Last week I posted some lines related to economics from the Westminster Larger Catechism. In one place, where the catechism was forbidding “usury,” I added the gloss “e.g., loan-sharks.” This prompted a stern chiding in the comment thread:

Kevin,

You know perfectly well that usury in the Bible and in the 17th Century WCF was not defined as “loan sharking”. It was defined as charging a rate of interest greater than zero.

Feel free to think that the Bible is outdated and wrong about this. But please have the guts to come out and say that you think the Bible is wrong. Don’t redefine Biblical words to mean something they don’t mean just so you can claim you agree with the Bible when the fact is that you don’t.

Those are strong words. This gentleman claims that the Westminster divines opposed charging interest of any kind under any circumstance and maintains that I think they were wrong and the Bible is wrong.

I took out the gloss because I could see how the point I was trying to make with a parenthetical note should not be thrown in matter-of-factly as the correct reading. My point demanded a more substantive explanation. And that’s what I want to offer now.

What’s At Stake

Before we examine the charge that interest is unbiblical, let’s understand all that is at stake in this discussion. We may like to think that making money off of interest is uniquely the occupation of bankers, Wall Street types, and other (seemingly) super-rich “bad guys.” But charging interest on a loan is what your credit card company does. It’s what the big box store does when you buy a refrigerator. It’s what the car company does when they let you walk off the lot with a new vehicle and almost no money down. It’s what your mortgage company does in order to make home ownership possible. It’s what the government does in issuing student loans. And essentially it’s what you do if you put money in a bank or buy government bonds; you are letting someone else use your money because they promise to keep it safe and give it back to you with interest.

None of this proves for a second that charging interesting is acceptable, but it does mean that those who oppose interest on biblical grounds should be prepared to oppose (and abstain from) almost everything about modern economies.

A Short History of Usury

For much of church history Christians have been opposed to charging interest on most loans. This makes sense given the biblical injunctions. According to Leviticus 25:37, “You shall not lend [your brother] your money at interest.” Exodus 22:25 stipulates” “If you lend money to any of my people with you who is poor, you shall not be like a moneylender to him, and you shall not exact interest from him.” Deuteronomy 23:20 says much the same thing about loans within the Israelite community, but with the important caveat that “you may charge a foreigner interest.” We can see why charging interest has often been frowned upon.

But it would be a mistake to think the church has been opposed to charging interest on every kind of loan. Usury has always been considered a sin. But not every sort of interest-bearing loan has been considered usury. There is a long history of defining usury as a loan of subsistence as opposed to a loan of capital. Loans in the Old Testament were given to those who were destitute and poor. This is the explicit context in the passages above from Exodus and Leviticus. When someone in the covenant community has hit rock bottom, the best thing to do is to give them what they need. The next best thing is a loan. And the one thing you must not do is give them a loan with interest. The situation calls for charity. It is not an opportunity for making money at the expense of someone else’s misfortune.

But a loan as a business venture or investment risk has historically been considered a different kind of loan. Samuel Gregg, in his Banking, Justice, and the Common Good, observes about the history of usury and the church: “it does not appear that there were any serious objections to people lending others capital. There is even considerable evidence that the clergy provided a type of banking service for their confreres” (30). To be sure, throughout much of Christendom, the church prohibited Christians from charging interest. This is why banking became a heavily Jewish enterprise. They were allowed to charge interest on loans (Deut. 23:20). As result, the Jews were often reviled for being “moneylenders,” their unique role in the financial industry being a contributing factor to centuries of antisemitism.

Over time, however, Christians grew more careful in defining usury. The Fifth Lateran Council (1512-17) defined usury as “nothing else than gain or profit drawn from the use of a thing that is by its nature sterile, a profit acquired without labor, costs, or risk.” This meant that if the lender lent money with labor, cost, or risk to himself he could charge interest without being guilty of usury. Likewise, Calvin talked about acceptable and unacceptable kinds of usury. Making money off the poor is one thing, but “if we have to do with the rich, that usury is freely permitted.” Surely, he argues, “usury ought to be paid to the creditor in addition to the principal, to compensate his loss.” In short, “reason does not suffer us to admit that all usury is to be condemned without exception” (Commentary on Exodus).

Similarly, Ursinus, in his Commentary on the Heidelberg Catechism observes that “All just contracts, the contracts of paying rent, a just compensation for any loss, partnership, buying, etc., are exempted from usury.” In other words, not every kind of interest is usury. Some are, and some aren’t. It depends on whether the loan will help the borrower or most likely hurt them. “There are many questions respecting usury,” Ursinus writes, “concerning which we may judge according the rule which Christ has laid down: Whatever ye would that men should do to you, do ye even so to them.”

