When we speak of loan shark, Shylock of Shakespeare's play The Merchant of Venice would often appear in our mind. For many Chinese growing up reading such stories, naturally the term usury would conjure negative impressions in their mind.
Contrary to the general impression, China's laws and regulations have never stipulated what is "usury", but it stipulates that interest income with a certain interest rate exceeding a certain level should be considered invalid. In 2015, the Provisions of the Supreme People's Court on Several Issues concerning the Application of Law in the Trial of Private Lending Cases give clear rules on the interest of private lending. The interest rate agreed by both parties is not more than 24% per annum. The lender has the right to request the borrower to pay interest at the agreed interest rate. However, if the interest rate agreed by the borrower and the lender exceeds the annual 36% interest rate, the interest exceeding 36% of the annual interest rate will be deemed to be invalid; the borrower has the right to request the lender to return the interest paid excessive of the 36% annual interest rate.
Such provision in China is almost the highest and most accommodative "usury loan" interest rate in the world, which is equivalent to creating conditions for "usury loans" and capital "de-realization."
It seems that the ancients are doing better in financial regulations that China today. Ancient Greece issued laws and regulated interest rates as early as 800 BC to 600 BC, while Rome stipulated that interest rates should not exceed 8.3% in 443 BC. In 88 BC, the highest interest rate was raised to 12%. In the Roman Empire from 27 BC to 395 BC, in many cases the interest rate was determined after consultation between the lender and the borrower. The law did not explicitly limit the rate, but the actual private interest rate at that time was generally between 4% and 12%.
The United Kingdom enacted the Usury Act in 1660 and stipulated that the maximum legal interest rate to be only 6%. In the 19th century, although the United Kingdom had abolished the Usury Act, yet the bank interest rate was market-oriented, and under the strict constraints of supply and demand, it was actually difficult for the interest rate to rise to irrational level.
In today's America, in California, its most economically developed state, the state law stipulates that ordinary individuals and organizations must not charge more than 10% of the annual interest on the loan, even if the borrower agrees to pay more than this interest rate, the lender is not allowed to accept it. In addition, the fees charged by the lender, such as management fees, handling fees, etc., regardless in any name, must be included in the interest category. If the court believes that the lender deliberately asks for more than the legally prescribed interest, the lender can be sentenced to imprisonment for up to five years.
In California, this is not just a matter of law regarding to interest rate, but also a criminal offense.
The situation is similar in other major states in the United States. For New York, known for its Wall Street and one of the international financial centers that has the GDP second only to California and Texas, ranking third in the U.S., its state law stipulates that charging more than 16% of annual interest rates would violate civil law, and charging more than 25% of annual interest rates would violate criminal law.
As in California, lenders who seek high interest rates face penalties such as imprisonment or probation in New York State. The New York State Court also screens the amount paid by the borrower to see if the substance of the payment is interest, regardless of the name of the payment. According to the judgments of some cases, if a loan is recognized as a usury loan, the lender might not receive the principal, but also need to pay double interest as compensation.
Florida, which ranks fourth in GDP, stipulates that loans with an annual interest rate of more than 18% are all usury. However, if the loan amount is higher than US$ 500,000, the interest rate can be charged below 25% per annum. If the annual interest rate exceeds 25%, the lender will be imprisoned for 60 days or less, and a fine of US$ 500 will be imposed; if the annual interest rate exceeds 45 %, the imprisonment term is 5 years or less for the lender and a fine of US$ 5,000 will be imposed.
In some less developed states in the United States, the definition of usury is also very strict, and it will not be loosen because for allegedly "developing the economy". For example, Vermont's annual loan interest rate cannot be higher than 12%, otherwise it will be regarded as usury; in Georgia, the annual interest rate of borrowing within US$ 3000 should not be higher than 16%, and the interest rate for loans less than US$ 250,000 will be simple and not compound interest rate, which will be written on the loan agreements.
Final Analysis Conclusion:
It can be seen that both China and the United States have strict regulations on lending, and public opinion of both countries is critical to usury. When one is facing debt issues, it is the best and safest way to seek legal. However in China, due to imperfections in financial regulations, it is virtually impossible to do so.
