1911 Encyclopædia Britannica/Money-Lending
MONEY-LENDING, the lending of money on usury (q.v.). The business of the professional money-lender is one which, as tyranny and abuse are likely to appear, all countries have at different times endeavoured to regulate. In England the lessons of experience have shown that the abuses of this business are best regulated by a system of registration coupled with relief to debtors against harsh and unconscionable bargains. Other countries however still appear to cling to the belief that it is wisest to fix a maximum rate of legal interest. Thus in Germany the commercial code fixes the legal rate of interest on commercial transactions at 5%. Moreover in that country traders can demand interest on commercial debts from the day on which the debts fall due. In France, again, the Code fixes the rate of interest on ordinary loans at 5%, and on commercial transactions at 6%. In the United States of America the law relating to the lending of money on usury varies in the different states. All the states have what is called a “legal rate” of interest; and when no rate of interest is specified in the contract between the parties, there is a presumption that the borrower has agreed to pay the legal rate. This legal rate varies from 5% in Louisiana to 8% in Wyoming; in the Eastern states it is generally 6%. Some of the states have usury laws giving relief to borrowers in cases where circumstances have compelled them to agree to extortionate rates; but other states have no such laws, except that a contract in writing is invariably required in all cases where the “legal rate” is exceeded.
Practically every form of investment in which a man is capable of indulging involves the lending and borrowing of money, the interest exacted being the profit which the lender receives for the use of his capital. The existence of the professional lender, as apart from the ordinary facilities for borrowing money on good security, is obviously due to the fact that it is not every borrower who is in a position to give good security for a loan. Where the security is bad the market is narrowed; the individuals who are prepared to lend the money on merely personal security require a high rate of interest.
The first people to practise the profession of money-lending in England regularly were the Jews, and the business has remained largely in their hands, though they are in the habit of trading under assumed names. The Norman and Angevin kings were fully alive to the advantages which accrued to the people through borrowing at usury from the Jews, but they were also alive to the advantages which they themselves were able to reap by extorting from the Jews the wealth which the latter had acquired from the people. The Jews were regarded as the king’s serfs, and squeezing them was but a popular form of taxing the people. Indeed in the reign of Henry II. the Scaccarium Judaeorum was established as a separate branch of the exchequer and used for the purpose of filling the royal coffers. The English people on the other hand were not so prone to foster the money-lending business. Sections 10 and 11 of Magna Carta provided that when a person died owing money to a Jew no interest should accrue during the minority of the heir, and further that the widow should be entitled to her dower, and any children who were minors should be provided with necessaries before the repayment of the loan. Then followed a large number of statutes known generally as the Usury Laws (see also Usury). The first of these was passed in 1235 (20 Hen. III. c. 5). The acts were directed to restrain the lending of money at usurious rates. The earlier ones in some cases prohibited the lending of money on usury at all, as in a statute of Jewry of the reign of Edward I.; but the later statutes were chiefly confined to limiting the rate of interest. Thus 21 Jac. I. c. 17 declared void all contracts where the interest was more than 8%. In 1818 a select committee of the House of Commons was appointed to consider the Usury Laws and in 1841 a similar committee of the House of Lords was appointed. As a result an act was passed in 1854 (17 & 18 Vict. c. 90) whereby all the existing laws against usury were repealed.
The question whether any interest is payable or not, and also the amount of such interest, depends on whether the parties to the transaction have expressly or impliedly agreed to the payment of interest by the borrower; for apart from such agreement no interest can lawfully be demanded on a loan. Although in general there is no limit on the amount of interest which a borrower may agree to pay, equity has always been ready to grant relief from unconscionable bargains. This equitable relief is still available, though it is not so wide as the relief now given to borrowers under the Money-lenders Act 1900. This act provides that where proceedings are taken in any court by a money-lender for the recovery of money lent, and there is evidence which satisfies the court that the interest charged on the loan, or the amounts charged for expenses, inquiries, fines, bonus, premium, renewals, &c., are excessive, and that in either case the transaction is harsh and unconscionable, or is otherwise such that a court of equity would grant relief, the court may reopen the transaction and take an account between the money-lender and the person sued, and may, notwithstanding any statement or settlement of account or any agreement purporting to close previous dealings and create a new obligation, reopen any account already taken between them and relieve the person sued from payment of any sum in excess of the sum adjudged by the court to be fairly due in respect of such principal, interest and charges as the court, having regard to the risk and all the circumstances, may adjudge to be reasonable.