Given this history in the Christian church and in the Reformed church in particular, it’s incredibly unlikely that the Westminster Divines intended to condemn every kind of interest-bearing loan. The problem has been–and continues to be–predatory lending. No doubt, some in the financial industry have sinned in their lending practices. Just because we can’t say every loan is usury, doesn’t mean nothing is usury. For example, in many poorer neighborhoods you will find institutions which charge astronomically high interest rates to give people cash advances. Are these higher rates justified because of their risks involved? Or is this precisely the sort of usury–making a buck off the poor to their ruin–that Christians have always condemned? In The Ascent of Money Niall Ferguson maintains that the earliest days of banking were populated by “loan sharks” like these, which is why I used the phrase I did in my parenthetical gloss last week.

Conclusion

Charging interest on a loan has been suspect during much of human history. Jay Richards explains:

By modern standards, almost everyone was dirt-poor. Only the rich, a tiny minority, had any money to lend. Any money lending, then, would involve rich people lending to their poor neighbors, probably their kin, for a basic need like food. . . .People hid extra money. So while a person might be entitled to have his money returned to him, it seemed uncharitable to charge a poor person for temporarily using money that would otherwise just be collecting dust. . . .And charging huge interest rates that couldn’t be repaid would add insult to injury, since it would exploit a person’s bad fortune and ignorance. Thus, given the historical context and the belief that money was sterile, the ban on usury made a lot of sense. (Money, Greed, and God, 140).

So did the church change its mind about usury? No, but it did become more precise with its definition. “Usury isn’t charging interest on a loan to offset the risk of the loan and the cost of forgoing other uses for the money; it’s unjustly charging someone for a loan by exploiting them when they’re in dire straits” (144). This seems to be a fair distinction given the context of the Old Testament provisions.

I do not believe the Bible or the Westminster Standards prohibit the charging of any interest in every circumstance. This has not been the universal position of the church. “Rather, it taught that it is wrong to charge interest on a loan by virtue of the very making of the loan, rather than by virtue of some factor related to the loan that provided a basis for fair compensation” (Banking, 35). There are still bad banks, bad lenders, and bad loans. But neither the Bible nor the tradition of the church requires us to think that banks, lenders, and loans are bad just because they are banks, lenders, and loans.

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Comments:


24 thoughts on “Is It Wrong to Charge Interest on a Loan?”

  1. Jeffrey Williams says:

    To me one of the most compelling arguments that could be made from the new testament in support of the idea that not all loans with interest are evil is that in the parable of the talents the master (analogous to God in the parable) scolds the individual who has buried his talent saying “Then you ought to have invested my money with the bankers, and at my coming I should have received what was my own with interest.” (Mathew 24:27) If all interest were evil I cannot see how Christ would have included that admonishment.

  2. Dan K. says:

    Kevin,

    This brings up the question about organizations such as Hope International which loans capital (at below-market interest rates) to the poor and destitute. As I have, in the past, contributed to such organizations, where do they fall on the spectrum of following Biblical principles relating to this issue?

  3. Kevin DeYoung says:

    I generally think micro-financing and loans like this at below market-rates are good ways to help the poor.

  4. Matthew Shores says:

    Dr. David W. Jones has a great book on this topic if anyone is interested. Reforming the Morality of Usury:

    http://www.amazon.com/Reforming-Morality-Usury-Differences-Protestant/dp/0761827498/ref=sr_1_1?ie=UTF8&qid=1320762481&sr=8-1

  5. jigawatt says:

    Kevin, even more than the good analysis of the meaning of “usury”, I appreciate your level-headed handling of such scathing criticism. I wish all evangelical bloggers could respond to their critics like this.

  6. Jay Beerley says:

    Bravo, Kevin.

    Also, in the microfinancing realm of ministry, “When Helping Hurts” by Fikkert and Corbitt has great things to say about helping poor in general. The end speaks to the microfinancing stuff.

  7. Tom says:

    Application question:

    Church A has just built a new building on a piece of property across town. Church B, a newly planted church, is looking for a place to meet and approaches Church A about buying their old property. However, because Church B is a new church plant, Church B cannot secure financing from any bank to make the purchase.

    Church A agrees to finance the loan for Church B, but inorder to get the purchase price they want, Church A builds it into the interest rate it charges Church B.

