societas (partnership), which were not yet seen as loans.

In a context in which interest was not yet accepted as licit, such analyses were quite useful in explaining why gain on a loan need not be theft. Indeed, by identifying grounds on which gain could be compatible with virtue on the part of the lender and with commutative justice between lender and borrower, each extrinsic title arguably also helped chip away at the basic suspicion of finance that Christianity had inherited from antiquity. That said, these grounds did not themselves add up to a new theory of usury which could be used to positively identify its presence in lending; instead, the sin increasingly became a diagnosis of exclusion, as what was left over after contracts with valid extrinsic titles to interest were set aside as legitimate.

Further complicating matters was the fact that the extrinsic titles illustrate cases in which interest could avoid being usurious, but could not guarantee or prove that the interest in question was in fact just. As a result, the scholastic developments did not add up to a positive theory of justice in lending, either. Consider lucrum cessans, which declared a lender entitled to charge the borrower for the profits they had foregone by not being able to put their money to other profitable uses during the period of the loan. The core insight of lucrum cessans was to recognize what we now describe as opportunity cost and as the time value of money, concepts which were instrumental in paving the way for modern finance. By itself, however, lucrum cessans simply points toward the profit otherwise available to lenders in the market—but what if the market rate available to a lender is already unjust? Indeed, one could imagine a payday lender appealing to lucrum cessans to justify their exorbitant rates, based on the argument that they are entitled to not ‘lose out’ on the potential gain their money can legally command. (In this sense, lucrum cessans could link up with what economists have called ‘the replacement excuse’ used to rationalize unethical action, in which a market actor reasons that if he or she ‘refuses to engage in an immoral trade, someone else will.’ ¹⁹ ) But few people of good will would argue that whatever interest rates happen to be legal are by that token morally legitimate; at least, the Catholic public argument on payday lending has been that laws should be brought into line with what justice requires, not that laws themselves render rates just. As a result, the logic of lucrum cessans should both follow from and lead to a wider analysis of the cultural and legal norms governing finance, or of what Daniel Finn has called the larger ‘moral ecology’ within which markets always operate. ²⁰

In short, despite their ingenuity in their era and contributions to the development of modern economic theory, the titles and categories developed by the scholastics ultimately developed caveats to the core principle at work in the usury prohibition, rather than offering actionable criteria for identifying the sin itself. Nor did they outline a robust and positive vision of justice in economic life that could be used to measure transactions falling short. No wonder, then, that by 1830 the Vatican's response to an inquiry as to how confessors were to deal with parishioners who were known to profit by lending to merchants was simply, ‘They are not to be disturbed.’ ²¹ While the core understanding of the sin remained unchanged—as a form of unjust taking through a loan, equivalent to theft—the focus on extrinsic titles justifying interest had made it difficult to speak about where this sin might be found, in practice.

Contemporary Attempts to Develop a Loan-Based Theory of Usury

Unfortunately, more recent scholarship has faced similar difficulties, arguably as a result of carrying forward the same focus on titles to interest that derailed the conversation so many centuries before. For some, this has led to the conclusion that usury is no longer a pressing problem, given the wide availability of claims to lucrum cessans in our credit-based economy. ²² From this perspective, the usury teaching doesn’t need rehabilitation or extension because it largely no longer applies, or applies only to a marginal number of cases.

Such an approach to the question seems shortsighted for at least two reasons. Firstly, it surely cannot be the case that the modern world has magically done away with all or even most forms of theft in lending—if anything, logic would suggest that in a world more saturated by credit and debt than ever before, new opportunities for usury would present themselves. Secondly, and as noted already, extrinsic titles are not themselves proof of the justice of a loan; they merely indicate that a loan may in fact be just and thus should not automatically be deemed usurious. Further deliberation is required; the Catholic position on justice in finance is not and cannot be a benign endorsement of contemporary practices or interest rates merely because these are widespread. Those taking such a view are arguably mistaking the guardrails used to keep from overapplying the usury teaching for a new principle altogether on justice in lending.

