IN

THE LAWS AGAINST USURY

'N view of the parliamentary enquiry now in progress with regard to the methods of moneylenders, it may be of general interest to give a brief historical account of the law relating to usury in this country.

In Saxon and early Norman times there was one law for the Jew and another for the Christian in regard to usury. The reason for the differential treatment accorded to Jew and Christian does not reflect any credit upon the administration in those days. The Norman Kings of England were frequently in need of money to defray the expenses of the costly military expeditions upon which they were wont from time to time to embark. Now from the remotest ages the Hebraic capacity for accumulating and retaining wealth has always been superior to that of any other race or creed, and this fact was fully appreciated by our Norman monarchs, who combined considerable financial acumen with their more robust military accomplishments. The comfortable, well-appointed usurer was the best friend to the Exchequer. In plain language, the early Norman Kings employed the Jewish moneylender as a sponge to suck up the wealth of their subjects, and thereby avoided the unpopularity and costly administration of a direct tax upon the whole realm. In the words of the historian Maddox: "As the Jews fleeced the people, so did the king fleece the Jews."

Such was the position with regard to the Jews before they were expelled from the kingdom in 1290. The Christians, on the other hand, were absolutely forbidden to lend money at interest, for usury was regarded as being opposed to Holy Scripture. It was made unlawful at common law, and a wrongdoer was also subject to ecclesiastical punishments. But, notwithstanding its illegality, the business of usury was frequently practised by Christians. Shortly before the Norman Conquest a strong effort was made to stamp out usury among the Christians, and in the reign of Edward the Confessor (1042-1066) several laws were passed for that purpose. But whether by design or inadvertence the laws of Edward the Confessor were so drafted

that a curious state of affairs resulted. While the Christian usurer was alive he was made subject only to the jurisdiction of the ecclesiastical courts, which inflicted punishments upon him pro salute animi. Such punishments took the form of a pecuniary penalty, and it can readily be understood that the ecclesiastics regarded this new means of increasing their revenues with considerable favour. But when the usurer died the king's courts acquired jurisdiction to deal with the estate of the deceased person, whose goods they promptly seized.

In spite of these stringent prohibitions and penalties, Christian usurers contrived to compete to an appreciable extent with the Jews. But when the king realised that the effect of such competition was to check the flow of money into the coffers of the Jews, thereby causing a diversion of usurious gains from the royal treasury, he began to regard the operations of the Christian usurers with a hostile eye. Nor was the jurisdiction. exercised by the ecclesiastical courts over living moneylenders by any means pleasing or acceptable to the Crown. So it came about that under the direction of the king the royal courts began to usurp the jurisdiction of the ecclesiastics in dealing with living usurers. The precise date at which the royal courts began to take cognisance of these matters is not known, but it was clearly before the Norman Conquest, for we learn from the dialogues of Saccario that the sheriff's tourn and court-leet-both originally Anglo-Saxon tribunals-were empowered "to punish or inquire of usurers." The decay of these Saxon tribunals did not deprive the king of his control over Christian usurers. When the sheriff's tourn fell into disuse the circuit system was inaugurated, and the assize courts rapidly acquired a jurisdiction over usury, not only to the exclusion of the lesser civil tribunals but to the exclusion of the ecclesiastics, who were compelled to retire from the scene after a short conflict with the royal courts.

After the expulsion of the Jews from England in 1290 the business of usury continued to be practised by Christian moneylenders in spite of all prohibitions to the contrary, and in the course of time usury among Christians became recognised as an inevitable incident of the social system. Subsequent legislation was directed chiefly towards regulating the activities of moneylenders by prohibiting the charging of exorbitant rates of interest. An Act passed in the reign of Henry VII forbade the taking of

usury without the king's licence, and further enacted that the unlawful taker of usury should be set on pillory, imprisoned for half a year, and fined the sum of £20. But in the great majority of cases the professional moneylender continued to conduct his business without first obtaining the royal licence, and the administration of the usury laws became notoriously lax about this time. The next, and one of the most important statutes of usury, was passed in 1546, under Henry VIII. After reciting that the various Acts which had been passed for the avoidance of usury were obscure and ambiguous in meaning and were of little force, this statute enacted that all laws heretofore made concerning usury and corrupt bargains should be utterly void and of no effect. It was further enacted that money or chattels might be lent at interest provided that the rate of interest did "not exceed ten pound in the hundred." Any person contravening the provisions of this statute was to forfeit the treble value of the money or chattels so bargained. The moiety of such forfeiture was to go to the king, and the other moiety to him that sued for the same in any of the king's courts. Furthermore the offender was to suffer imprisonment and be fined at the king's will and pleasure.

