Loan Shark (Short Story Book 73)

How the founder of 'legal loan shark' Wonga made a comeback as London's fintech messiah
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This sacrifice, however, has been made, by most of the Chicago dailies. During the summer of only the Daily News, The Journal and the Examiner continued to carry loan shark advertising in Chicago. The Daily News has since discontinued them, but the other two, finding an open field here, continue to receive them. The Sunday edition of one of the Chicago newspapers on November 12th, , contained over two columns of loan advertising, in which were included some of the best known loan shark firms in the city, and firms against which the records are most exten- sive and incontrovertible.

Edward Lyell Fox, in an article which appeared in the August issue of Pearson's Magazine, strongly urged the suppression of all loan shark advertising in newspapers, stating his conviction that the business would perforce disappear through lack of publicity if this were done.

The inaccuracy of his conclusion is demonstrated by the flourishing condition of the business in Chicago. In spite of the lack of access to the majority of newspapers, they continue to thrive. That this is a great handicap is certainly true, and assuredly the public has a right to demand that injurious and misleading advertisements of whatever character shall be excluded from all publications; but the ingenuity of the loan shark finds many other ways of getting business, as is made clear by the fact that only a portion of the loan -sharks of the city even now take advantage of the opportunity which is presented by the papers still open to them.

Other published forms of advertising. The newspapers are not the only media of loan shark advertising. There are probably few citizens of Chicago who have not found their mail-boxes sometimes pretty well filled up with the circulars of the loan companies. Denied access to the mails, they still use the family mail-boxes, which are not a part of the United States mail system.

Of late certain loan companies have taken to placing their placards In the advertis- ing racks of the street cars. Personal cards and circulars are distributed on the street from time to time. Personal solicitation. The up-to-date loan shark has his personal solicitors out over the city drumming up business. Some of these, instead of dropping their literature into the mail boxes, call at the door and deliver it in person. In some of the buildings where loan offices are located, the elevator men act as solicitors, distributing cards to the elevator passengers. These cards bear their name written in the corner, and presumably they receive remuneration for the "prospects" which they secure.

Certain firms which specialize among street railway employes make it a point to drop into the barns where the men are assembling for the days work to present their business. One of the most effective methods of obtaining new business is to secure, among certain groups of workmen, one of the number to act as representative for the loan shark. He will point out prospects for the loan shark to approach, 16 or he may himself offer to secure the loan for his troubled fellow-employe or to direct him to a source of supply.

Doubtless her husband's business connections are worked to their fullest advantage. The attorneys who have been fighting the loan shark in Chicago have found a very difficult proposition in the case of certain of them which have influence over some of the minor officials of large corporations.

Trucle gives one case where an employe of a large railway made loans to his fellow-employes, and when they were slow in paying placed his account for collection in the hands of a presumably innocent third party in another state through which the railroad ran. The man could not go there to defend the suit and judgment was accordingly made against him by default.

One of the ways of getting new business is to turn present patrons into solicitors for further trade. A person who owes money and is having difficulty in paying is allowed to reduce the amount by a certain sum, usually a dollar, for every new customer secured. Exchange of Names. Frequently it occurs that a loan shark patron, having redeemed himself from the clutches of a particular money-lender, refuses to become inveigled further. After being convinced that there is nothing further to hope for in business from him, the firm may turn him over as a prospect to some other firm with which he has had no dealings.

Through this exchange of courtesies, a man once in the loan shark's hands may, in spite of every good in- tention, be passed along from one to another, until he becomes finally hopelessly entangled. Devices for Making Collections. The essence of the power of the loan shark over his victim, in Chicago as everywhere, is in the victim's ignorance. Ignorance, first, due to carelessness in many instances of the obligations which he signs when he receives his loan; second, ignorance as to what his rights really are under the law; third, ignorance as to the means of redress which are available after he has discovered the plight in which he is.