Taking the opposite view, other Catholic voices have argued that usury is far more widespread than most imagine, and the time is long past due for the Magisterium to defend and rehabilitate a scholastic approach to the problem. Unfortunately, however, attempts to imagine such a rehabilitation often run aground of the sheer complexity of modern finance, which stymies attempts to definitively distinguish between usurious and non-usurious forms of lending.

Consider, for example, attempts to distinguish between loans for personal and consumption purposes and commercial or investment loans. Some have argued that interest on loans for consumption purposes should be seen as usurious, given that the money spent is like Aquinas’ wine: all used up, and incapable of providing the increase that interest demands. In contrast, money invested in a productive enterprise does generate an increase, and thus it would be fair to expect the borrower to repay a portion of this increase to their lender. Reasoning along these lines, John Buchmann has used a distinction drawn from Hilaire Belloc to argue that the key is to discriminate between productive and unproductive loans based on their actual results over time (and regardless of their official or legal classification). While loans proving unproductive should be forgiven once the principal is repaid, Buchmann suggests that productive loans are really ‘a form of equity financing’ in which the lender is a partner and is thus justified in sharing in the return to which they contributed. ²³

The problems with such a proposal are multiple. To start with, there is the question of who would determine whether a loan or investment qualified as productive, and on what grounds—a practical limitation already acknowledged by Belloc himself, in fact. ²⁴ Even if we could reach public agreement on this, however, difficulties would remain. Would the usurious nature of unproductive lending mean that the Catholic Church should advocate for abolishing both credit cards and personal loans, given that these are generally for consumption purposes? Shying away from this implication, Buchmann's proposal is to consider all loans potentially productive at their start, but to simply not charge beyond the principal for loans found to be unproductive. This, of course, raises the prospect of moral hazard for borrowers (a situation where the harmful consequences of one party's choices are borne by another party, and which thus incentivizes poor decision-making), and questions about whether banks would be interested in lending at all under such conditions (why would they make interest-free loans—or even at-cost loans?).

Perhaps even more to the point for moral theologians is the question of whether all interest paid on consumption loans is, in fact, intrinsically unjust. To be sure, consumer debt can become a crushing burden, and the high interest rates on credit cards are especially devastating to the poor who use them to make ends meet. Noticing this, however, does not itself present an argument against all forms of interest on consumer lending—can we really imagine no circumstance in which a borrower might reasonably choose to pay a fee for the use of someone else's money for a time?

Similar questions plague proposals to locate usury in unsecured loans, and to make the presence of collateral assets and the question of recourse the key factors distinguishing morally acceptable lending. Michael Humpherys has advanced an argument to this effect, proposing that ‘unsecured personal loans or credit, also known as full-recourse loans’ are usurious, because in these the lending ‘institution receives no property claims to anything that the money is used to buy and so has no property claim to justify a charge for something more.’ ²⁵ In support of this view Humpherys cites the illustration of the montes pietatis, the pawn shops run by the Franciscans in the fifteenth century that provided low-interest loans to the poor, and which received ecclesiastical permission to receive returns above the principal lent in order to cover their expenses. ²⁶ In addition to seeking moderate returns, the montes did not ‘go after the borrower’ in cases of default; instead, they sold the collateral and returned to the borrower any funds exceeding the principal value on the loan. ²⁷ In contrast, modern-day lending is generally for profit and secured only by the borrower's promise to repay—and thus, in Humpherys's view, usurious. By this definition student loans and credit cards are both illicit, as is any other ‘for-profit full-recourse loan—even if it be partially collateralized’, including ‘home mortgages or car loans that allow for deficiency judgments… authoriz[ing] a creditor to pursue the borrower to personally make up for any amount of the principal not covered by the collateral.’ ²⁸

