In early 2009 I was introduced to a concept called people to people lending (P2P). P2P lending often takes advantage of the internet to connect a borrower and a lender. This removes the banking middle man and allows direct people to people lending. When I first heard of the program I was interested in learning more. But I did have one lingering question to resolve before proceeding. Does the Bible’s teachings about interest apply to People to People lending? If permissible, how should a Christian ethically participate in such a program? Interestingly, over the last week this topic (P2P lending) has been extremely popular amongst personal finance bloggers (see Editors note below). Photo by frankh
There is a strong historical belief that Christians should not charge interest when lending money. If you don’t believe me, just read what Randy Alcorn wrote (attributes to Howard Dayton) below:
Throughout church history, Christian teachers have taken a strong position against exacting usury on a loan in order to make personal profit. Whereas usury is thought of today as charging excess interest, the word actually meant charging any interest. Ambrose said, “If anyone commits usury, he commits robbery and no longer has life.” Calvin declared that the professional money lender should be banned from the church. Luther commented, “After the devil there is no greater human enemy on earth than a miser and usurer, for he desires to be above everyone.”
I want to introduce you to the most comprehensive article I have read on the topic of Christians and lending. It is called The Morality of Moneyledning: A Short History. The article is written by Yaron Brook. It is a long and detailed article. I have included some key points in this post. Yaron writes:
Major thinkers throughout history—Plato, Aristotle, Thomas Aquinas, Adam Smith, Karl Marx, and John Maynard Keynes, to name just a few—considered moneylending, at least under certain conditions, to be a major vice. Dante, Shakespeare, Dickens, Dostoyevsky, and modern and popular novelists depict moneylenders as villains.
Why was there such a negative view of moneylending and moneylenders?
Economically, from the beginning of Western thought, usury was regarded as unproductive—as the taking of something for nothing. Ethically, the practice was condemned as immoral—as unjust, exploitative, against biblical law, selfish. Yaron Brook.
Artistotle on interest:
The most hated sort [of moneymaking], and with the greatest reason, is usury, which makes a gain out of money itself, and not from the natural use of it. For money was intended to be used in exchange, but not to increase at interest. And this term Usury which means the birth of money from money, is applied to the breeding of money, because the offspring resembles the parent. Wherefore of all modes of making money this is the most unnatural. Quoted by Yaron Brook.
Even today we have a negative view of moneylenders:
Moneylenders are still blamed for recessions; they are still accused of being greedy and of taking advantage of the poor; they are still portrayed on TV and in movies as slick, murderous villains; and they are still distrusted by almost everyone. (According to a recent poll, only 16 percent of Americans have substantial confidence in the American financial industry.)70 Thus, it should come as no surprise that the financial sector is the most regulated, most controlled industry in America today. Yaron Brook.
So where did all this negative ‘interest’ talk come from?
The Old Testament stipulations about lending:
“If you lend money to one of my people among you who is needy, do not be like a moneylender; charge him no interest. If you take your neighbor’s cloak as a pledge, return it to him by sunset, because his cloak is the only covering he has for his body. What else will he sleep in? When he cries out to me, I will hear, for I am compassionate. (Exodus 22:25-27 NIV)
Do not charge your brother interest, whether on money or food or anything else that may earn interest. You may charge a foreigner interest, but not a brother Israelite, so that the Lord your God may bless you in everything you put your hand to in the land you are entering to possess. (Deuteronomy 23:19-20 NIV)
Difference between our lending context and the historical context:
- During this time loans were offered by individual to individuals. Today most lending is done by institutions to individuals.
- During this time the wealthy lent and the poor borrowed. Today almost anyone borrows, even the wealthy.
- During this time borrowing was often an act of survival. Today borrowing is an act of convenience. (I bet some of you aren’t going to like that I said that).
- During this time within the context of ones own people (Israelite to Israelite) lending was seen as a compassionate and charitable action. Today lending is often a commercial action.
- During this time currency was typically non-inflationary. Today currency is inflationary.
What is usury? Usury would be synonymous with our word interest.
Usury is often misunderstood to mean excessive interest. However consider the following quotes:
Interest, not necessarily unreasonable exaction, but all income from loans. Swanson, J., & Nave, O. (1994). New Nave’s. Oak Harbor: Logos Research Systems.
