What is Usury?
Disproportion between payment and performance
Financial service providers are increasingly exploiting the plight of the poor: Interest rates on loans, which often include commissions for additional sales, are far out of proportion to the services provided. Usury is now quite common in the financial service industry. It particularly affects low-income households that are on the threshold of over-indebtedness since they often lack the financial means to get legal support. For some people, access to financial services is made more difficult because of a language barrier as well.
Usury as a systematic practice in the credit sector
The extent of usury in the credit sector can be described as systematic, even though it is legally prohibited. At first, the individual loan may look good, but the usury lies hidden in the credit progression and additional products such as residual debt insurances. The underlying practice is the stringing together of individual credit agreements. If a consumer can no longer service a loan or urgently needs additional credit, they must turn to their current lender. If they owe two loan instalments, the bank may terminate the loan agreement. This means that the entire remaining amount owed becomes due at once.
Profits through debt collection
Confronted with the prospect of hopeless over-indebtedness, banks often make the consumer a debt conversion offer on usurious terms that they are practically unable to refuse. With every conversion, the bank can offer a new interest rate, new products, instalment rates etc. The consumer will accept everything because there is no alternative. Particularly perfidious is the residual debt insurance. The bank forces the consumer to take out insurance, often life insurance, to ensure that their credit is repaid. These insurances are comparatively overpriced and are tailored to the bank’s needs. The more often debt is converted, the higher the returns from the residual debt insurance. Systemic usury also includes charging consumers who are unable or unwilling to pay the costs of debt collection.