With reference to the first of these, the loan shark system has worked out an elaborate set of forms, guarantees and asignments, which the borrower is required to sign before he can get the money. Usually he does not read the papers signed, and if he should he would not dare protest, for he wants the money, and he is made to feel all the while that the lender is doing him a personal favor by letting him have it, and therefore he must not ask too many questions. He may or may not know it, but he has probably signed all the following papers: first, notes for the money borrowed separate notes for the principal and interest, so that in case he should subsequently discover his rights and protest against the interest, the note for the principal will appear as a separate item ; second, an assignment of his wages to the lender in case of the salary loan shark to be drawn on in case he fails to pay up; third, usually a further security in the form of a mortgage on his household effects; and fourth a power of attorney to be vested in the loan shark himself.

No copies of these are given to the borrower, so he has no way thereafter of proving what he has or has not signed. Neither are receipts given for amount paid in, nor are the documents returned which he originallj signed. In appendix C will be found in replica a full set of "loan shark papers" as used by a money-lending concern in business in Chicago for years, with ex- planatory notes accompanying each. The originals of these were furnished the Department by an ex-manager of the concern.

But the loan shark knows that when taken into court even so formidable an array of documents will have no. He therefore makes use of his client's ignorance to the fullest and works upon it with a monumental bluff. He knows that he must rely more upon threats than upon his legal security. Poulson, the City Prosecutor, captured some of the confidential instructions issued to loan shark managers, among others a 36 page book entitled, Blank's "Book of Instructions. Some quotations from these confidential papers, were presented at the Baltimore convention of the National Federation of Remedial Loan Associations in by Mr.

John E. Taylor, Mgr. The following extracts convey a graphic picture of loan shark methods: "We have to get after collections harder and disregard the customer's threats of paying only the legal interest rates. It is the sharp, quick action that counts. Do not show too much sympathy, when they come around with hard-luck tales. If a customer mentions the law, hunch your shoulders and say you do not know much about it. Pretend to phone to an attorney, but hold the phone closed. Remember the whole proceeding is more or less of a bluff.

Give your customer good hard roasts. Look through a drawer or book, rattle the papers, etc. Say to him 'Will your other loan interfere with your making these payments promptly? The next best thing is to send a special notice. It does not take the customer long to see that they can bulldoze a collector. There is no use putting the notion into their heads, as they would probably go and see somebody to find out what the new law is. The result would be more apt to harm us than to do us any good. Bluff the wife into thinking you must have the husband's signature, then drop the demand.

Get some attorney who will sell you his legal letter-heads and then write your customers upon them. At first suggest you are going to tie up his salary. If you see you have to retreat, do so as slowly as possible. Do not give people all they ask. Taylor, in his interesting paper, speaks as follows on his experience in loan shark methods: "Sometimes legal looking notices are sent to the victims, such as 'garnishee demand,' and 'demand notice,' 'notice of judgment,' 'original notice before suit,' and some loan sharks have gone so far as to have letters printed purporting to come from a local collecting bureau.

One of these notices which recently came into my hands was entitled 'Ultimo notitia' a very legal looking scrap of paper prepared and delivered in such a way that the victim would think it came from the civil branch of the 18 Municipal Court. All these notices have a certain legal look about them in the eyes of the unsophisticated victim, and oftentimes bear fruit, at which the loan shark chuckles to himself and says, 'Well, once again the bluff worked beautifully.

By such an order, the employer has unwittingly played right into the loan shark's hands giving him a weapon to hold over his victim's head.

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By advertising that "our loans are confidential," the loan shark learns who of his patrons wish them to be kept confidential. If his payments are not forth- coming, the loan shark threatens to notify the employer.

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With the vision of discharge hanging over him, the victim makes redoubled efforts to escape from the toils, often in so doing only becoming more deeply involved. A second loan may be solicited to pay off the first, and others to pay off the second indeed there are companies whose specialities of advertising are loans for the purpose of paying off other loans until he is wound up beyond a point where he will ever be able to extricate himself unaided. During the administration of Mayor Carter H. Harrison, an order went forth to the effect that any city employe would be discharged who obtained money from any professional money-lender.