Humpherys's concerns for the level of profit sought by the lender and the potentially precarious position of defaulting borrowers are both well-founded, and certainly should be central to any contemporary analysis of usury. The resulting attempt to define usury itself in terms of recourse and security, however, is less intuitive. Can we really imagine no morally acceptable loan made based on the promise of the borrower, or must collateral be involved? Consider the case of student loans, which Humpherys identifies as usurious. Many consider student loans to be an investment in an intangible form of capital: namely, the student's ability to later earn an income. One could argue that the education itself is the productive good ‘that the money is used to buy’ and to which the lender is laying partial claim—not as something that can be physically confiscated in case of default, but as the grounds for the lender's being repaid with interest later on. At the same time, we might also ask why this approach values collateral so highly. If the ultimate goal is to protect borrowers from unbearable obligations in cases of default, it would seem more straightforward to simply make that the normative criterion itself, rather than the presence of tangible property.

Related challenges confront attempts to extend scholastic titles to assess the structures of modern banking overall, in search of what the Jesuit theologian Bernard Dempsey described in 1943 as ‘institutional usury’. ²⁹ In his ‘moderately strict Thomist analysis of contemporary commercial life’, for example, Jeremy Bell argues that ^‘professional lending institutions… routinely practice usury’ given that they effectively create the money they lend. ³⁰ Whereas lucrum cessans justifies interest based on the fact of the lender having been deprived of some funds that could otherwise be put to productive use, Bell notes that commercial banks are not bound to lend from their literal savings within a fractional reserve system, and thus not deprived of funds at all when lending—a personal loan does not reduce their available investment funds by the loan balance. As a result, such institutions can lay no claim to lucrum cessans, and overall ‘fractional reserve banking is nothing more or less than legalized fraud’. ³¹ While such a suggestive thesis provides rich food for thought for theological analyses of global finance, more work would need to be done to establish the problematic nature of money creation in this manner; it is not immediately obvious that fractional reserve systems intrinsically violate the ‘primary vocation’ of finance which, as a recent Vatican document put it, is ‘service to the real economy: it is called to create value with morally licit means, and to favour a dispersion of capital for the purpose of producing a principled circulation of wealth’. ³²

Others have attempted to use the titles to consider the ethics of individual investing, with similarly awkward results. In light of lucrum cessans, Thomas Storck has argued that those who are risk-averse and accordingly have no intentions of investing in stocks or mutual funds cannot truthfully claim to be foregoing profits when they instead entrust their savings to a bank, if ‘otherwise they might have simply hidden the money in a mattress’. ³³ As a result, lucrum cessans would not entitle such investors to interest on their savings. That being said, Storck reasons that if fairness requires equality between what is lent and what is repaid, then the mere fact of inflation could entitle the savers to a return, so that their loan to the bank does not diminish in real value. At some point, such analyses begin to seem like so much semantics and somewhat beside the original point of the usury prohibition, centered as it was, for so many centuries, on the protection of the poor.

The Problem with Focusing on Extrinsic Titles to Gain

This essay proposal at this point is that the contemporary conversation on usury has been hindered by two factors: a continued focus on justifying interest using extrinsic titles (rather than on the bigger picture of describing justice in lending); and a search for rules that could be used to declare specific types of loans intrinsically usurious, and thus which could be translated into civil law. Together, these keep the conversation aimed at avoiding complicity with wrongdoing rather than on identifying opportunities for cooperating with good, and prevent scholarship on usury from developing insights that would be useful within larger conversation on economic justice in CST.

To an extent, the reliance thus far on titles justifying interest is understandable, and not solely due to their being mentioned approvingly by Vix Pervenit; these were the innovative fruits of the scholastic debate, and arguably still offer important insights into justice in lending. As already suggested, however, the titles themselves did not add up to a theory of justice in lending, either in their historical moment or in ours. Instead, they were a specific theoretical tool designed for a specific purpose: to identify grounds on which interest might not be the result of a lender's greed, amidst a social context in which interest was still assumed to be a form of theft. Even more practically, their purpose was to find grounds on which loans sought by merchants could be approved—or at least avoid censure—by ecclesial authorities. As a result, using them today tends to channel ethical inquiry toward similarly binary, yes-or-no questions: Is a given type of loan licit, or not? Indeed, focusing on titles ensures that the conversation never moves past the question of (re)establishing the legitimacy of interest, with reference to the lender's situation.