The Money-lenders Act of 1900 was passed in consequence of grave abuses which had arisen. It had been the practice of a certain class of lender to trade under a variety of names; so that under one name the same individual would lend money to a person who borrowed from him under another name; the second loan would be spent in liquidating the first, and the borrower finding it always easy to obtain more money would continue borrowing until he became hopelessly involved. The act struck at the root of this pernicious system by providing that every money-lender, as defined by the act, must register himself as such, under his own or usual trade name, and in no other name, and with the address, or all the addresses if, more than one, at which he carries on his business of a money-lender. If a money-lender fails to register himself, or if he carries on a money-lending business otherwise than in his registered name, or in more names than one, or elsewhere than at his registered address, he is liable on summary conviction to a fine, not exceeding one hundred pounds. For the purposes of the act “money-lender” is defined as including every person whose business is that of money-lending, but it does not include pawnbrokers, in respect of business carried on by them under the Pawnbrokers Act, Registered Friendly, Loan or Building Societies, corporate bodies incorporated or empowered by special act of parliament to lend money, persons bona fide carrying on the business of banking or insurance, or bona fide carrying on any business not having for its primary object the lending of money, or bodies corporate for the time being exempted from registration by order of the Board of Trade.
The act is not confined to providing for the registration of moneylenders and for the reopening of harsh and unconscionable bargains. A check is placed on false representations and promises made with the intention of inducing a borrower to enter into a loan transaction. If any money-lender, or any manager, agent or clerk of a moneylender, or any person being a director, manager or other officer of a corporation carrying on the business of a money-lender, by any false, misleading or deceptive statement, representation or promise, or by any dishonest concealment of material facts, fraudulently induces, or attempts to induce, any person to borrow money or to agree to the terms on which money is to be borrowed, he is declared by the act to be guilty of a misdemeanour and is liable on indictment to imprisonment with or without hard labour for a term not exceeding two years, or to a fine not exceeding five hundred pounds, or to both.
The act further provides that if any one for the purpose of earning interest, commission, reward or other profit sends or causes to be sent to a person whom he knows to be an infant any circular or other document which invites the person receiving it to borrow money or to apply to any person or at any place with a view to obtaining information or advice as to borrowing money, he shall be liable, if convicted on indictment, to imprisonment with or without hard labour, or to a fine, or to both imprisonment and fine. If any such circular or document sent to an infant purports to issue from any address named therein or indicates any address as the place at which application is to be made with reference to the subject matter of the document, and at that place there is carried on any business connected with loans, every person who attends such place for the purpose of taking part in or assisting in the carrying on of such business will be deemed to have sent or caused to be sent such circular or document, unless he proves that he was not in any way a party to and was wholly ignorant of the sending of such document. Moreover, by section 5 of the Money-lenders Act 1900, where any proceedings are taken against the senders of these circulars to infants, if it is proved that the person to whom the document was sent is an infant, the person charged will be deemed to have been cognisant of the fact unless he proves that he had reasonable grounds for believing the infant to be of full age. Under the act of 1892 this shifting of the burden of proof only occurred if the circular had been sent to any person at any university, college, school or other place of education.
As for the recovery of money lent; if the loan is not tainted with illegality or immorality, or made for a purpose contrary to public policy, the amount may be recovered by a common law action. Where an intending borrower breaks his agreement to borrow, specific performance will not be granted, and the damages recoverable must be measured by the loss sustained through the breach and not by the sum agreed to be lent (The South African Territories, Limited v. Wallington (1897), 1 Q.B. 692).
Authorities.—On equitable relief to borrowers reference should be made to Bellot and Willis’s Bargains with Money-lenders. On the law under the act of 1900 see Hastings’s Law relating to Moneylenders and Unconscionable Bargains; and Edmondson’s Moneylenders Act 1900. For the taxation of the Jews in 'the middle ages, see Bridges, The Jews of Europe in the Middle Ages, and Gneist’s History of the English Constitution. For American law relating to Usury, see Stimson’s American Statute Law, and the statutes of the various states. For France and Germany, see the codes of those countries. (C. G. Ala.)