Like all verbal statements this is subject to interpretation, and various potential interpretive loopholes could be made less plausible using a few more words. For example the following is a bit more precise:
People will always try to find ways around the law, of course. Gangs and mobsters for example illegally enforce their own extralegal agreements. But without government endorsement and enforcement usury would be much less pervasive.
Usury by definition is profitable interest charged on a mutuum loan: a freely entered contract between a person (the borrower) and some lender (either a person or an institution), wherein the borrower personally commits to pay back the loan
1. As with just about any term, “non recourse” can be interpreted a number of ways, generally as a cluster of related but sometimes incompatible meanings. I am not attempting here to make my usage conform to some particular legal jurisdiction or what have you – that is entirely irrelevant to understanding what usury is and is not. The way it is used throughout this FAQ is that in a non recourse contract it is not a violation of the contract terms for the ‘borrower’ to stop making payments on the loan, leaving the ‘lender’ to recover whatever he is entitled to recover from the collateral and the collateral alone. The ‘borrower’ has not violated the terms of the contract in this case, by definition: the agreement was that if the borrower stops paying, he is quit of all obligation under the contract. The lender gets to foreclose on the collateral to recover his entitlements and costs, and the lender’s recourse is to the collateral alone. If the collateral is worth more than the loan balance and any actual costs then the excess is due back to the borrower.
If the contract terms say that it is a violation of the contract for the borrower to stop paying and turn the collateral over to the lender, then the loan is a mutuum and any interest charged is usury. This is not a ‘non recourse’ loan the way the term is used throughout this FAQ, though other people in other places may refer to this understanding as ‘non recourse’.
In short, there are (at least) two ways of understanding recourse. In the first way recourse refers to what the various parties to the contract are entitled to in the scenarios covered by the contract. It answers questions like “who gets what if the borrower stops making payments”, as a matter of what the agreement between the parties itself requires. In the second way, recourse refers to legal remedies under the positive law when someone breaks the agreement. “Recourse” in this second sense is not a part of what is agreed by the parties in the contract itself. This FAQ uses the term ‘recourse’ in the first sense, to refer to the terms of the contract itself.
The lender may be limited to recovering his principal and interest from the collateral legally, but the borrower is understood to have violated the terms
This understanding comes from the Magisterium of the Church, not from any modern financial theory or practice. “Non recourse loan” just happens to be the closest term in common use these days capable of carrying the concept, and we are looking at the intrinsic nature of different kinds of contracts in order to understand usury.
As a practical matter, the fact that the borrower is entitled under the contract terms to ‘walk away’ means that it is in the lender’s best interests to make sure that the value of the collateral significantly exceeds the amount loaned. The hop over to this web site lender – on this understanding of a non recourse loan – is taking a property interest in the collateral, and if the value of that property drops below the loan balance the borrower is perfectly within his rights, under the terms of the contract, to walk away and leave the lender holding the property.
One cannot condone the sin of usury by arguing that the gain is not great or excessive, but rather moderate or small; neither can it be condoned by arguing that the borrower is rich; nor even by arguing that the money borrowed is not left idle, but is spent usefully, either to increase one’s fortune, to purchase new estates, or to engage in business transactions. – Vix Pervenit
The difference between full recourse (mutuum) contracts and non recourse (societas) contracts is central to the subject of usury; so if it isn’t clear at this point, keep reading.
[Note: in the English translation of Vix Pervenit, the term “loan” is a translation of (forms of) the word “mutuum”. Interestingly, the word translated as “reciprocity” in the English version is also “mutuum” in the original, so the sentence with the parenthetical can be understood to say “Even though it may not fall under the precise rubric of usury (because these contracts are not, overtly or covertly, mutuum loans), restitution is obligated.”].
If Bob was on Skid Row and the Franciscans helped him get back on his feet – he now has the means to repay what he borrowed – then the kind of debt he owes is different in kind from a commercial, property based debt. He owes a debt of gratitude and a debt of justice: the former to those who helped him, and the latter to the poor who are still on Skid Row and now need his help.
Furthermore, recovery of “opportunity cost” or the “time value of money” as something in itself has been explicitly condemned by the Magisterium:
No. Investors who lend money to corporations cannot pursue individual shareholders for return of principal. The claims in a corporate bond are claims against property which actually exists in its own right: the corporation. Corporations are themselves property: they can be bought and sold and their employees – the workers who “farm” the property – sometimes change completely from one set of people to another. Like a farm, a butcher shop, a farrier business, a hunting ground, etc. a corporation is property which can be alienated from particular persons.
If I have equity in my home and I sell some of it to a non recourse “lender” to raise cash for a vacation, that is not usury: I have simply decided to spend some of the capital that I own on a vacation. (Regimini Universalis: non recourse borrowers “encumber their goods, their houses, their fields, their farms, their possessions, and inheritances”). The lender cannot come after me for recovery of his principal and interest: he can only go after the house that he and I now co-own; and the “interest” I pay is just a rental fee for the share of the house that he now owns after I sold it to him. The focus on “productive” versus “nonproductive” arrangements is a distraction from the straightforward nature of usurious contracts, introducing unnecessary complexity and ambiguity.
The main point for present purposes is that issues of fiat currency, taxation, and sovereign debt are distinct from the subject of usury.