Usury as an Ethical Problem in Socially Excluded Localities

Usury as an Ethical Problem in Socially Excluded Localities Social exclusion and poverty are currently perceived as a society-wide problem. People who live in socially excluded localities often find themselves at the bottom and margins of society. Unfortunately, it can be stated that the majority of residents in these localities are Roma (1).

Social exclusion refers to a process in which an individual, a group of individuals, or a community is significantly hindered or completely prevented from accessing the resources, positions, and opportunities that enable participation in the social, economic, and political activities of mainstream society (Gabal, 2006).

Those most at risk of social exclusion include:

• Long-term, repeatedly unemployed persons. They are dependent on social benefits being paid out. These people often cannot even register at the employment office, as they "forget to report" (they typically do so quite deliberately) and are subsequently sanctioned by being removed from the register of job seekers.
• Insufficiently educated persons. Low education reduces the probability of obtaining a permanent job with adequate pay. Insufficiently educated people are often offered inferior, and thus lower-paying, employment. An individual who works increases the family's income, and the family consequently receives less money paid out by the social services department. The individual discovers that working legally does not pay off, as the family's benefits are reduced. They therefore work illegally, so-called "off the books."
• Persons with health disabilities. These individuals are also frequently unemployed and low-income.
• Lonely seniors. For these individuals, their isolation is often combined with illness and dependence on other people. These individuals often give up on life. In larger cities, they may become homeless.
• Immigrants. Most commonly from Eastern countries. These are frequently, for example, Mongolians.
• Members of minorities. This refers not only to the aforementioned Roma. It also includes, for example, individuals from various religious groups, sexual minorities, etc.
• Dependent persons. Persons dependent on drugs, gambling machines, etc.
• People who find themselves in a difficult life situation and cannot help themselves, etc.

It should be noted that the above risks are often combined or cumulative (Gabal, In Kapounová, 2009).

Indicators of social exclusion:

• Spatial exclusion (individuals and groups affected by social exclusion often live in closed and/or isolated localities with low housing quality and insufficient civic infrastructure),
• Symbolic exclusion associated with stigmatization (the generalization of negative attributes) of individuals or groups,
• Low levels of education and limited ability to overcome this disadvantage,
• Restricted access to legal forms of employment, dependence on social benefits, and the associated material poverty,
• Risky lifestyle, poor hygiene conditions, and the associated worse health status,
• Life strategies oriented exclusively toward the present,
• A closed economic system characterized by frequent pawning of assets and lending money at high interest (usury and so-called quick loans),
• Greater potential for the occurrence of social pathological phenomena (e.g., alcoholism, drug addiction, or gambling) and crime (increased risk of becoming a perpetrator, but also a victim, of criminal activity),
• Reduced socio-cultural competence (e.g., language barriers, inexperience or lack of knowledge of one's own rights and obligations).

The aforementioned (or other possible) manifestations of social exclusion occur in various situations to varying degrees. Social exclusion can also be discussed when only some of them are present (Gabal, 2006).

Socially excluded localities arise primarily as a result of:

• The "natural"(2) concentration of poor individuals in localities with more affordable housing,
• The displacement of poor (Roma) families from desirable housing and the allocation of alternative housing in localities that often have a high proportion of Roma residents,
• The managed relocation of debtors and non-payers of rent, or more generally people considered "unaccommodating" or "problematic," into hostels or bare apartments (Svoboda, 2006).

In localities where financial problems are among the most pressing, fertile ground naturally arises for individuals and even groups in distress to easily succumb to various forms of further impoverishment. As I have already mentioned above among the indicators of social exclusion, people here focus mainly on the present, on the immediate, short-term resolution of financial problems. They therefore readily fall prey to offers of disadvantageous loans that, by their nature, already fall into the realm of so-called usury.

Usury (or "lichva," probably from the Latin usuria) is generally an obligation that is disproportionate to the benefit obtained through the obligation. The most common examples are loans with large or often completely disproportionate interest rates, sometimes even 100% per day.

Usury is a criminal offense committed by anyone who, by exploiting another person's mental weakness, distress, inexperience, recklessness, or emotional agitation, causes themselves or another person to be given or promised a performance whose value is grossly disproportionate to the value of the reciprocal performance, or who enforces such a claim or transfers it to themselves with the intent of enforcing it (Criminal Code No. 40/2009 Coll.).

