Financial Regulations – The Basics Explained
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Financial regulations are a set of policies, regulations and laws meant for financial institutions to adhere to. They provide certain restrictions, guidelines, requirements and policies with the objective of maintaining financial integrity within a state. Financial regulations are usually handled by the government or the State Bank of the country. However, at times even non-government organizations are authorized to make other financial institutions comply with the financial regulations.

Objectives of Financial Regulations

The main objectives of financial regulations are the following:

Enforcing Laws:

There are numerous laws related to the financial institutes within a country. Each and every financial institute that is established, whether it is a public one, private one or that which is related to the government, must abide by these laws. If any institution fails to do so, financial regulators are there to enforce the law and even report to higher authorities in severe cases.

Prosecuting Misconduct Cases:

There are several occasions in which an institution is found guilty of breaching the law. In such cases, financial regulators have the right to file cases against them and prosecute them.

Licensing Providers:

Financial regulators are responsible for licensing the different financial institutions that are being established within the state. By providing the license, the regulators make sure that the institution is completely abiding by the laws set.

Protecting the Clientele by Performing Investigations:

At times, complaints against a particular financial institute can pile up if its customers do not believe that it follows financial regulations. In such cases, the regulators are bound to carry out an investigation against it and notify the institution of their misconduct. In most cases, a penalty is placed. If paid, the institution can avoid the hassle and scandal of being taken to the court.

To Maintain Stability in the Financial System:

By making all institutions follow the same guidelines and instructions, the financial system of the state or country becomes more stable, and any economic downfalls can be countered easily.

Usury Regulations in the US
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Usury has been part of human history since Christianity came into existence. Over centuries, there have been regulations that were established to restrict misuse of usury. These best practices continue to exist today, but vary across the United States.

Definition of Usury

Usury is defined as a practice in which one charges excessive and unreasonable interest. The rates are often too high and therefore usury is considered illegal. Creditors are often unable to pay-off their loans when usury is applied. Often, this has an unfavorable impact on the economy of countries as well. However, there have been times when regulations on usury were bent for economic reason.

Back in time, churches had banned usury because it simply meant charging an interest. Any rate charged on borrowed money was considered illegal and against religious teaching. Usury was once known as “Ribbit” which corresponds with the Arabic word “Riba”. Today however, there is no business that can be done without charging an interest. However, it should not be mistaken as a best practice.

Usury Ruling in the US

Each state in the Unites States of America has its own ruling on usury (interest). Each state has a charge that must be used by anyone before it can be called unlawful or usurious. When a lender or business institution charges an unlawful interest, the court will take action against the lender. If a creditor defaults and the case is presented in the court, the lender will be sued for charging usury. This makes it important for financial institutions and lenders to comply with the state regulation on usury.

However, there have been times when separate rules were applied to most banks across the US. In 1978 the Supreme Court in US allowed compliance with the National Banking Act of 1863. The act allowed chartered banks to charge high usurious rates as part of best practices. The same was experienced in 1980 due to inflation when the Congress passed the Monetary Control Act. This over-ruled local and state laws on usury. To preserve best practices in governance this regulation has been over-ruled a number of times.

Usury Ruling in Canada

The Canadian government permits an interest rate of 60% per annum. To ensure compliance with this best practice, there are written legislatures. Canadian courts are authorized to intervene whenever any ambiguity is reported.

Punishment for Usury

When usury is proved with evidence in the court of law, the debtor can face a range of penalties. These could include forfeiting the debt, criminal prosecution and time behind bars or other penalties.

Therefore, as a form of risk management best practice avoiding usury is highly recommended. This is especially important for banks and lending agencies.

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The Best Practice Network

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