This is unfortunate, given that our context is vastly different from that of early modernity, and not merely because interest is now widely accepted and the Catholic Church no longer dictates the laws of finance. More fundamentally, we have moved from a world of interpersonal lending—in which the intentions and situation of the lender matter for the terms of the loan—to one of institutional lending, in which lending is often anonymous and impersonal, mediated by technology, and algorithm-driven. Given this, what we need are criteria for distinguishing between lending that contributes to the common good and is in accord with human dignity and lending that threatens and violates these; this is a conversation that surely will include analysis of the permissibility of interest in particular cases, but cannot be reduced to that analysis.

The attempt to use extrinsic titles to discriminate between kinds of loans seems similarly misguided, and misguiding. Whether the key criteria are the presence of collateral and the extent of recourse or whether the loan is for productive purposes, any rules proposed at this high level are bound to be a fit in some instances but not others, and critics are sure to raise counter examples. To be sure, the desire to develop straightforward rules is itself understandable. Conceptual tidiness is always appealing, and nothing is tidier than the terms of a capitulary on lending from Charlemagne, one of the first instances of the usury prohibition being extended into civil law, which forbade ‘claiming back more than you give.’ ³⁴ Would that the matter were this simple today! Even then, however, this apparent clarity was an illusion; from the vantage point of today, we can see that even at the start of the usury debates what we now call interest was already effectively condoned in various contracts not yet seen as loans, and once the debate began it was not long before the rule itself was so swamped in further exceptions that it almost disappeared from view. Alas, no amount of refurbished titles from the scholastic era will undo this, restoring a clarity that we now know was never there in the first place. Instead, all that focusing on them does is to ensure that the conversation remains fixated on avoiding complicity with wrongdoing, rather than indexing analyses of economic sin to a larger vision of justice in commerce.

The Core Sin of Usury as the Exploitation of the Poor

Whereas the focus in the medieval usury debates eventually turned to the person of the lender and the liceity of their gain, the concern found within scripture and expressed by the early church fathers was much more clearly centered on the plight of the poor and their need to be protected from oppression. Indeed, historical scholarship indicates that in antiquity the paradigmatic borrower was understood as an individual in distress seeking assistance, and the paradigmatic lender as a person of means. As a result, ‘taking interest implied a transfer from the poor to the rich. Usury was akin to profiting from the misfortunes of others’. ³⁶ Given this, the main motivation for the earliest condemnations of usury in the tradition appears to have been the divine regard for the welfare of the poor and anger at their exploitation.

Returning to this, one option would be to identify the original goal of the teaching as seeking the good of the wellbeing of the poor, by preventing the wealthy from opportunistically taking advantage of their economic distress. The core harm here is the immiseration of the vulnerable, and the sin is that of exploitation. This reading links the teaching with the instruction in Proverbs 22:22, ‘Do not rob the poor because they are poor’, and perhaps also with Aquinas's teaching on just pricing, which did not allow sellers to raise prices solely because of ‘a circumstance affecting the buyer’ increasing the buyer's need and thus willingness to pay. ³⁷

This reading is also in keeping with more recent magisterial treatments of usury, which tend to arise within larger reflections on the protections due to the poor, and to center on the suffering that debt can cause. As with the remarks from Popes Francis and Leo introduced earlier, Benedict XVI's treatment of usury in Caritas in veritate, for example, was framed in terms of economic power differentials, and a duty to protect the vulnerable. Within a larger argument for regulating finance in order to ‘safeguard weaker parties and discourage scandalous speculation’, Benedict wrote, ‘This is all the more necessary in these days when financial difficulties can become severe for many of the more vulnerable sectors of the population, who should be protected from the risk of usury and from despair. The weakest members of society should be helped to defend themselves against usury.’ ³⁸