Indebtedness of residents in socially excluded localities

The indebtedness of the population represents, in the context of the ongoing global financial and economic crisis, a significant threat to society as a whole and one of the main causes of social decline. This decline increasingly threatens more and more people, regardless of their social status. The unexpected loss of employment causes considerable life difficulties, one of which may be the inability to repay existing loans. Many people then address their subsequent financial problems by taking out another loan, thus compounding their difficulties.

People continue to succumb to the temptation of easily obtained money without much regard for who is offering them a loan and under what conditions. And some credit institutions exploit this demand. They lure clients into an opaque web of contractual conditions from which there is virtually no escape. In addressing this problem, all debates to date have been reduced solely to the issue of usury, interest rates, and possibly the APR (3). However, this is not sufficient.

Usury is among the most widespread and often the most serious social pathological phenomena in excluded localities. It also serves as a link between other types of crime that typically accompany its practice — restriction of personal freedom, extortion, property damage, physical assault, rape, pimping, and others. Usurers need not limit themselves to lending money alone. Their most common ancillary profit-making activities include providing housing, work, including arranging employment with other employers, trading in food and goods, as well as lending cars or facilitating telephone calls. In all cases, however, the markup is continually increased with the aim of deepening the dependence of their victims on their services, which often takes on the form of de facto slavery (Budilová – Hirt – Moravec – Jakoubek, 2005). Research in Janov showed that local usurers adapted to competition from legal high-interest lenders by offering more favorable conditions to their clients (Socioklub, 2009). Whether this is a general trend remains unknown. If it is, however, one can assume that usurers will increasingly focus on other methods of earning money that are already somewhat established in the environment of excluded localities. (Krištof, 2006) mentions in particular the drug trade, the organization of prostitution, and human trafficking. In these areas, cooperation between (excluded) Roma and ethnic Czechs is common. Roma are generally considered to be foot soldiers within organized crime, although there are also known cases to the contrary.(4) While drug dealing is encountered in excluded localities, prostitution and the associated human trafficking of people traveling to the Czech Republic from Eastern Europe, including Slovakia, is primarily carried out outside the locality but is frequently coordinated from within (Valach, 2009).

The situation in a socially excluded locality is illustrated by the following example from practice. (Vinická, 2010) interviewed Mr. Petr in a conversation. She discovered that Petr from Jirkov in the Ústí nad Labem Region was the ideal client for consumer loans. His income was 25,000 CZK per month, and he had a permanent employment contract. He borrowed money for a new car, living room furniture, a dishwasher, a television, and mobile phones. Whenever he and his wife liked something, they simply bought it. Petr did not address his repayment problems. When a payment deadline approached and there was not enough cash, one of the banks would willingly offer him another loan. He had several bank loans. He repaid them regularly, and his wife usually persuaded him to take out yet another loan. He had three consumer loans from banks. He also borrowed from non-banking institutions such as Provident. Petr admitted that he concealed his existing loans when applying for credit. Around that time, one of his friends lost his housing. He had nowhere to go and was without money, so Petr and his wife took him in. All three regularly went to a pub, where Petr often paid the bill for everyone. It was there that he also gradually became addicted to gambling machines. In one evening, he could "feed" as much as 6,000 CZK into a machine. Once, by contrast, he won 10,000 CZK. He mostly lost, but the more he lost, the more he wanted to win the money back. It was a vicious circle. Because of the gambling machines, further loans followed. Petr managed the carousel of loans and repayments until the day his wife unexpectedly left him. She left him for the same friend whom Petr had taken in out of generosity. As of the present day, Petr has seven different loans and must repay them on his own. He owes a total of three-quarters of a million CZK, and his monthly repayments amount to 28,000 CZK. "I have a well-paying job, but even so, my salary is not enough." By selling his privately owned apartment, Petr will pay off one-third of his debts, but half a million still remains. A solution would be one large ten-year loan with monthly repayments of 10,000 CZK. However, no one will give him such a loan, as he is registered in the register of debtors. "An enforcement officer came, but there was nothing to seize. I hardly have anything left — my wife took the furniture. I am thinking about applying for the insolvency law, because I want to repay. I would not mind living on the minimum wage for five years if I could have a clean slate afterward. It all somehow got out of hand, I don't even know how," Petr adds and acknowledges that he got into the problem himself and through his own fault. No one robbed or deceived him.

