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Loan Sharks – The Truth Behind The Scare
It has long been the case that as soon as we hear the name ‘shark’ we instantly think of dodgy men lending cash to desperate characters with insane interest rates. Then comes the images of big muscle men being sent round to teach a lesson to someone that has defaulted on payments. This misconception often leaves a lot to be desired, after all, we do not live in a 1920’s gangster movie.
Here we will go through the history of the loan sharks industry and then explain what they represent now.
The Beginning of Loan Sharks
The loan sharks date all the way back to the 19th century were it was first called ‘salary lending’. In the late 19th century America interest rates were very low due to legal requirements which made small loans very unprofitable for the lenders. At the time the lending or borrowing of small loans was strongly frowned upon by society as borrowers were seen as irresponsible people who could not manage their funds efficiently. As a result of the low interest, the banks and large financial institutes stayed clear of this kind of lending.
There were, however, plenty of people that were willing to act illegally and offer people small loan but with law breakingly high-interest rates. The original loan sharks were confident in their practices, they would even operate out of offices to give an impression of legitimacy. They were also very picky with their clientele, they would not deal with illegitimate borrowers; gamblers, criminals and unemployed people were avoided. A respectable man would have a stable job with which to guarantee payments and would usually be married meaning that he wouldn’t skip town to try and avoid the interest. It also meant that they were open to being blackmailed for public humiliation as it would affect their standing in society by a large proportion.
Social Stigma & Blackmail
In order to get the money from a customer that had defaulted the lender would normally threaten legal action. This was, of course, a bluff as none of the practice was legal to begin with. The lender was hoping that the borrower was ignorant to the legalities involved.
As mentioned above, some lenders would resort to public shaming, this exploited the social stigma of being in debt to the loan sharks. Often an agent would be assigned to stand outside their home loudly denouncing them. On some occasions, they would even vandalise their home and whether due to embarrassment, fear or gullibility, the borrower would usually succumb to paying the amount and often extra ‘fees’ for the trouble caused to the lender.
Another option was to threaten to tell the customers employer, many employers would fire an employee if they were in debt to such a disgraceful profession. The employers were worried that a person in debt is more likely to steal from them to pay the debts, or in cases where they worked in shop fronts, as it would affect customer relations greatly.
The End of Salary Lending
At the end of the 19th century and into the 20th, the eradication of salary lending became greatly desired by the people of America and a campaign of opposition began, spearheaded by social elites, businessmen and charity organisations. Business owners were encouraged not to fire people in debt to loan sharks as it unwillingly gave them leverage over the borrower due to blackmailing. Charities were asked to give aid to those suffering to get by due to increasing debts.
The end of this campaign resulted in the drafting of the Uniform Small Loan Law. This law first came into practice in 1917 and brought with it a new class of licensed lenders. The model statute mandated consumer protections and capped the interest rate on loan shark of $300 or less at 3.5% a month (42% a year), a profitable and legal level for small loans to become legitimate.
Lenders also had to give customers a signed copy of all documentation. All additional charges like ‘late fees’ became illegal and the lenders could no longer get legal power over the customer. As a culmination of these new laws, it became nearly impossible for the usurious lenders to pass themselves off as legal. Small loans also started to become socially accepted and the larger organisations like banks started offering them to the public.
The Rise of the Loan
Early 20th century saw the rise of bootlegging and organised crime and gun wielding mafia gangs. In the 20’s and 30’s a new breed of illegal lenders emerged from the shadows to fill the gap in the market. They were looking to target the disreputable members of the public that would never get approved by the large corporations due to their high risk. The main difference was the use of violence or the threatening of it instead of public shaming.
The Uniform Small Loan Law had made it almost impossible to intimidate customers with a veneer of legality. Public shaming was much less effective as well as it had become a lot more acceptable to borrow small amounts and many of the people borrowing now were already disreputable.
As a result of all this, violence became a necessary tool though not the only one. Loan sharks worked on a basis of discretion, far more informally than the old salary lenders. Due to the legitimate small loan business, many of the customers that the loan sharks now saw were high-risk borrowers that the legal lenders would not work with. These threats of violence were rarely followed through, it is assumed that this is because if they injured their customer then they wouldn’t be able to work and would not be able to pay the instalments.