While this reframing would signal a shift away from a strict focus on the liceity of the lender's gain, this shift need not be interpreted as invalidating or rejecting the moral insights codified in the scholastic titles. Rather, such a framing arguably articulates the deeper logic funding the quest for titles in the first place, and which they served to specify: In a world in which gain on a loan was still presumed to be theft from the borrower, titles explained how it could be possible that a lender could receive gain without taking advantage of the borrower's need. From such a perspective, the titles were necessary in their time for putting into practice the teaching on usury, but should not be mistaken for the teaching itself. As a result, Catholic ethicists need not feel remiss when using them today in a consultative manner, rather than letting them be regulative.

This becomes especially clear when we consider the ethical methodology of natural law, the tradition used to develop the usury prohibition over time. In this, higher-level or general principles (the highest of which is ‘do good, avoid evil’ ³⁹ ) are specified through lower-level rules, which apply the general principles in increasingly concrete circumstances. Built into this methodology is an awareness that this process of specification is fallible, at least in theory, insofar as the human reason necessary for discerning rules is both fallible and finite. In his classic explication of this, Aquinas observed that ‘although there is necessity in the general principles, the more we descend to matters of detail, the more frequently we encounter defects’—and, more starkly, ‘the principle will be found to fail, according as we descend further into detail.’ ⁴⁰

The concern here is not solely that our principles themselves may be incorrectly formulated, but also that we don’t always know what we are looking at, morally speaking, and thus sometimes face challenges discerning which principles apply to a given situation. This is the question of act analysis: How can we make sure our descriptions of actions correctly categorize and name their true moral nature? The Catholic tradition offers a multitude of guidelines for this in different areas of moral theology, to be sure, but these norms are ultimately attempts to orient us to a moral reality that is already there, independent of those norms, and against which those norms must ultimately be measured. Indeed, every action has a moral valence already within it that is not imposed upon reality by an external moral legislator (whether the magisterium or even God); with this in mind, moral theologians David Cloutier and Robert Koerpel describe the Catholic imagination as grounded in a ‘fundamental realism’. ⁴¹ Moral norms and rules are binding insofar as they help us accurately discern the true nature of reality.

In their era, titles did a fair job of this: In a context of largely interpersonal lending, they served as helpful rules of thumb for identifying when gains on a loan could be compatible with honest trade, and thus which meant interest paid was not necessarily the result of greed or the desire to exploit. In the context of institutional and impersonal finance, however, new criteria will be needed to determine the presence of exploitation, and thus the true moral nature of any given loan. To where should we turn for these?

Measuring Usury with Regard to the End it Violates: Integral Human Development

The proposal here is that rather than attending primarily to the intentions and situation of the lender and the advantages accruing to them, discerning the moral dynamics of contemporary lending will require much more attention to the concrete impact of the loan upon the borrower, and in particular to how a loan interacts with the borrower's economic and social vulnerability. While this consideration may indeed include discussion of interest rates and perhaps also the lender's circumstances (or, in more scholastic terms, the extent to which a loan inconveniences or profits them), it neither begins nor ends with these details. Rather, these should take their place within a larger theological analysis of all the ends that a given loan actually accomplishes in the world.