Other situations are addressed by the organization People in Need within the framework of Social Integration Programs. Social workers visit clients at their homes or arrange meetings with them directly in the office, where they help them resolve various types of problems. This often includes advice regarding debts or problems with enforcement officers. If a woman is on maternity leave and the man loses his job, or both partners lose their jobs while having children, they of course receive social benefits. These are legally designed to cover only the most essential expenses, and it is impossible to save any money from them. It sometimes happens that an unexpected situation arises in the household — for instance, a household appliance such as a washing machine or refrigerator breaks down. There is no choice but to borrow money for the repair or purchase of a new appliance. As for bank loans, in the situation described above — without employment — a person typically cannot qualify for a loan. However, there are also non-banking companies that lend money even to insolvent customers without a steady income. After signing a contract, a small loan can turn into a nightmare, often followed by an endless struggle with debt. Sometimes the companies structure their contracts in such a way that even the first installment essentially cannot be paid on time. A desperate client borrowed 10,000 CZK and was supposed to repay 1,000 CZK per month. He signed the contract and received the money on January 28. He assumed that the first payment would be due a month later and overlooked the fact that the first installment date was already February 1. Unfortunately, the contract also stated that in the case of a late payment, a penalty amounting to half of the loan would have to be paid, and the entire amount would have to be returned immediately. Thus, by February 2, he already owed 15,000 CZK, and daily arrears penalties of hundreds of CZK were accumulating. The client did not have the cash to repay the debt immediately. The entire claim then passed into enforcement, and suddenly he owed 8,000 CZK more. If the contract also contained a so-called arbitration clause and a dispute arose between the customer and the company, it could not be resolved through the courts but would be handled by an arbitrator who was often appointed by the company itself and therefore decided in its favor. The client would then pay, for example, an additional 10,000 CZK to the arbitrator. The organization also encountered a preliminary contract for the assessment of a credit line. The customer signed it in haste but decided not to sign the actual loan contract. Nevertheless, without having borrowed anything at all, he suddenly owed money. Many of their clients ultimately lose their entire home in enforcement proceedings simply because they signed a disadvantageous contract for, say, 10,000 CZK. Therefore, it is necessary to read every point of the contract carefully, consult it with a lawyer or a citizens' advisory service if needed, and consider whether it is possible to repay the loan under the given conditions (People in Need, 2008).

Ethical Lending

In 2009, the organizations People in Need and the Consumer Defense Association together attempted to create a system that would motivate non-banking institutions to behave ethically when providing consumer loans. Workers from People in Need analyzed contractual lending conditions and, based on their analysis, created the Predatory Lending Index. The Consumer Defense Association then compiled the Code of Ethical Lending.

Together with other authors, both organizations therefore conducted an analysis of lending conditions provided by loan providers, with the aim of mapping practices in the area of contractual relationships between creditor and debtor. The result was the creation of the Predatory Lending Index and the Code of Ethical Lending. They focused on non-banking entities, which represent a significant player in the lending sector, among which there are considerable differences. The Predatory Lending Index describes and compares these differences (People in Need, 2008).

Predatory Lending Index

The index is based on an analysis of the largest companies that offer credit products to clients. The analysis focused only on firms that publish their contractual conditions on their websites. Among the most important parameters examined were the comprehensibility of contractual conditions and the existence of arbitration clauses. However, there are dozens of other smaller companies operating in the credit market whose lending conditions are often entirely unknown. From this perspective, the analyzed companies do not represent the greatest risk.

The goal is therefore in no way to stigmatize the practices of individual companies offering consumer loans in any way. On the contrary, the authors' intention is to appeal to these entities to adjust their individual parameters in a manner that would meet the conditions of the Code. If they do so, they will also improve their standing in the Predatory Lending Index.

Information about the index was delivered in advance to all entities examined. Initial successes were achieved even before its publication. For example, the company Cofidis changed its contractual penalty from 100% to 20% and began applying interest on arrears in accordance with the Civil Code, representing a fivefold reduction compared to what it had offered until May 31, 2009. As a result, it moved up in the index to the position of the least risky company.

The Code of Ethical Lending calls on credit providers to offer products under transparent conditions. Some credit providers profit less from the actual provision of consumer loans and more from the situation in which the consumer fails to properly repay their debt. Their lending conditions are then tailored accordingly. Such business practices can be considered unethical, and therefore the Code of Ethical Lending was created to cultivate the market (People in Need, 2008).

