Church Teaching on Usury: Change or Development?

Gary Coulter FAITH Magazine July-August 2006

It seems to be in vogue today to find ways to attack the Church, to look for cases in history where it is claimed the Church may have been mistaken in its judgments and teachings. In reality many of these accusations are greatly tempered by a simple objective look at the actual facts of history. Yet one issue comes up again and again, the case of usury, that teaching of the Church (for at least 1500 years) which condemned the taking of interest on loans as a sin. Did the Church err or change in its teaching on usury? And if the Church’s teaching on usury changed with changing circumstances; could not we expect its other teachings to undergo a similar change?

To begin, we must recognize the possibility of genuine development in doctrine, as famously described by Cardinal Newman. Then one should recognize that moral doctrine, like theology, is subject to development. Authentic development strives for a more adequate formulation of unchanging truths, to express the substance of the moral law in new ways without contradicting prior teaching or the truths they contain. Legitimate development may even appear to some to be a reversal, as occurred in the Church’s teaching on usury, but it is not really such. (cf. John Paul II, Veritatis Splendor 53)

The modern definition of usury is the taking of interest at an excessive or exorbitant rate. But the original sense of the word usury is any return taken on a loan which exceeds the original amount of the loan(the ‘principal’). Thus usury does not specify if the amount taken was small or large, excessive or illegal. Usury is simply a charge for the use of money lent. As hard as it might be to imagine, usury is “profit on a loan,” and this is what was prohibited and condemned by the Church.

The Church’s Magisterium condemned usury, not just as a disciplinary teaching which could be changed at any time, but as something contrary to justice and natural law. The question is: did the Church condemn the taking of all interest on all loans? A simple reading of the Scriptures and Fathers may lead some to conclude that all return on a loan was condemned. Yet further study of Papal,  Conciliar, and Scholastic teaching returns quite the opposite answer: there existed legitimate titles to payment beyond the principal on a loan. If the former view was actually the Church’s teaching, then the Church has reversed its teaching; but if the latter, then we have the basis of an authentic development of the concept of interest.

St. Thomas Aquinas (Summa Theologica II-II, q.78, a. 2) verifies the principle of emergent loss: a lender could charge, not because of the loan of money itself but for the loss incurred due to the circumstances in which the loan was made. This becomes the foundation for a lawful and justified title for the taking of something above the amount lent. For example, one could charge the costs incurred in hiring a courier to transport the money loaned. Initially debated, one particular type of loss was soon recognized: lost profit. If one could have made a profit with one’s money instead of loaning it (and can prove it!) then this becomes a legitimate title for interest. Is this a change in the Church’s teaching on usury? The answer is seen in Vix Pervenit, the 1745 encyclical of Pope BenedictXIV, the first pope to write encyclicals:

The nature of the sin called usury has its proper place and origin in a loan contract. This financial contract between consenting parties demands, by its very nature, that one return to another only as much as he has received. The sin rests on the fact that sometimes the creditor desires more than he has given. Therefore he contends some gain is owed him beyond that which he loaned, but any gain which exceeds the amount he gave is illicit and usurious. (3.I)

A very strong teaching, consistent with all previous declarations of the Church that prohibit usury, but then he continues.

We do not deny that at times together with the loan contract certain other titles—which are not at all intrinsic to the contract—may run parallel with it. From these other titles, entirely just and legitimate reasons arise to demand something over and above the amount due on the contract.

Nor is it denied that it is very often possible for someone, by means of contracts differing entirely from loans, to spend and invest money legitimately either to provide oneself with an annual income or to engage in legitimate trade and business. From these types of contracts honest gain may be made. (3.III, 3-4)

Papal teaching and Church councils never stated that interest in itself and under all circumstances is wrong, only the taking of interest without a just title to it. “The sin of usury is not simply the charging of interest on a loan, but the charging of interest on a loan in virtue of the very making of the loan, rather than in virtue of some factor related to the loan which provides a basis for a fair demand for compensation.” (Germain Grisez, The Way of the Lord Jesus vol. 1, p. 894)

The problem was that one had to prove a just and adequate title was present, or else the loan was assumed usurious. As loans became more and more frequent, it would be very tedious to prove each time that loss had occurred. This placed confessors in a quandary and thus bankers were often refused absolution until the 1830s.

As the Church exercises caution in such matters, it approached the question with great care, and the Vatican and confessional practice slowly came to recognize that in the modern circumstances of a widespread free market, extrinsic titles could be presumed to exist without proof.

What changed? Not the church’s teaching on usury. At one time, the only cost to the lender was the loan itself, and so the Church taught in that particular time nothing above the principal could betaken on such loans. Today, the title of lost profit is a general fact of life. In economic terms there is an “opportunity cost” of loaning one’s money which deserves just remuneration.

Numerous investment opportunities have together established a “price” for money: the market rate of interest. In addition, a common interest rate automatically devalues one’s money over time. In making a loan, one would justly deserve compensation under the title of loss.

As the nature of money and loans changed, the Church’s teaching applied less and less frequently, and the Church simply stopped prohibiting a usury that no longer existed in modern circumstances. There is a great difference between the claim that this teaching is now largely obsolete, and claiming that the Church’s teaching was wrong or has changed, for the second premise is not a necessary conclusion of the first.

A change in the nature of financial transactions is nota change in the teaching of the Church on usury. The only change is that now the extrinsic title of loss can be assumed to exist on loans. This was a development of justice, not a reversal of the prohibition on the taking of interest without a just title to compensation. Does this “change” admit of change in other areas of Church teaching? If this teaching became obsolete, could not other moral teachings also be obsolete today? While modern society has drastically changed in recent centuries, fundamental human nature and divine revelation are unchanging and never obsolete in anytime or culture.

This is an important distinction, for while usury involved changing economic conditions, almost every other moral teaching of the Church involves the unchanging human nature (e.g. the prohibition of abortion, contraception, divorce and remarriage, homosexuality, etc.) or the contents of divine revelation (e.g. reserving the priesthood to males). One can never claim that teachings such as these could become inapplicable in today’s circumstances.

Last, some argue that only the “spirit of the law” must be followed, and usury was only prohibited to protect the Church’s love and concern for the poor. Thus it is claimed Church teaching can be changed as long as the same goods are protected. Yet usury was prohibited as a violation of commutative justice, which binds all never to take more than their just due.

Usury was prohibited because in reality it was already as in, not because the Church made it into a sin. Many claim today that only the intention of the Church’s moral law has to be followed, not the letter of the law; but is not the intention of a lawgiver revealed by reading the law itself?

Usury is the prohibition of gain from a loan sought directly by a lender without a just title. This is the definition of the usury prohibition as it was taught, understood and interpreted by the Church for thousands of years, just as it is today. Anything charged beyond the legitimate claim is still called usury, and taking such usury is—as it always was—a sin against justice. There has been obvious change in our economic conditions, which resulted in a necessary development of how this teaching is applied, yet the Church’s basic teaching on the subject remains unchanged, and thus usury fails to be a valid example of a reversal of Church teaching.

Faith Magazine

July - August 2006