Wear (finance)

History

Loan interest is attested in Mesopotamia and the Bible . As of -1750, the Code of Hammurabi provides a regulation of authorized rates, with a maximum of 20% or 33% depending on the loaned product (money or seeds) ¹ . In the Roman Empire , it was admitted as an ancillary activity of agriculture and commerce, but its excesses were punished, as Cato says : ” Majores nostri sic habuere, and ita in legibus posuere, ut cum fures quidem duplici poena luerunt, foenoratores in quadruplum condemn.  ” ² . Tacitus reports that in year 33, a serious financial crisis led to the creation by the State of a mortgage fund of 100 million sesterces ³ . From the iv ^th century , the episcopal and monastic literature uses metaphorical language (hoarding, usury, terms borrowed from the Greco-Roman world economic) to analyze the loan with interest ⁴ .

As early as the Middle Ages, the Roman Catholic Church took up the distinction made by Roman law for the loan of movable property: that of things that are consumed by use and that of things that are not consumed, called commodatum . To demand a payment for commodat is contrary to charity, and money is a good that is not consumed. From this time, we see the interest loan condemned by the Council of Nicaea on the basis of the Old ⁵ and the New Testament ⁶ , and by the capitol of Nijmegen of Charlemagne in 806 and the capitular of Olonne Lothaire in 825 ⁷ .

Later, in the xii ^th century , the economy becomes money and the issue of loans at interest and the ban again. The Church continues to prohibit the practice of usury, still relying on the Holy Scriptures, but also taking support on the critique of chrematistic by Aristotle , that is to say, criticism of the loan interest as an unjust, dishonorable and unnatural way of claiming the good of others. The doctrine of usury, the object of numerous and subtle debates between scholastics , however, evolves throughout the medieval period. Thomas Aquinas condemns the interest loan: ” To receive an interest for the use of the money lent is in itself unjust, because it is to make pay for what does not exist; which obviously constitutes an inequality contrary to justice … that is the nature of usury. And as one is obliged to restore the property acquired unjustly, so one is obliged to return the money received as interest .

In France, the ordinances and the jurisprudence show that a doctrine emerges which begins to distinguish what we call the credit in the businesses, and the credit with the consumption.

When it comes to trade and industry, lending money is allowed when it is a true contract of association or joint exploitation that involves risk, but it is prohibited when it is a simple decision interest on expected profits, called bottomry , which is condemned by the Pope to the xiii ^th century . A social difference develops between lenders: Jews generally lend to the poor, the petty bourgeois merchants Christians for wealthier classes, the great Italian merchants grains that become bankers at the end of xiii ^th century lend to richer (Cahorsins ⁸and especially the Florentines who lend to the great princes) ⁴ . In the reality of commercial and often maritime affairs, the interest of advanced money is often masked by the very early complexity of the practices and by the multiplicity of currencies that force foreign exchange transactions.

From the xv ^th century , trading companies, banks and factories are based in France and pay for borrowed funds, but on the basis of a derogation King (privilege given by Letters Patent) and with precisely regulated obligations (advertising, accounting, co-responsibility of partners, etc.). In real estate matters, the interest on the sums lent is only allowed if there is an alienation of the fund, that is to say either a payment of its value without taking possession, or a taking of possession without payment. ; it then corresponds to the payment of the usufruct of a real estate fund by a person who does not own it, that is to say, in modern law to a lease. In all other situations, that is, for what we call consumer credit, interest-bearing loans remain condemned by the Church. Several royal ordinances prohibit the advance of remunerated funds for agriculture,

The first theologian to accept the interest loan was John Calvin . The practice of interest-rate lending then spread rapidly from the networks of banks whose headquarters were established abroad, in countries of Calvinist obedience such as Geneva , the Netherlands and England , but also in the United States. States such as Venice and Portugal where banks specialize in maritime commerce. The prohibition of this land rent is definitely lifted by the Catholic Church in 1713 by the Catholic University of Utrecht ⁹ .

In the xviii ^th century , found in most major cities of Commerce, next to banks whose official list is published each year in the Royal Almanac and whose activity is discount and discount tickets or commercial paper from place to place, credit banks, almost all of Protestant origin ¹⁰ .

With the French Revolution, banking activity and interest-bearing loans became completely free, and new banks were created in almost all cities, with considerable funds almost always coming from speculation on national property and supply to the armies.

We can mention for the French banks Gabriel-Julien Ouvrard , Recamier , and for foreigners the installation in Paris in 1811 of Jacob Rothschild , etc.

From 1830, these new banks are the backers of the mining and manufacturing industry.

The Catholic church raises its condemnation of lending at interest in 1830 ¹¹ , but the Vatican did in 1917 has permitted ¹² . ” If a fungible thing is given to someone in property and must be returned after that same kind, no gain on the basis of the same contract can be perceived; but in the provision of a fungible thing, it is not unlawful in itself to agree on a legal profit, unless it appears to be immoderate, or even of a higher profit, if a right title and proportionate can be invoked ¹³ .  ”

Today ^[When?] , Partly on the basis of this old distinction between an acceptable interest rate and an excessive rate, some legislations condemn usury (France, Italy), and for this purpose set maximum rates, so-called wear rates, for the credits that are granted, depending on the type of loan.

Even today, some countries, especially “emerging” countries, turn a blind eye to excessive lending rates in banks. In Brazil, for example, banks charge mortgage rates of 4-5% per month, or 60-70% per annum (combined interest). On bank overdrafts, monthly interest can go up to 14.5%, an annual rate of 230% including interest on interest. For example, a bank overdraft of 1 000 euros turns into 3 300 euros after one year, or a little more than 10 000 euros after 2 years, or a little more than 100 000 euros after 4 years.

Legislation (Canada)

In Canada, the legal limit for any interest due was set on 1 ^st April 1981 to a maximum of 60%.

Specifically, a usurious interest rate is defined as “any effective annual interest rate applied to the loan principal and calculated in accordance with actuarial principles and practices generally accepted exceeding sixty percent ¹⁴ . ”

Legislation (France)

In France , in order to protect individuals, the legislature ¹⁵ has determined the general principles of usury, ie the maximum effective rate applicable to lending operations.

It is set at 133% of the average effective rate applied in the previous quarter by credit institutions for similar transactions involving similar risks.

Published quarterly by the Banque de France , it includes more than a dozen categories of operations and concerns most business loans, as well as almost all loans to individuals: real estate loans , overdrafts, consumer loans, etc.

These numerous definitions have replaced the old single and general definition of “twice the previous month’s bond market rate (TMO)” which had almost caused a legal headache during the currency crises of the 1990s .

The rate of wear must not be confused with the legal interest rate in France , which determines the rate of interest applicable to certain legal situations or decisions ¹⁶ .

Notes and references