Seven years later in the last year of the reign of Edward VIan Act was passed repealing the statute of Henry VIII, and forbidding usury altogether. But the Edwardian statute failed. dismally to effect its purpose, and in fact the practice of taking usury appears to have received a great impetus about this time. While the Reformation divines professed to regard usury with horror, they did not fail to avail themselves of the many subterfuges then in vogue to evade the prohibition. It is on record that Bishop Saunderson, while stoutly refusing to accept interest on his money, was willing to lend the sum of one hundred pounds on condition of receiving twenty pounds annually for seven years, which the good bishop was pleased to consider as something entirely different from usury.

The absolute futility of attempting to abolish usury in the realm was recognised by Queen Elizabeth and her advisers, and in 1571 an Act was passed which substantially re-enacted the statute of 37 Henry VIII, including the important clause of limiting the rate of interest to ten per cent. per annum. By the same statute of Elizabeth the power of the Commissioners of Assize to inquire of, and punish, unlawful usurers was extended to the Justices of the Peace in their sessions.

The next law of any importance dealing with usury was placed upon the statute book in 1624. This Act contained a sound piece of reasoning, pointing out that, owing to the abatement in the value of land and merchandise and other commodities in the kingdom, the continuance of the ten per cent. rate of interest, not only made men unable to pay their debts, but compelled them in a great number of instances to forsake their business, or sell their lands, and so become unprofitable members of the community. The statute thereupon reduced the rate of interest from ten to eight per cent., and imposed a forfeiture of treble the value of the money or other things lent or sold upon any person contravening the statute. The brokerage fee for obtaining a loan for the benefit of another party was restricted to five shillings in the hundred pounds. This enactment was merely temporary at first, but was made perpetual four years later. The reduction of the rate of interest on loans from ten to eight per cent. was found to be so beneficial to trade that in 1660 a further reduction of the rate was made to six per cent. and in 1714 the rate was finally reduced to five per cent. But three years later, in 1717, an exception was made in favour of the Governor and Company of the Bank of England, who were permitted to borrow money at such rate as they might think fit, although the same might exceed the rate fixed by law; and a similar privilege was granted to the South Sea Company.

In 1720 an Act was passed inflicting the penalties of usury upon any corporation or body politic or persons acting in society or partnership, who insured ships at sea or lent money on bottomry. The object of this enactment was to secure the monopoly, of marine insurance and lending money on bottomry, to the two companies who were incorporated by the Crown. But individuals subscribing policies of marine insurance or lending money on bottomry were exempted from the penalties of the Act of 1720.

All the principal statutes up to the middle of the eighteenth century which attempted to restrict the rate of interest on loans of money, or merchandise, and upon conveyances of real property have now been dealt with. Towards the end of the eighteenth century certain principles of political economy were being evolved and communicated to the more learned members of the community. These principles were based on the lessons learnt from

the industrial revolution. Common experience had shown that the usury laws were injurious to legitimate trade and commerce, and ineffectual to stop the practices which they were designed to prevent. Hume proved that the rate of interest depended not on the value of gold and silver but on the quantity of stock. Adam Smith accepted Hume's theory and further declared that the rate of interest was regulated by the economic laws of supply and demand, and that no legislation would effectively reduce the rate of interest below the ordinary market rate prevailing at the time. Bentham induced a number of people to believe at last that legislation was powerless to prevent usury, and that prohibition under penalties was calculated in practice to lead to an additional charge by way of compensation against the legal risk.

At the beginning of the nineteenth century, the general consensus of opinion being in favour of abolishing all restrictions upon the rate of interest, a Select Committee of the House of Commons was appointed in 1818 to consider the effect of the various statutes dealing with usury. The committee reported that the laws regulating or restraining the rate of interest had been extensively evaded, that they were so ambiguously worded as to be productive of much litigation, and finally that the time was opportune for their repeal. For some inexplicable reason this report, though meeting with general approval, was not carried into effect, but it no doubt influenced the passing of several subsequent Acts which mitigated the operation of the laws against usury. The most notable of these, passed in 1839, declared that bills of exchange and promissory notes payable at or within twelve months from the date thereof, and contracts for loans of money above ten pounds, were to be exempt from the operation of the usury laws, provided, however, that not more than five per cent. should be recoverable in any court of law or equity. Two years later a Select Committee of the House of Lords recommended the repeal of the usury laws, and from this time onwards practically the whole weight of public opinion was in favour of the abolition of all restrictions upon usury. John Stuart Mill pointed out that while a person of sound mind and full age might sell an estate, or grant a release, or assign all his property without control from the law, it seemed inconsistent that the law should intermeddle with a contract for the loan of money. At last these representations had the desired effect, and