Pope Rules on Justice of Charging Poor High Interest Rates

April 20, 2010

In response to recent controversy over the fairness of charging the poor high interest rates on charitable loans, the pope released a statement on the matter. He seems to have staked out a reasonable middle ground: charging interest is reasonable to the extent it defrays expenses; beyond that is unjust:

…we have learnt that among some of our dear sons who were masters in theology and doctors of civil and canon law, there has recently broken out again a particular controversy, not without scandal and disquiet for ordinary people, with regard to the relief of the poor by means of loans made to them by public authorities. They are popularly called credit organisations and have been set up in many cities…to assist by this kind of loan the lack of resources among the poor lest they be swallowed up by the greed of usurers. They have been praised and encouraged by holy men, preachers of God’s word, and approved and confirmed also by a number of our predecessors as popes, to the effect that the said credit organisations are not out of harmony with christian dogma, even though there is controversy and different opinions regarding the question.

Some of these masters and doctors say that the credit organisations are unlawful. After a fixed period of time has passed, they say, those attached to these organisations demand from the poor to whom they make a loan so much per pound in addition to the capital sum. For this reason they cannot avoid the crime of usury or injustice, that is to say a clearly defined evil, since our Lord, according to Luke the evangelist, has bound us by a clear command that we ought not to expect any addition to the capital sum when we grant a loan. For, that is the real meaning of usury: when, from its use, a thing which produces nothing is applied to the acquiring of gain and profit without any work, any expense or any risk. The same masters and doctors add that in these credit organisations neither commutative nor distributive justice is observed, even though contracts of this kind, if they are to be duly approved, ought not to go beyond the bounds of justice. They endeavour to prove this on the grounds that the expenses of the maintenance of these organisations, which ought to be paid by many persons (as they say), are extracted only from the poor to whom a loan is made; and at the same time certain other persons are given more than their necessary and moderate expenses (as they seem to imply), not without an appearance of evil and an encouragement to wrongdoing.

But many other masters and doctors say the opposite and, both in writing and in speech, unite in speaking in many of the schools in Italy in defence of so great a benefit and one so necessary to the state, on the grounds that nothing is being sought nor hoped for from the loan as such. Nevertheless, they argue, for the compensation of the organisations—that is, to defray the expenses of those employed and of all the things necessarily pertaining to the upkeep of the said organisations—they may lawfully ask and receive, in addition to the capital, a moderate and necessary sum from those deriving benefit from the loan, provided that no profit is made therefrom. This is in virtue of the rule of law that the person who experiences benefit ought also to meet the charge, especially when there is added the support of the apostolic authority. They point out that this opinion was approved by our predecessors of happy memory, the Roman pontiffs Paul II, Sixtus IV, Innocent VIII, Alexander VI and Julius II, as well as by saints and persons devoted to God and held in high esteem for their holiness, and has been preached in sermons about the gospel truth.

We wish to make suitable arrangements on this question (in accord with what we have received from on high). We commend the zeal for justice displayed by the former group, which desires to prevent the opening up of the chasm of usury, as well as the love of piety and truth shown by the latter group, which wishes to aid the poor, and indeed the earnestness of both sides. Since, therefore, this whole question appears to concern the peace and tranquility of the whole christian state, we declare and define, with the approval of the sacred council, that the above-mentioned credit organisations, established by states and hitherto approved and confirmed by the authority of the apostolic see, do not introduce any kind of evil or provide any incentive to sin if they receive, in addition to the capital, a moderate sum for their expenses and by way of compensation, provided it is intended exclusively to defray the expenses of those employed and of other things pertaining (as mentioned) to the upkeep of the organisations, and provided that no profit is made therefrom. They ought not, indeed, to be condemned in any way. Rather, such a type of lending is meritorious and should be praised and approved. It certainly should not be considered as usurious; it is lawful to preach the piety and mercy of such organisations to the people, including the indulgences granted for this purpose by the holy apostolic see; and in the future, with the approval of the apostolic see, other similar credit organisations can be established. It would, however, be much more perfect and more holy if such credit organisations were completely gratuitous: that is, if those establishing them provided definite sums with which would be paid, if not the total expenses, then at least half the wages of those employed by the organisations, with the result that the debt of the poor would be lightened thereby. We therefore decree that Christ’s faithful ought to be prompted, by a grant of substantial indulgences, to give aid to the poor by providing the sums of which we have spoken, m order to meet the costs of the organisations.

It is our will that all religious as well as ecclesiastical and secular persons who henceforth dare to preach or argue otherwise by word or in writing, contrary to the sense of the present declaration and sanction, incur the punishment of immediate excommunication, notwithstanding any kind of privilege, things said above, constitutions and orders of the apostolic see, and anything else to the contrary.

Source: Fifth Lateran Council 1512–17 A.D. translation from the Latin from Normal P. Tanner, ed., Decrees of the Ecumenical Councils.

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1. Daniel Rozas Says:
   April 21st, 2010 at 3:42 am

   Hah — the headline certainly is a bit deceiving, no? Reading this, I thought surely Ratzinger doesn’t speak this way! But guess this was a bit before his time… Amazing though how the issues then don’t seem to be any different from now. Change a few minor points (and the style of speech of course!), and this could be Yunus speaking.

2. Joerg Raum Says:
   April 21st, 2010 at 4:01 am

   The pope also is very clear about microfinance!

   In his social encyclical “Caritas in Veritate” (2009) he writes:

   “Ethical financing is being developed, especially through micro-credit and, more generally, micro-finance. These processes are praiseworthy and deserve much support.”

   and he continues later on:

   “The experience of micro-finance (…) should be strengthened and fine-tuned. [Thereby the clients] should be protected from the risk of usury and from despair.”

3. David Roodman Says:
   April 21st, 2010 at 8:11 am

   Fantastic! And the current pope knows his history. He makes a direct reference to the Monte di pieta, the charitable pawn shops set up to bypass Jewish moneylenders (see my Chapter 3), that were the subject of the 1515 encyclical quoted above. He writes:

   Both the regulation of the financial sector, so as to safeguard weaker parties and discourage scandalous speculation, and experimentation with new forms of finance, designed to support development projects, are positive experiences that should be further explored and encouraged, highlighting the responsibility of the investor. Furthermore, the experience of micro-finance, which has its roots in the thinking and activity of the civil humanists—I am thinking especially of the birth of pawnbroking [Latin: de Montibus Pietatis constitutis cogitamus]—should be strengthened and fine-tuned. This is all the more necessary in these days when financial difficulties can become severe for many of the more vulnerable sectors of the population, who should be protected from the risk of usury and from despair. The weakest members of society should be helped to defend themselves against usury, just as poor peoples should be helped to derive real benefit from micro-credit, in order to discourage the exploitation that is possible in these two areas. Since rich countries are also experiencing new forms of poverty, micro-finance can give practical assistance by launching new initiatives and opening up new sectors for the benefit of the weaker elements in society, even at a time of general economic downturn.

4. Andrew Sprung Says:
   April 21st, 2010 at 8:50 am

   Ha! The Pope’s apologists say “he has the great gift of thinking in centuries,” and I guess you do too. It’s just the blink of an eye since circa 1512, isn’t it?