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Usury laws


Laws restricting the level of interest that could be charged or paid for loans. The intention of such laws was to restrain exploitation of those in need by money-lenders. If the highest permitted interest rate is too low to compensate for inflation and the risk of default or delay in payment, it creates excess demand for loans. This leads to them being rationed to the safest risks, so those without ‘collateral cannot get loans when they need them.

Reference: Oxford Press Dictonary of Economics, 5th edt.