What are usury laws and what are their economic effects?

What will be an ideal response?

Usury laws impose a legal price (or interest rate) ceiling on the rate of interest that can be charged by banks and other financial institutions. If the interest-rate ceiling is below the equilibrium interest rate there are three economic effects. First, there will be a shortage of money available for loans or “lending.” This shortage will require rationing by banks to the most credit-worthy customers. These customers generally have higher income, thus the poor tend to be hurt by the non market rationing schemes of financial institutions that are designed to address the shortage. Second, credit-worthy borrowers will gain because they are borrowing at below competitive market interest rates while lenders (financial institutions and their stockholders) will lose because they are required to lend at below market interest rates. Third, the interest rate is a price that provides information and incentives for allocating scarce resources in the economy. Interest-rate ceilings impair the guiding function of price in a market economy and can lead to inefficient allocation of resources.