You are correct that a higher interest rate is supposed to compensate the lender for the risk that the borrower defaults and the lender loses all his collateral.
But when the lender can garnish the borrower's future wages, sabotage his job applications, and force the borrower to repay with the threat of criminal prosecution, the lender's risk of losing his initial collateral goes down significantly. What justifies the lender charging exorbitant interest rates when he has all these tools available to avoid the loss of his initial investment and earn even more profit?
I think that combination why usury is reviled. It's not just the high interest rates, but the tools and punishments lenders use to lower the risk of default below what justifies their high rates. It's high interest rates + debtor's prisons that's really repulsive. Having a lender offer you higher terms because he says you're more likely to default, but then refusing to let you default and seizing your economic production for the rest of your life.
> It's not just the high interest rates, but the tools and punishments lenders use to lower the risk of default below what justifies their high rates
It obviously often doesn't work out this way, but the baseline assumption in a competitive market should be that businesses aren't able to charge significantly over the market-clearing price. OTOH there's no evidence behind your assertion that rates are "unjustifiably" other than a gut feeling, only one step removed from the classic "money doesn't have time value, any interest payment is theft". Why do you think the price is higher than the risk would imply (including the cost, delay, and failure rate of recovery efforts), and why wouldn't a competitor have filled the gap with lower rates?
Again, I get that markets aren't instantly perfectly efficient, but there's usually something you can point to that shifts the equilibrium away from efficiency.
Well, my assertion for why people dislike usury isn't because of just high rates, but high rates + unreasonable measures to ensure repayment. Focusing the discussion to whether the rates are a particular economically justified number or not ignores the social aspects of usury.
Even the article doesn't just focus on high interest rates, but discusses hectoring people during their daily lives, calling bosses, friends, and family to shame them into repaying, and linking credit ratings to job applications.
Maybe the outrage on usury would be lower if it was legislated that lenders cannot use public shaming, criminal sanctions, or garnishing wages to force repayment on someone that has stated their intent to default on their loans. The borrower would be blacklisted from the lender in the future and overall interest rates would go higher due to less recovered funds. However, there may be less outrage because as I stated, the key issue isn't just rates but rates + unreasonable lender behavior. The difference between a bank and a loan shark isn't just different rates, but that a bank will only downgrade your credit rating in a default while a loan shark will break your legs.
If you're interested in some reading, check out David Graeber's "Debt: The First 5000 Years." It's a pretty interesting presentation of the social nature of money beyond just a number on a balance sheet.
I guess what I was addressing was the claim that the rates are "unjustifiably" high given the aggressive recovery tactics:
> tools and punishments lenders use to lower the risk of default below what justifies their high rates
My point was that this assumption was unfounded, and it's a better baseline assumption that the counterfactual of aggressive recovery tactics would be even higher rates.
It seems we're in agreement that it can be entirely salutary for the government to decide to limit the actions you can take to recover debt (at the likely cost of higher rates), but it's important to be clear on the model we're using here.
But when the lender can garnish the borrower's future wages, sabotage his job applications, and force the borrower to repay with the threat of criminal prosecution, the lender's risk of losing his initial collateral goes down significantly. What justifies the lender charging exorbitant interest rates when he has all these tools available to avoid the loss of his initial investment and earn even more profit?
I think that combination why usury is reviled. It's not just the high interest rates, but the tools and punishments lenders use to lower the risk of default below what justifies their high rates. It's high interest rates + debtor's prisons that's really repulsive. Having a lender offer you higher terms because he says you're more likely to default, but then refusing to let you default and seizing your economic production for the rest of your life.