    So, for example, Church A wants $1.2M total for the property, so it sells the property to Church B for $850K but charges $350K in interest over the course of the loan to Church B.

    Is this an example of usury because Church B cannot secure financing from the banks so has to take Church A’s offer if it wants the property?

  8. Chris Higgins says:

    Kevin, nothing to do with this issue, but as a pastor I have to ask you a question. I love your posts and always amazed at the insight and balance of them. But my question is how in the world do you have the time to devote to all of your posting while being a full time pastor? Seriously, how do you do it?

  9. William says:

    On a tangentially related note, in places where the Islamic prohibition on usury has been upheld, “loans of capital” often take the form of a temporary partnership (say to buy materials for a factory). The lender is compensated in kind out of the proceeds of the startup, rather than in agreed-upon interest payments. So something directly analogous to interest exists even in the absence of interest, proper.

  10. Bob says:

    Great work. I only pray that those who opposed your statement have the humility to receive it. Often times people put their flag in the sand and will not change. Thanks.

  11. Neil says:

    Thanks for your post, Kevin. How do you recommend we look at loans made through micro-finance institutions? These loans are typically made to the poor at high interest rates (around 20%). Granted, these are business loans and the marginal returns are high for the borrower. Repayment is consistently in the 90-99% range. But sometimes the borrowers do default. And the MFIs do often make profit. In your opinion, does this kind of lending violate what we are commanded in Scripture?

  12. Paul says:

    Kevin,

    Unbelievable. Not only do you respond to my criticism of you with a detailed, gracious and very interesting post, you’re actually correct about a lot of this and I have to admit I was wrong. I never thought I’d have to say that to you ….

    Anyway, wrt the Westminster Assembly. I bet you are correct and I was entirely wrong to think that when they wrote about usury, they meant charging a rate of interest above zero on any loan. Besides your quotes from Calvin which seem highly pertinent to this, there’s the fact that when the Assembly met, the maximum legal rate of interest in Britain was 8%. In 1651 (a couple of years after the Assembly finished meeting) it dropped to 6% but still, one would have thought that if there were a great number of presbyterians and independents who really thought usury meant charging a rate of interest above zero, an Act of Parliament would have cut it well below 6%.

    You might be right but I’m less convinced by your arguments about usury in the Bible. I think we agree that the OT condemns one Israelite lending money to another Israelite who is destitute and charging interest on that loan. I think you think (please correct me if I’m wrong) that the OT is silent about an Israelite lending money to a rich Israelite so the rich Israelite borrower can use it to further his business. I’m not convinced by that. I suspect that your argument depends on the idea that it wouldn’t have crossed the minds of Israelites to lend to the rich and I have a hard time believing that’s true.

    Still, I really appreciate the time you took to reply to my criticism and my apologies for being ignorant about the Westmister Assembly’s view.

  13. Paul R says:

    Has anyone discussed what ex congressman of Texas Ron Paul has said that the Federal Reserve “prints”money at interest.From a systemic point the interest is impossible to pay back since it is a system structured not to ever payback to the system.

  14. Chip says:

    A little off topic so feel free to remove this.

    For what it’s worth, and not in their defense: the payday lenders actually charge “fees” rather than interest. For example, a flat $25 to set up and service a small loan. That covers their overhead to maintain a storefront, pay people, and make a profit. If you work that out as interest, it’s astronomical, yes. And their risk is fairly low.

    I’ve talked to people who take these out, and they usually have the same story. Unexpected car problem or medical bill and 10 days until payday. They are almost overdrawn at the bank, which despite their relationship and account open there, will not lend them a small amount of money to tide them over, because it’s not their business model to do so. They have no credit cards they can get a cash advance from. So the choices are:

    1. Write a bad check to somebody, and have (a) NSF fees from the bank, (b) bad check fees from whomever the check is written to and (c) usually a block placed on being able to shop wherever it was anymore. Those add up to a LOT more than the fee from the payday lender.
    2. Get a payday loan and pay the fee.
    3. Try to get money from a friend or relative, not always possible.
    4. Actual loan shark–not a good idea.

    Where it gets bad is when people don’t pay back the payday loan after payday, and instead keep paying the fee to extend the loan. There’s usually something that they need to do but are unwilling to do, like cancel the cell phone or skip ordering pizzas and prepared foods, stop playing the lotto, etc. They need to try to pick up some extra hours at work or do some extra work on the side. They have a couple of weeks to work it out, and they sadly fail to do so pretty often.