Within the specifically Catholic social imagination, finance is understood as an instrument that is useful when ordered to human flourishing and the common good. As Benedict writes in Caritas in veritate, ‘Finance… now needs to go back to being an instrument directed towards improved wealth creation and development… the entire financial system has to be aimed at sustaining true development.’ ⁴² As a central tool of finance, lending ought to be likewise oriented to foster and support integral human development, for both lender and borrower alike, and can be evaluated accordingly; where it does not promote this end, it is disordered. ⁴³

This is true whether the borrower is a nation in need of development aid, a business seeking capital investments to expand, or an individual aiming to finance a home purchase, an education, or consumer spending. Morally assessing the lending in each of these cases will first require asking about the specific end sought by the borrower, and facilitated by the lender: Is the goal itself good, and compatible with true development? ⁴⁴ After this, it will require analyzing the practical impact of the loan upon the persons and communities involved: Does the loan effectively serve the good goal toward which it is aimed, or does it work against that goal? And—finally to the question of whether usury is present—does it do so without imposing undue harm upon the borrower precisely because of their need for a loan and lack of better alternatives? In this sense, indexing our understanding of usury to the purpose of finance offers that purpose itself—integral human development—as the concrete yardstick with which to measure the justice or injustice of a loan.

Linking Usury Scholarship and the Wider Field of CST

As already noted, usury is regrettably not a significant theme within contemporary Catholic social teaching on economic justice, nor are the principles and concepts central to CST generally used within Catholic scholarship on usury. Instead, the two conversations are largely separate and unconnected. The suggestion here has been that this is at least partly due to the continued focus on extrinsic titles within scholarship on usury, which makes it hard to see what the categories of CST could contribute to that scholarship, and by the same token limits its wider applicability.

This latter point may be visible in the near total absence of any discussion of usury in magisterial statements on international debt relief. ⁴⁵ This is surprising, given that debt forgiveness is called for precisely when interest rates on development aid loans are so high (and loan conditions so restrictive) that external repayments become a crushing burden—what is this if not the fruit of the ‘usurious financial systems [that] can bring entire peoples to their knees’ that Pope Leo had in mind, where loans disguised as ‘help [for] those in financial difficulty’ end up afflicting those they were meant to assist? ⁴⁶ And yet, magisterial documents addressing international debt generally do not draw upon—and in fact rarely even mention—the Church's longstanding teaching on usury. Instead, the problem has been identified as one of generic economic injustice using the principles of CST, especially human dignity, the common good, solidarity, and subsidiarity, and using scriptural reflections on economic justice and the jubilee tradition. In her survey of Catholic teaching on this theme, Therese Lysaught observes that ‘the poor equally stand as starting point and norm’ when analyzing debt, as structures and policies are judged according to whether they support or undermine human flourishing. ⁴⁷ Moreover, Lysaught notes that this literature frames the relief of unjust debt as a matter of holiness, requiring the conversion of both persons and structures, and integrally linked with the practice of peacemaking. ⁴⁸ In her estimation, Catholic teaching on debt relief accordingly models an ethical method in which ‘the principles of Catholic social thought are illuminated by being nested in a theological matrix comprised of Word, sacrament, and peace’. ⁴⁹

Given that extrinsic titles to gain would seem to have little to add to this theologically rich analysis, it is hard to avoid the conclusion that usury has been glaringly absent from the Church's public witness on debt relief because of the path dependency of the scholarly conversation. It is also possible that this omission reflects a pragmatic choice to avoid seeming to reduce the problem to one of intentional exploitation; were this the case, however, it would also point toward the need to expand the conception of the sin so as to encompass its impersonal and systemic dimensions.

Moving from a narrow focus on titles toward an articulation of the core principle funding the prohibition—whether articulated in the terms outlined here or elsehow—offers one way to begin to do this. Furthermore, measuring usury according to the impact of lending upon integral human development among the vulnerable offers a way to not only allow the principles of CST to be useful in identifying usurious lending, but in turn to integrate attention to usury in broader Catholic social ethical reflection on economic themes, including but not restricted to international debt relief.

Beyond a Narrow Focus on Legislating Loan Types

At the same time, a principle-oriented approach also has the advantage of inviting us to think beyond a narrow focus on legislation and the liceity of various loan types. In scholarship on usury there is often a strong temptation to center the question of law, and in particular to search for criteria that could be used to prohibit usury in advance by distinguishing between just and unjust loans. ⁵⁰ What kinds of lending would states forbid, if they were to implement the usury prohibition today?