Another tactic they had was to refuse the borrower future loans. Many customers realised that the threats were not followed through and thus that they could get away with defaulting on payments. In response to this, the loans sharks realised that many of these people relied on monthly borrowing to get by, and so they would simply refuse the borrower future loans.
The Progression of the Mafia
One of the most prominent markets for this loan was the illegal gambling operators as they could not get the law involved in order to collect debts legally. They cooperated with this loan against their punters to supply credit and collect payments. Often the loan would act as fences as they dealt with a large number of criminals including thieves. The last of their high-risk customers were the small businessman that were desperate for funding but could not get accepted by legal loan lenders.
Although the reform law was intended to starve the loan into extinction, this species of predatory lender thrived and evolved. The lenders moved from being run by greedy everyday men to being run by criminal syndicates such as the Mafia. Many of these lenders were former bootleggers. At the end of the Prohibition, there were many bootleggers that were in need of a new line of work. The loan corner started to grow rapidly and became a huge underground industry.
Towards the 1960s, loan grew ever more coordinated and could pool information on borrowers to better size up risks and ensure a borrower did not try to pay off one loan by borrowing from other loan . The fearsome reputation of the Mafia or similarly large gangs made the loan shark’s threat of violence more credible and much more real.
The 1960’s Heyday to the Present
Gradually loan drifted away from labour intensive target groups. By the 1960s, the preferred clientele were the small and medium-sized businessman and their owners. Business customers had the advantage of possessing assets that could be seized in cases of default. Additionally, they could be blackmailed into engaging in fraud or laundering money for the illegitimate loan . Gamblers were one of the most lucrative markets, as were other criminals who needed funding for their operations. Once time got to the 1970s, mob loan shark’s activities seemed to have dwindled away almost completely.
At its top in the 1960s, underworld loan were estimated to be the second most lucrative franchise of organised crime in the United States, after only illegal gambling. The papers in the 1960s were continuously littered with stories of debtors beaten, harassed, and sometimes murdered by mob loan.
The Difference in The Modern Loan Shark
Today the term loan shark is still used and simply refers to brokers of small term loans. Many things have changed about the market including the regulations involved, the legality, the interest rates and the caps. Nowadays we have the UK government run organisation called the FCA (Financial Conduct Authority – www.fca.org.uk) which is there to continuously check on the legitimacy of lenders, so never accept a plan from a lender that is not FCA approved. We also have the UK money advice service (www.moneyadviceservice.org.uk), an impartial organisation set up by the government to give impartial advice to the public.
What all this means is that although the name has stuck for over 100 years, it has very much changed its face. All the practices that we have are highly regulated and completely legitimate, with absolutely no Mafia involvement. But in all seriousness, the image portrayed by loan sharks now is very very different from their origin.
What We Actually Offer
Normally finding a reliable loan shark lender that fits all the right criteria can be a long and painstakingly difficult process. First, you would have to troll through hundreds of pages online to find reputable lenders. There are so many around that are not legitimate or do not offer what they are promising to do so. Once you have found real lenders you then need to take notes on each of their offers, making sure to find the best interest rates or most suitable plan terms to match what you are searching for. The extent of research required is quite extensive and a very long procedure.
Luckily for you, we have a team of experts that are continuously scrolling the internet to find you the very best lenders and deals. What we end up with is a list of the most reputable lenders from across the entire UK. There are only legitimate plans and official rates in our lists, all of which – including ourselves – are checked by the Government body called the FCA (mentioned above) to make sure that everything is fair and licenced. What this means is that you only need to fill out our application once and send it over to our experts. They will then compare your needs against all of the lenders that we have in our database and what they offer.
Once they have found you the lender that offers you what you want with the best rate available they will check with you first, and if you are ok with it, they will then pass you and your details over to them to finalise the plan. We can do all of this for you in just a few minutes and with absolutely no charge whatsoever and you can have cash in your account in just 15 minutes.