Usury — the sum paid for the use of money, hence interest; not, as in the modern sense, exorbitant interest. The Jews were forbidden to exact usury (Lev. 25:36, 37), only, however, in their dealings with each other (Deut. 23:19, 20). The violation of this law was viewed as a great crime (Ps. 15:5; Prov. 28:8; Jer. 15:10). After the Return, and later, this law was much neglected (Neh. 5:7, 10). Easton, M. (1996, c1897). Easton’s Bible dictionary. Oak Harbor, WA: Logos Research Systems, Inc.
When determining how scriptures apply to us, it is important to first determine what principals are introduced.
- A key biblical concern for the development of the community (Israel) not just increasing individual wealth. One could not lend within the community with an interest rate attached. However, outside of the community one could charge interest. Thus, one could lend to a foreigner, but not a fellow Israelite.
- The wealthy should not use their wealth as a way to leverage and increase the divide between themselves and the poor. Someone else’s poverty or difficulty should not become an economic opportunity for us.
- As a compassionate action, the lender should consider the situation of the borrower as much as she considers her own situation.
- When it comes to collateral one cannot hold an item deemed necessary for survival.
- Lending practices should reflect the compassionate nature of God.
We see this reiterated in Ezekiel:
In you men accept bribes to shed blood; you take usury and excessive interest and make unjust gain from your neighbors by extortion. And you have forgotten me, declares the Sovereign Lord. (Ezekiel 22:12 NIV)
Here are guidelines for participating in P2P lending:
Until usury is recognized as both economically productive and ethically praiseworthy—as both practical and moral—moneylenders will continue to be condemned as villains rather than heralded as the heroes they in fact are. Yaron Brook.
- Think not only of your own interest (Phil 2:4) – pun intended. Consider if the person will be blessed by the request.
- Remember that the lender has set the rate. For one reason or another, that person has decided you would bless them by offering them a loan. Therefore, they cannot feel mistreated. In fact, people often feel like they are getting a deal and you are being a great help.
- Remember that when you bank (any bank) they make money by lending it. By banking, you are indirectly a lender.
- Read the description. A person wanting to borrow shares a bunch of details on the who, how, what, when, and where of the loan. This will help you decide if you are offering a helping loan or a hurting loan.
- Be sure the interest rate is reasonable. A high interest rate means a person is more desperate and your lending is more likely to take advantage of them. Secondly, this desperate situation also means you are more likely to not have the money repaid.
I believe that the current lending context is so vastly different than the biblical context. In fact, there are legitimate lending opportunities where you can be a blessing to a borrower. In my post on turning a hobby into a source of income I discuss the importance of identifying how your product is a service to others. Lending does offer an opportunity to serve others. However, the other dangerous element is that lending can also encourage poor financial behavior. By lending you could be enabling someone who is seriously struggling with debt.
Conclusion: Selective lending with the ultimate goal of helping others while receiving a return on your investment does not violate the biblical principles regarding lending.
I write my blog posts days or weeks before they are scheduled to go live. On August 4th Trent over at The Simple Dollar wrote about Faith As a Guiding Financial Principle. While reading through the comments I came across the following:
#22 Michael @ 10:31 am August 4th, 2009
You know, I would like to see at least one Christian PF blog speak out against charging interest. Until the Renaissance, Christians were as against it as Muslims.
I thought it was a valid point because most Christians probably do not know about the rocky historical relationship between Christianity and interest. While I don’t necessarily intend to “speak out against charging interest” I will address the question – should Christians charge interest? That night, Tuesday, August 4th I decided to sit down and start this post. That was before I knew there was going to be a Tsunami of posting on the topic of People to People Lending.
- Wednesday 5th Matt Jabs at Debt Free Adventure posted Lending Club – My Review of Social Lending.
- Thursday, August 6th I came across Personal Loan Interest Rates From Lending Club by Silicon Valley Blogger.
- Thursday, August 6th, I noticed that Peter at Bible Money Matters posted Introduction To Peer-To-Peer Lending: Signing Up To Use Lending Club
So what has caused all the ruckus regarding the flurry of Lending Club Posts?
For a limited time (August 15th, 2009) anyone who signs up and invests (lends people money) will get $50 to lend. Typically this promotion is for $25.
If you are interested in signing up for Lending Club I suggest you (1) read some the above mentioned posts that introduce the program to be sure you are aware of the possible risks and returns. (2) Go to www.lendingclub.com. When you are signing up enter the referral code CEF when registering so you can receive your $50 bonus.