Category: 

What Is a Loan Shark?

In the 1930s, organized crime began lending money to people who were not able to obtain it through normal channels.
Article Details
  • Written By: Jessica Hobby
  • Edited By: Heather Bailey
  • Last Modified Date: 28 September 2014
  • Copyright Protected:
    2003-2014
    Conjecture Corporation
  • Print this Article
Free Widgets for your Site/Blog
The seahorse is among the only animals on Earth which has males bear the young.  more...

September 30 ,  1949 :  The Berlin Air Lift ended.  more...

A loan shark is an individual or organization that loans money at extraordinary high rates typically above the legal interest rate. Historically, loan sharks have been associated with organized crime and publicized for the violent tactics they use to encourage repayment. Modern day loan sharks include organizations, often referred to as predatory lenders that charge high interest rates for personal loans, mortgages and automobile loans.

Loan sharking, or offering loans at excessively high rates, has existed since workers have been receiving wages, but the term came into use in the late 1800s in the United States. Lenders offered credit based on future salaries and chattel, also called collateral. A loan shark designed his lending program to prosper by keeping his borrowers in perpetual debt. Borrowers rarely were able to pay off the principal and in some cases, creditors were able to repossess chattel presented to secure the loan.

In 1917, several states in the United States adopted the Uniform Small Loan Law, which was the first attempt to enforce consumer protection in lending and created a group of licensed lenders, eliminating the need for a loan shark. The Uniform Small Loan Law and its subsequent amendments aided in putting loan sharks out of business. In the 1930s, organized crime filled the empty niche and began lending money to people who were not able to obtain it through normal channels because of low salary or poor credit.

Ad

Mafia loan sharks, notorious for their violent tactics, initially offered payday loans. As time progressed, the mafia moved away from payday lending and began lending to small and medium size businesses, criminal operations and gamblers. Mob lending faded away in the United States in the 1970s, but could be found in many other countries.

Currently, the term loan shark includes predatory lending institutions such as sub-prime lenders. Sub-primes lenders offer mortgages to homeowners who lack a necessary down payment, have poor credit or don’t meet other requirements by typical lenders. Sub-prime lenders are legal, but lend money at the highest possible legal rate. The appearance and popularity of sub-prime lenders is often blamed for leading to a congressionally authorized bank bailout in the United States in 2008.

Other forms of predatory lending include loans for title loans, some automobile loans, some home improvement loans and payday lending. Companies who offer these services use shady sales tactics including high-pressure sales, hidden fees and confusing contract language. Additionally, they prey on low-income people and exploit their wants and dreams by convincing them to purchase things they cannot afford.

Ad

More from Wisegeek

You might also Like

Discuss this Article

Post your comments

Post Anonymously

Login

username
password
forgot password?

Register

username
password
confirm
email