Conclusion

The situation of lending and usury, not only in socially excluded localities, is nearly insoluble. The foregoing suggests that society wants to defend itself against usury and help those affected through greater awareness. People who are threatened by usury are often aware of the risks. They are frequently informed about the interest rates as well. However, they do not want to acknowledge that they could find themselves in a situation where they will be unable to make repayments. It is highly commendable that the ethical lending index has been compiled. It would be very beneficial if both banking and non-banking institutions adhered to this index. The problem, however, is that in socially excluded localities, harm is also caused by individuals or groups of people who lend money without any authorization whatsoever. They lend on their own initiative and subsequently collect the lent money in extremely reprehensible ways. Extortion and both physical and psychological torment are common. These individuals can hardly be influenced by the principles of a code of ethics. Persons who engage in money lending independently in this manner are the primary carriers and perpetrators of usury. The key task for socially excluded localities is therefore to remove precisely these individuals from their midst. However, this cannot be achieved through repression alone, but requires the systematic and purposeful elimination of the characteristics that define excluded localities. And that is a long and difficult path.

Author: Mgr. Jan Kudry List of Bibliographic References

[1] Analysis of Socially Excluded Roma Localities and the Absorption Capacity of Entities Operating in This Area. Conducted by Gabal Analysis and Consulting for the Ministry of Labour and Social Affairs [online]. Prague: 2006 [cited 2010-09-25]. Available from WWW: http://www.mpsv.cz/cs/3052 . [2] BUDILOVÁ, L., HIRT, T., MORAVEC, Š., – JAKOUBEK, M. Roma Populations in the Czech Republic. In BUDILOVÁ, L., HIRT, T. (eds., 2005): The Police Officer in a Multicultural Environment. Information Manual of the Police of the Czech Republic [online]. Prague: [2005] [cited 2010-09-25]. Available from WWW: http://www.varianty.cz/download/doc/stats/manual_1_3. pdf . [3] People in Need: I Was the Ideal Client: Everyone Wanted to Lend to Me [online]. Prague: [2008] [cited 2010-09-25]. Available from WWW: http://www.clovekvtisni.cz/index2.php?parent=&sid=&id=253&idArt=837 . [4] People in Need: Code of Ethical Lending and Predatory Lending Index [online]. Prague: [2008] [cited 2010-09-25]. Available from WWW: http://www.clovekvtisni.cz/index2. php? parent=&sid=&id=253&idArt=1132 . [5] KAPOUNOVÁ, K. Barriers Preventing Social Exclusion. Master's thesis. Brno: Masaryk University 2009. 121 p. [6] KRIŠTOF, R. Unintended Consequences of Supporting "Roma Integration" (or The System of "Sustainable Exclusion"). Plzeň, 2006. ISBN 8086898768. In Hirt, T. – Jakoubek, M. "Roma" in the Clutches of Social Exclusion. pp. 165 – 180. [7] Socioklub (2009): "Social Trap." Situational Analysis of Socially Excluded Localities within the City of Litvínov with a Focus on the Janov Housing Estate [online]. Prague: [2008] [cited 2010-09-25]. Available from WWW: http://www.vlada.cz/assets/clenove-vlady/ministri-pri-uradu-vlady/michael-kocab/news/5-socialni_past_analyza.pdf . [8] SVOBODA, Z., PYŠNÁ, J. A Comprehensive Approach to Social Services as an Effective Intervention Model in Socially Excluded Localities. In: Col. Auth. Multidisciplinary Approaches to Helping Professions. Ústí nad Labem: Jan Evangelista Purkyně University, 2007. pp. 166 – 177. ISBN 978-80-7044-858-8. [9] Criminal Code No. 40/2009 Coll. [10] WALACH, V. Socially Excluded Areas from the Perspective of Threats and Risks. Master's thesis. Brno: Masaryk University 2009. 121 p.

(1) A Roma person is an individual who considers themselves Roma and/or is considered Roma by a significant part of their surroundings based on actual or perceived (anthropological, socio-cultural) indicators. (2) In the case of Roma residents, this often involves relocating to be near family members. It is also quite common for Roma from Slovakia to move to Czech socially excluded localities. This pattern of moving to be near "family" was also observed during emigrations abroad, particularly to England and Canada. (3) Annual Percentage Rate of Charge. (4) According to Krištof (2006), a certain clan took over the drug trade in the Ústí region after forcibly displacing an Albanian organized criminal group.

The lecture was delivered at the international scientific conference Applied Ethics in Social Work and Other Helping Professions, which took place on October 20–21, 2010, in Piešťany, and was published in the conference proceedings: MÁTEL, A. – SCHAVEL, M. – MÜHLPACHR, P. – ROMAN, T. 2010. Applied Ethics in Social Work and Other Helping Professions. Proceedings of the International Scientific Conference. Bratislava: University of Social Work of St. Elizabeth. 413 p. ISBN 978-80-89271-89-4.