By making judicious use of this order, a certain class of loan sharks who specialize in business with firemen and policemen and other city employes, obtained a far stronger grip on them than they had had before. The person who does not make his payments on time or who seems to be slipping out of the lender's grasp is subjected to such communications as the following which are transcripts of actual letters sent by loan shark operators in this city to certain of their delinquents : "Feb. What is it to US about 'your being out of work. WE are not running an employment agency you know.

That is self evident. Same if you won't borrow this to pay your honest debts. Its 'up to YOU to get it. Not to US. The attempt of the company to inject an ethical element into the settlement is no less in- teresting than the virtual acknowledgement that the claim which is made is an illegal one: "April, Dear Sir: Yours of the 28th inst at hand. If you elect to answer one or two questions, we are always glad to discuss any question. Otherwise its useless. Where then has HE any just cause for complaint? He sends on a power of attorney authorizing his agent HERE to borrow a certain sum of him and after receiving it, confirms the act of his attorney in fact.

He is of age and supposedly of sound mind, capable of conducting his affairs without a guardian, isn't he? If not why don't you and your ilk have a guardian appointed for him by the courts? We are laymen. Figure out for yourself when THAT is going to happen. The average outsider does not know of the complex organization of the money lending business. He thinks of each operator as more or less isolated in his operation, bound to his fellow usurers by a "consciousness of kind," it is true, but separated from them by barriers of competition.

He is amazed when he learns of the close inter-relation which exists among the leading ones and of the high form of organization which the business manifests. The larger operators do not confine themselves to a single city. A number of the Chicago firms are branch houses of a larger concern which operates in many states. One of these some time ago was doing business in over sixty cities. Recently there appeared as witness in a loan shark case before Judge Landis in the Federal Court a manager of a money lending firm who reluctantly testified that the owner 6f his company was the owner of nearly seventy others scattered about the country.

Eastern capital is found financing certain of the firms listed in Appendix A, and in one or two instances the firms are chartered in another state. Not only this, but records show that in many instances the real backers of loan shark concerns are persons of influence and prestige in their communities, sometimes prominent in church, fraternal and social life. Within the city the leading operators have banded themselves together into an organization known as the clearing house, to which reference has been made.

This organization, founded in , is a close corporation of the severest type, admitting new members only after most rigid investigation. Its work is carried on with the utmost secrecy. No designation of any kind appears on its office doors. Its members are known not by name, but by number, and the designating number is employed in all communications between member and clearing house and between members themselves. In telephone conversations no information is vouchsafed until the pass-word has been given. The expenses are met by a monthly membership fee by an affiliated concern.

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Loan Shark (Short Story Book 73) - Kindle edition by Bill Bernico. Download it once and read it on your Kindle device, PC, phones or tablets. Use features like. # # # # # # # # # No recent wiki edits to this page. " The Lair of the Loan Shark" is a filler story that works to show the dynamic.

The main purpose of the organization is to supply its members quickly with information as to applicants for loans, in this way saving time and expense which would be necessitated by separate investigations. In the files of the clearing house, ready indexed for quick access, are the records of all persons who have borrowed in the past from any member of the association. Everything is recorded which may serve to indicate whether or not the applicant is desirable: his place of business, standing in the community, how often he has borrowed previously, ready or slow pay, etc.

When a new application is made to any member of the clearing house, the applicant is immediately looked up to see whether any record already exists concerning him, whether he is owing money to some other concern and how much, and kindred matters. Persons who have dropped out of sight of one firm without settling accounts in full may be located through the clearing house in case they should later make application to another member, ignorant of the existence of this information exchange.

Three times a day young women "runners" make the rounds of the clearing house membership to secure the names and addresses and other information 21 concerning new applicants for loans. This information is checked up with the records already filed in the central office and the result reported back to the office to which the applicant has just come.

With such a system great expedition is possible, and the answer may be given to the applicant within a few hours as to whether a loan may be granted. Of course the clearing house can afford no information concerning transactions with non-clearing house members, but it is remarkably efficient within its own field. It also serves as a ready instrument of communication among those who compose it. In the palmy days of the past, before a public opinion had begun to crystal- lize against the business, the loan sharks in many of our American cities were able to conduct their trade more openly than now.