The question itself is valid; CST has long held that law has an important role to play in preserving the common good, including by forbidding and punishing abusive violations of human dignity. As a form of theft, extreme instances of usury can and should be made illegal, where this is practical. However, attempts to implement such laws confront significant challenges.

To start with, there is the already discussed difficulty of generating criteria for neatly distinguishing between usurious and non-usurious loans, given the ubiquity and complexity of modern lending. While some scholars still hold out hope that a ‘simple way forward’ exists that could identify usury with specific kinds of loans, the lack of consensus on this question and the wider silence on usury within the Church would seem to speak to the impracticability of developing a coherent theory of usury that would have such clear-cut legislative implications. ⁵¹ If an elegant and enforceable solution were available, presumably it would have been discovered by now.

Further complicating the quest to derive a tidy legal agenda from the Church's teaching is the problem of unintended consequences. Unfortunately, attempts to impose interest rate ceilings out of a desire to protect the economically vulnerable from exploitation can effectively backfire, and negatively impact the very population they were intended to benefit. As Ian Harper and Lachlan Smirl explain,

Because lenders are forbidden from charging rates of interest commensurate with the risk they perceive in extending credit to riskier borrowers, they divert their attention to less risky prospects, thereby excluding (or ‘red-lining’) riskier borrowers from the market. Riskier borrowers (among whom the disadvantaged are overrepresented) are therefore denied access to credit altogether or obliged to seek accommodation through less formal (and hence unregulated) channels. ⁵²

Given this, it is helpful that attending to the principle at the heart of the prohibition broadens the conversation beyond a strict focus on legal reform based on loan types. It does so firstly because legislators are not the only audience of Catholic social teaching. Instead, the principles of CST speak to every one of the different social roles that we each inhabit, whether as elected representatives or citizens, supervisors or employees, and workers in finance and business or in churches, education, and non-profits. While the articulation of the principle undergirding the usury teaching suggested here is not itself a core principle of CST alongside principles such as human dignity and the preferential option for the poor, it draws from these and specifies them in lending: to respect human dignity and exercise a preferential option for the poor in finance requires ensuring that loans serve the integral human development of borrowers, and does not subordinate this to the end of profit for lenders with terms that take advantage of their vulnerability. Framing the teaching in this way invites mindfulness of usury in all the venues in which it is appropriate to discuss integral human development as the truest and most important end of finance.

One such venue is business schools, which play an important role in shaping the character and moral sensibilities of their students. ⁵³ Vocation of the Business Leader, a short vademecum for entrepreneurs published by the Vatican, ends with a reflection on the need for business education to help ‘entrepreneurs, managers, and all who work in business… to recognize their work as a true vocation’ to serve God and neighbor. ⁵⁴ Even more pointedly, the 2018 Vatican statement on the financial sector ‘Oeconomicae et Pecuniariae Quaestiones’ (Economic and Monetary Questions) urged ‘universities and business schools …[to] provide, as a fundamental and not merely supplementary element of their curricula of studies, a formational dimension that educates the students to understand economics and finance in the light of a vision of the totality of the human person’. ⁵⁵ Such a formation requires teaching students that the real purpose of finance is the common good and integral human development, and that its dignity and prestige as a calling is drawn from this larger good toward which it is ordered. How, we might ask, can professors and administrators of programs in finance—especially but not exclusively those at Catholic schools—more organically embed the content of their curriculum in a wider framework shaped by this understanding of finance? That is, how can students be invited to view the purpose of lending in such a way that practices which work against integral human development are no longer accepted as ‘business as usual’, but legible in the first place as problematic—whether or not they are explicitly named as usury?

