I’ve been critical of the ambiguity and accuracy of the Catholic Encyclopedia on usury (Question 41) because it omits entirely – perhaps its authors were simply ignorant of the requisite documents – the Magisterial distinction (also found in Aquinas) between full recourse and non recourse contracts (Question 31 and Question 36); the article also claims that Vix Pervenit “formally condemns” institutional credit in the Church tied to Church property – which in fact it does not, since the encyclical doesn’t discuss mortgages on Church property at all – suggesting that the Church approves of interest on “loans” (as an ambiguous term) “in practice”.
If the Catholic Encyclopedia has the facts right about the Mountains of Piety North Carolina pawn shop though then it is not clear that they made mutuum loans at all. The Mountains operated like modern day pawn shops, taking in existing property as security and making non recourse loans against the property:
The amount of a given loan was equal to two-thirds the value of the object pawned, which, if not redeemed within the stipulated time, was sold at public auction, and if the price obtained for it was greater than the loan with the interest, the surplus was made over to the owner.
Of course as explained in Question 11 of this document, just because a contract does not, in Benedict XIV’s words, “fall under the precise rubric of usury” does not mean it is not exploitative and wrong. I don’t know what loan-to-value ratios they maintained or if they would always assert deficiency judgments against borrowers, but keep in mind that just because a contract is not technically usury does not mean it is not exploitative and wrong. It is important to understand usury correctly; but too much focus on usury specifically could easily become a distraction from other real injustices.
Profit for the lender from a mutuum loan is never morally licit: the borrower has in a literal sense become the owner of what has been lent, because he may do with it as he wills and any risk of loss is his
And that is always something important to acknowledge: that even when a given contract does not “fall under the precise rubric of usury” (Vix Pervenit), “whatever is received over and above what is fair is a real injustice.” (Ibid)[O]ur Lord, according to Luke the evangelist, has bound us by a clear command that we ought not to expect any addition to the capital sum when we grant a [mutuum] loan. For, that is the real meaning of usury: when, from its use, a thing which produces nothing is applied to the acquiring of gain and profit without any work, any expense or any risk.
This is perfectly consistent with usury as understood throughout this FAQ, in the other Magisterial statements cited (in fact the same council has already been cited in discussing the Mountains of Piety in Question 47), and in Aquinas’ writing on the subject. In particular a mutuum loan, as Aquinas observes also, is a kind of contract in which the normal risk associated with ownership is born by the borrower.
Probably the second thing to note, following the direct repudiation of making a profit in this declaration, is that it isn’t clear that the “loans” made by the Mountains were mutuum loans at all
Other kinds of contracts – contracts which are not mutuum loans, that is, which are non recourse contracts – may produce licit profits, even at a fixed rate of return, bounded by the pool of property in which the contract is a claim (see Question 31); as affirmed in a number of Magisterial statements cited throughout this FAQ. But those profits always come in association with the risks inherent in claims against property, without personal guarantees. If the property is lost to natural disaster, etc, and there is no pooling of designated property as insurance, etc, then the investment is lost: no other person is carrying the risk, so profit can be licit under the Fifth Lateran Council definition. The Fifth Lateran Council definition is not in conflict with Vix Pervenit and the other Magisterial documents cited here affirming the licitness of profit on legitimate non recourse investments.