Of late years the movement against them has been gathering force. In a rough way we may classify the growing opposition to them under the following heads: 1. Publicity campaigns. Organized defense of loan shark victims. Loan shark substitutes. These can not be sharply marked off from one another; they are interwoven. Legislation, organized defense and loan shark substitues have come about after public opinion has been aroused by publicity campaigns. Likewise, certain of the substitues which now exist required special legislation before they could be formed.

Constructive opposition to extortionate money lending is generally recognized to head up in the Division of Remedial Loans of the Russell Sage Foundation, of which Mr. Ham is Director. Ham began his work as a "special agent for the study of remedial loan problems" in October, , as a result of requests coming from leading persons in the National Federation of Remedial Loan Associations. Since his appointment he has been particularly active in assisting to organize new remedial loan agencies and in securing legislation in the various states.

Publicity Campaigns Against the Loan Shark. In the language of Mr. Ham, in a letter received from him during this study: "There are few cities of any size in this country that have not, at one time or another, undertaken so-called loan shark campaigns. Sometimes the campaign has consisted of a denunciatory outburst in a leading news- paper; in other cases such efforts have been followed up by the formation of committees of trade organizations or other bodies, activity on the part of prosecuting officials, introduction of new legislation, and the forma- tion of a remedial loan society.

As a matter of fact, most of the small loan laws now in effect in twenty or more states and most of the remedial loan societies now operating in thirty-five or more cities, were the direct result of loan shark campaigns of one sort or another. Perhaps the most notable campaigns, because of the success which accompanied them, were those of New York in , etc. Each of these resulted in the passage of much needed legislation and the organization of a remedial loan society.

These editorials have sometimes been published in the same issue which carried the loan shark's notice in the advertising columns. The 22 extreme of inconsistency seems to have been reached in the case of one local paper which ran a large cartoon graphically picturing the ravages of the pro- fessional money lender, and on the opposite side of the same sheet ran its columns of loan shark business cards! The most notable campaign of publicity in the city has been that of the Tribune which, early in , organized its "Anti-Loan Shark Bureau," headed by Attorney Daniel P.

Some 80 lawyers were secured who agreed to give their services free on behalf of the loan shark victims, and a definite series of loan shark exposures began to come from its press. For the first time the citizens of Chicago began to have something like an adequate idea of the char- acter of the business, and under the severe attacks, the loan sharks were put upon a definite defensive. The materials piled up by this journal were in large degree responsible for getting the measure through the Illinois legislature which permitted the establishment of the First State Industrial Wage Loan Society.

The lead which was set by the Tribune in refusing longer to run loan shark advertising in its columns was followed, as has been stated, by most of the other papers. In addition to these two important results, scores of victims were relieved from the difficulty in which they found themselves by the assistance of the attorneys which enlisted with the Tribune.

A newspaper campaign is effective, however, only so long as what it presents is news. When it grows old and the public grows weary of the reiterated story appetizingly sensational at first the campaign begins to wane; and so it happens that the crusade so actively waged for a period of nearly two years, declined before the end desired was accomplished. Probably this cannot be better expressed than in the words of the Tribune itself at the beginning of its campaign : "There is no doubt whatever that the business of the loan shark can be abated if not destroyed for a time.

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But when the 'tumult and the shout- ing dies,' as it always must in newspaper crusades after the impatient readers have got 'thoroughly sick and tired of the whole business' as they usually phrase it in their letters of protest, then the loan shark will creep back into the city. If they cannot borrow at reasonable terms, they will borrow at unreasonable terms. When the crisis comes, borrow they must somehow or other.

As a result the sharks are among us now, a trifle more cautions than before, but flourishing like a green bay tree. Legislation Against the Loan Shark. In another part of this report an article by Messrs. Trude and Marso considers the legislative aspects of this question in Illinois. Two points neces- sary to effective state legislation need to be emphasized: First, that a sufficient penalty be attached to the business of usurious money-lending and sharp practices in its connection to make it an extra- hazardous occupation.