Keeping in view the goal of having lending achieve its true end (rather than merely of avoiding or preventing illicit forms of gain in lending) also helps bring into focus the many ways that churches, non-profits, nongovernmental organizations, and other civil associations can contribute to a usury-free economy. Churches already provide significant support for microfinance and alternative credit for low-income borrowers, as well as financial education and empowerment programming. ⁵⁶ While such programs are the modern-day inheritors of the legacy of the montes pietatis, they are rarely presented as attempts to combat usury. There is room to both expand these efforts and to link these more directly with the Church's teachings on usury and the deeper purpose of finance, and thus to let the Church's lived example witness to the vision of economic justice that animates its social doctrine.

In addition to expanding the parties responsible for acting on the usury prohibition beyond government, reframing usury as a violation of the true end of lending also opens new lines of inquiry into the social and legal infrastructures that enable usury by permitting and protecting disordered lending practices. Consider, for example, the critical impact of bankruptcy laws, which are intended to provide relief for debtors in distress. Legal scholar Melissa Jacoby has argued that the current bankruptcy system in the US is far more lenient with corporations being sued for malfeasance than with individuals in financial crisis: Where legal entities such as municipalities and firms ‘can cancel almost everything, even debts arising from willful or malicious injury or fraud’, actual human debtors face suspicion and intense scrutiny within an often-byzantine system that frequently fails to deliver real relief. ⁵⁷ This is especially troubling given that medical debt is a leading cause of bankruptcy filings. ⁵⁸ Moreover, Jacoby explains that despite being ‘facially neutral’, American bankruptcy laws have the effect of entrenching and magnifying existing inequalities, including along racial lines. ⁵⁹ As a result, instead of serving as a ‘useful form of social insurance’, the US bankruptcy system regularly functions as a backstop for debts that profit creditors at the expense of economically vulnerable debtors—and thus, in the terms proposed here, for debts that are usurious. Furthermore, until recently US bankruptcy law generally did not allow the discharge of student debt, even when the loans were incurred at for-profit institutions under fraudulent pretenses—debt which most certainly qualifies as usurious, by nearly any reckoning. ⁶⁰ In short, bankruptcy law seems a subject ripe for analysis using the principles of CST, and an area where the Church's teaching on usury and the true end of finance could be profitably brought to bear upon a complex and urgent contemporary moral problem.

The same is also true in the case of ‘vulture funds’, an especially pernicious form of international debt collection. Vulture funds are private creditors that purchase loans made to an indebted company or country facing financial hardship, usually at a steep discount, and which then use litigation to try to recover the full value of the loan, plus interest, penalties, and legal costs. This can be particularly devastating for highly indebted countries whose debt is available on the secondary market for a fraction of its face value due to their financial distress, and which may be seeking debt relief (which, if granted on certain loans, does not impact the obligations between countries and other external creditors). In cases, hedge funds or private equity funds have targeted the debt of countries scheduled to receive debt relief and waited to sue until the nation has been given a fresh start, swooping in like their scavenging namesake to divert funds sorely needed for local development. These investments can be extremely lucrative for funds with pockets deep enough to engage in extended litigation; in one case a vulture fund purchased debt owed by Zambia for $3.3 million, and sued Zambia for $55 million after the country received debt relief from the World Bank and the International Monetary Fund. A UK court ultimately ruled that Zambia was obligated to pay $15.4 million plus a portion of legal costs to the vulture fund, a return of nearly 500% on its original investment. ⁶¹

The negative impact of such repayments upon developing nations has generated significant public outrage, and in cases has prompted legislation limiting the enforcement of such debts (notably not yet in the US, however). Even so, the practice continues. Such investments are deeply usurious, given that their excessive profitability is premised upon—and indeed requires—both the economic vulnerability of the indebted nation (for the debt to be traded at prices below face value) and the absence of wider international bankruptcy protections for countries (bankruptcy systems limit the claims of creditors for private debtors, but not for states), and profits on vulture funds directly and negatively impact the wellbeing of indebted populations. ⁶² As with bankruptcy law, vulture fund investing seems an issue crying out for ethical analysis in light of CST, as does the international legal infrastructure permitting such unjust power relations between investment firms and developing nations.