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Abstract
The specter of the loan shark is often conjured by advocates of price deregulation in the market for payday loans. If binding price caps are imposed, the argument goes, loan sharks will be spawned. This is the loan-shark thesis. This Article tests that thesis against the historical record of payday lending in the United States since the origins of the quick-cash business around the Civil War. Two different types of creditors have been derided as 'loan sharks" since the epithet was first coined. One used threats of violence to collect its debts but the other did not. The former has been less common than the latter. In the United States, the violent loan sharks proliferated in the small-loan market after state usury caps were raised considerably and these loan sharks dwindled away as a source of credit for working people before interest-rate deregulation began to be adopted at the end of the 1970s. The other type of loan shark thrived both when usury ceilings were very low and when they were very high or even removed. Deregulation does not starve the nonviolent species of loan shark into extinction but instead feeds it. Hence the loanshark thesis is seriously flawed. It does not accord well with the historical record of the market for payday loans.
Table of Contents
I. Introduction ..................................................................... 808
II. What Is a Loan Shark? .................................................... 810
A. Original Intent .......................................................... 811
B. A Second Sense .......................................................... 813
C. The Common Denominator ....................................... 815
III. Low Caps and No Caps .................................................... 816
A. American Loan Sharks .............................................. 816
B. British Moneylenders ................................................ 819
IV. Finding the Mean ............................................................ 821
A. The Anti-Loan Shark Act .......................................... 822
B. The Extinction of a Predator ..................................... 825
V. The Rise and Fall of Mob Payday Lending ..................... 827
A. Appearance and Reality ............................................ 828
B. Scope and Development ............................................ 830
C. Evolution and Decay ................................................. 832
VI. The Return of the Loan Sharks ....................................... 835
A. The Evolution of Payday Lending ............................. 836
B. The Debt Trap ........................................................... 837
C. The Scale of Payday Lending .................................... 839
VII. Illegal Lending Today ...................................................... 841
A. Where Prohibition Is in Effect .................................. 841
B. Where Deregulation Is in Effect ............................... 843
C. In Cyberspace ............................................................ 845