Loan-sharking

A loan shark is a person or body who offers loans at extremely high interest rates. The term usually refers to illegal activity, but may also refer to predatory lending with extremely high interest rates such as payday or title loans. Loan sharks sometimes enforce repayment by blackmail or threats of violence. Historically, many moneylenders skirted between legal and extralegal activity. In the recent western world, loan sharks have been a feature of the criminal underworld.

In late 19th-century America, the low legal interest rates made small loans unprofitable, and small-time lending was frowned upon by society, as a borrower of small loans was seen as an irresponsible person who could not manage a budget. Banks and other major financial institutions thus stayed away from small-time lending. There were, however, plenty of small lenders offering loans at profitable but illegally high interest rates. They presented themselves as legitimate and operated openly out of offices. They only sought customers who they felt were good risks: a steady and respectable job, which meant they had a regular income and a reputation to protect; married, which made them less likely to flee town; and legitimate motives for borrowing. Gamblers, criminals, and other disreputable, unreliable types were avoided. They made the borrower fill out and sign seemingly legitimate contracts. Though these contracts were not legally enforceable, they at least were proof of the loan, which the lender could use to blackmail a defaulter.

To coax a defaulter into paying up, the lender might threaten legal action. This was a bluff, since the loan was illegal. The lender preyed on the borrower's ignorance of the law. Alternatively, the lender resorted to public shaming, exploiting the social stigma of being in debt to a loan shark. They could complain to the defaulter's employer, because many employers would fire employees who were mired in debt, because of the risk of them stealing from the employer to repay debts. They might send agents to stand outside the defaulter's home, loudly denouncing him, perhaps vandalizing his home with graffiti or notices. Whether out of gullibility or embarrassment, the borrower usually succumbed and paid up.

Many customers were employees of large firms, such as railways or public works. Larger organizations were more likely to fire employees for being in debt, as their rules were more impersonal, which made blackmail easier. It was easier for lenders to learn which large organizations did this as opposed to collecting information on the multitude of smaller firms. Larger firms had more job security and the greater possibility of promotion, so employees sacrificed more to ensure they were not fired. The loan shark could also bribe a large firm's paymaster to provide information on its many employees. Regular salaries and paydays made negotiating repayment plans simpler.

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