    I’d counsel them to try to work something out on payments with the supplier–car repair guy or whomever. Some might be willing to take $20 a week until it’s paid off.

  15. Scott Roper says:

    Rev. DeYoung, I appreciate your analysis, but your statement about the church refining rather than changing its view on usury seems inaccurate. Lending was always allowed. Capital investments were always allowed. Charging interest on money was considered sinful. We can see one argument in Summa Theologica II-II Q. 78. “To take usury for money lent is unjust in itself, because this is to sell what does not exist…” It’s impossible to reconcile Thomas’s position with the modern view that charging a little interest is OK. Indeed, the Council of Nicea specifically forbids lending at even 1%. Some (but not all) of the Reformers broke with the historical position–this was not refinement but a redefinition. The question changed from the objective “what kind of economic activity is this?” to the subjective “does this economic activity help or hurt the borrower?”

  16. Here is a thought experiment: Go back over your post and eliminate either the term “usury” or else the term “interest,” and try to work out the same arguments using only a single term. Strictly hold yourself to the limitation that you are not allowed a duality of terms. Doing so would put you on the same linguistic and conceptual footing as all of the ancient – and biblical – languages, which had no duality of terms. It also would put you on the same footing as the English language of the King James Bible and the Westminster Confession, which had no duality of terms. Modern people say some of the most inane things on this subject because of the artificial device of employing “usury” to mean one thing and “interest” to mean something different. You cannot truly delve into the history of the matter all the while superimposing onto “history” the artificial duality of “usury” vs. “interest.” Incidentally, the matter I have just raised is only one of several very serious problems with your original post. But, it is a place to start. Please do try it: you may say either “usury,” which means one thing, or else you may say “interest,” which means one thing. Affording yourself one term and one concept only, go back over your post and attempt to rephrase it.

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  18. Christopher says:

    so…usury is usry is sin? I am just looking for an easy answer. Why would a business loan be any different than a loan from an individual.

  19. micksick says:

    Charging interest is wrong. Why do you think this country is trillions in debt? The most greedy and power selectb few in the world do this, and that also how they became so powerful. These people create depressions to make us bend to their will, they create crisis’ to make us act in a way they want us to, they fund both sides of wars, their greed is never stopping, its why the 3rd word countries are 3rd world countries. theres a big picture here that is hard to see, but once you peel back a couple layers, you can start to see some of it.

    When these people create a depression and people are foprced to sell their homes then these powerful people come in and scoop up their land at a discount, and then sell it back to others with interest. Its a never ending cycle. This is the root of all evil. Credit cards are made by these people to put us in debt. its all part of the same scheme.

    The rabbit hole is deep my friend, insanely deep.

  20. Lenny says:

    Pastor DeYoung, I read with interest (no pun intended) your interpretation of the distinction between usury and interest on loans. As a small business owner, I can see that when a risk is incurred by the nature of the loan, some sort of reward must needs be present; no incentive exists outside of the potential reward for the lender. I also see where the comment directly before mine is going, and, in principal, I agree.

    I do however have a problem with churches making loans to other churches at interest. It may be legal, but the notion tugs at me and leaves a bad taste in my mouth. A church that I used to attend has established a fund, built up from donations, for the purpose of lending money to newly planted churches. The church plant contracts to repay the loan with 6% interest, thus freeing up those funds to be lent to other church plants. In theory, the fund will continue to grow – at a pace which may or not keep up with inflation. All the while, as I understand this scheme, the congregation and other “friends of the church” will continue to donate to this fund, above and beyond their normal giving.

    I find this disturbing as a Christian. Any thoughts on this?

  21. Lenny says:

    I would like to add that Scott Roper’s comment closely mirrors my own thoughts on this and was elegantly expressed – even if 2 years ago!

  22. Geralg says:

    You sir are a hypocrite. You have the temerity to call yourself a follower of Christ, yet you try to justify this self serving claptrap from the medieval church? Its really easy to understand. You write, ^^ According to Leviticus 25:37, “You shall not lend [your brother] your money at interest.” ^^. Christ said in matt12-49, “For whoever does the will of My Father who is in heaven, he is My brother and sister and mother..”.

    One quick and easy question for you. Would Christ loan money at interest?

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Kevin DeYoung


Kevin DeYoung is senior pastor of University Reformed Church (RCA) in East Lansing, Michigan, near Michigan State University. He and his wife Trisha have six young children. You can follow him on Twitter.

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