National Banks Charging Farmers 30 to 2,000 Percent for Loans
The Southern Planter, February 1916 issue
The Comptroller of the Treasury has brought to the attention of a committee of the Congress the fact that many of the national banks are charging usurious rates on loans, some charging 12 to 24 per cent, others 30 to 100 per cent, and others again 1,000 to 2,000 per cent. He is constrained to suggest a drastic law making usury of national banks a prison offense.
In his testimony before the committee, the Comptroller referred to a case which is best described in his own words:
“We had a report of a farmer who borrowed $300 or $400 some years ago and continued to pay excessive rates of interest on the amount. Finally the bank foreclosed, taking everything this farm had, including his cow. With all he had gone through, this farmer tried to get a new start by cutting timber. He was poorly clothed and practically barefoot, because he had practically nothing to spend for his clothes, so he caught pneumonia. He left six children. Now, these children cannot sue the bank that ruined their father by usury, but if the law were changed, the department of justice could proceed against such an institution.”
We have no sympathy nor hold no brief for usurers; men who belong to a predatory class, that live upon the necessities of their fellow citizens, are severely to be condemned. Unfortunately, laws against usury seldom obtain their purpose; as a rule they buty add to the misery of those who are preyed upon. There are so many subterfuges, of brokerage, and commissions that can be and are resorted to, that the effect of these laws is either to deprive those in necessity of securing money at all, or cause them to pay higher rates of interest, because of the risk involved to the lender.
Far better had the Comptroller sought by dealing with the cause rather than with the condition to have improved the system under which farmers must borrow.
Had the Comptroller urged upon the Congress the inauguration of a system of rural credits, such as obtains in Germany, the Raffheisen system for short-term loans on personal property and the Landschaften system for long-term loan on land, he would have gone to the root of the evil.
With a national rural credit system in effect, the unfortunate farmer would neither have paid excessive rates of interest, nor would his mortgage have been foreclosed. The payment of a low rate of interest and a small yearly reduction of the principal of the loan, would have enabled him, with ordinary thrift, to have prospered; would have provided for his children at his death that opportunity which should be the chief end of democratic government.
Latter day reformers are too prone to address themselves to unfortunate conditions without having due regard to the effects that produce them; remedial rather than punitive measures, in such cases, best bring relief.