SECTION CXCIV.. Interest-Policy.--Repeal of the Usury Laws.

INTEREST-POLICY.--REPEAL OF THE USURY LAWS.

However, the complete repeal of the usury laws[194-1] has not under all circumstances accomplished what it was supposed it would; and the state should take great care, lest by an incautious framing of its laws, it should put judges in such a position that they may be compelled to coöperate in the execution of immoral contracts.[194-2] In the lowest strata, so to speak, of the loaning business, the medieval condition continues to exist (§ 190) after it has disappeared in the upper. Here, the loan is effected scarcely ever for the purposes of production, but most generally because of the most urgent necessity; and the debtor is not in a condition, from want of education, and especially from his ignorance of arithmetic, to estimate the magnitude of the burthen he has undertaken. The business of loaning is, under such circumstances, considered dishonorable, to some extent, by the public. And when a business necessary in itself is held disreputable by public opinion, the usual result is that bad men alone engage in it.[194-3] Real competition which would but fix the natural price is wanting here in proportion as the debtor is anxious for secrecy.[194-4]

Abuses in this respect are best guarded against by the establishment of government loan-institutions, and by the publicity of the administration of justice to debtors.[194-5] Besides, every contract might be prohibited the terms of which were such that an inexperienced borrower could not from them obtain a clear conception of the burthen he accepts, or which hindered him from paying the debt at a proper time.[194-6]

Lastly, there should be a rate of legal interest fixed by the state to be charged in such cases as interest is found to be in justice due, but in which none is provided for by contract; and this rate should approximate as nearly as possible to the rate usual in the country.[194-7] [194-8]

It seems opportune that the old prohibition against interest on interest (Cicero, ad. Att., V, 21, and L, 26, Digest, XIV, 6) and the provision that the interest should not be permitted to be greater than the alterum tantum (Digest, l. c.) should be permitted to continue. (Digest, l. c.) Both of these measures were first decreed by Lucullus, for the protection of Asia Minor. Compare § 115. Florentine law, of 1693, that interest in arrears, or that interest on interest beyond 7 years, should not be added to the principal without an express contract to that effect. (Vasco, Usura libera, § 155.) In England, the usury laws were by 2 and 3 Victor., c. 37, repealed, but only to the extent of excepting from their provisions bills of not over 12 months, and money loans not over £10. Compare Rau, Lehrbuch II, § 323.]