This cannot possibly be enforced, however, without suitable provision for licensing and inspecting the money-lending concern. Second, there must be made complete provision for legitimate substitutes to take the loan shark's place. Again using the words of Mr. Ham, "Many unsuccessful attempts to legislate the usurious money lenders out of existence have shown one thing clearly that a law that comes between the unscrupulous man who has money to lend and the man who wants to borrow cannot be enforced until an agency is established to suit his needs at lower cost.

Definite obstacles to prevent such legislation will arise in the future as they have done in the past. Two or three may be mentioned: 1. The organized opposition of the loan sharks themselves. So remunera- tive a business as this has been shown to be, and so highly organized can easily arrange to maintain a lobby against any constructive efforts put forth against them in the Legislature, and as is ordinarily the case the harmful powers are apt to have more funds at their disposal for a lobby than the champions of constructive legislation.

Various installment firms not primarily money lending will join their forces to that of the loan shark to help prevent any regulation of wage assign- ment or too close inspection of chattel mortgages. Such legislation would too intimately affect their own questionable ways of doing business. The down state legislators, not being confronted with the problem as are those of a great city although usurious money lending exists in practically every community to some extent , cannot understand fully the need for legisla- tion of this character. Other states, however, have put adequate legislation on the books, and Illinois will do so in time.

Organized Defense of Loan Shark Victims. A lawyer can hardly find a more unremunerative case, in terms of dollars and cents, than that of the loan shark victim whose pockets have already been turned inside out by the professional usurer. To give services free is nothing less than philanthropy and most of them feel, and naturally so, that they cannot afford to do it. In Chicago the Bureau of Justice incorporated in and the Protective Agency for Women and Children incorporated in were consolidated in as the Legal Aid Society, having as one of its objects "legal protection of those unable to protect themselves against injustice.

During the 11 years of. No exact record is available to show the exact number of cases settled; SQme were dropped, some were compromised, some involved lengthy litigation. But there is a definite record of 1, cases having been settled for clients during the last three years of the period. Hill has indicated in his paper found elsewhere in this issue of the Bulletin, has had from the first as one of its objects, the defense of the borrower against the loan shark.

Key No. To the large number of settlements made by these two societies must be added those handled at various times by members of the Tribune's Anti Loan Shark Bureau. Fifteen months after it had been established Mr. Trude stated "altogether approximately 5, accounts have been taken under consideration 25 by the Bureau and the majority settled, for the Bureau has found that the loan sharks have contested in court less than 3 per cent of the cases.

Of late the cudgels against the loan shark have been most actively wielded by the firm of Callahan and Callahan, Attorneys, who have undertaken the establish- ment of a "war chest" a fund to carry on active opposition to the cult in Chicago. Since April they have taken up nearly eleven hundred cases against the loan shark and are now engaged in a canvass of the members of the Illinois legislature with reference to loan shark legislation. A more extensive statement of this firm's activities appears in another place. While the amounts saved to the victims seem rather small, it must be remembered that the loans are made to the poorer class of people and often to those in extreme circumstances, and that a very few dollars saved may mean a great deal.

Frequently the initial loan is much larger than the figures in the tables just presented would lead one to think and represent at times money raised on household goods as well as advances on salary. Such cases could be extended indefinitely. Important as is the actual cash saving to the persons concerned, these settlements mean far more than the money involved. In many instances they represent the rescuing of people who have been for years in financial servitude, people who have long since all but reconciled themselves to hopeless slavery. Loan Shark Substitutes.

Raymond B. Fosdick, Commissioner of Accounts in New York City, in discussing remedial loans before the Academy of Political Science November llth, , epitomized a truth which all students of the loan shark situation sooner or later discover: "Before any campaign to oust the loan shark can be effected, there must be some agency equipped and prepared to take its place.

Indeed no cam- paign of extermination will ever succeed, no amount of condemnation will ever be effective, no negative laws, however drastic, can permanently relieve the present abuses; as long as we have citizens who want to borrow money and we shall always have them so long will loan agencies of some kind continue, and it is only the better kind that will succeed in driving out the worse.

It may be born of lack of thrift or extravagance, but there will always be persons needing funds to tide over emergencies and willing to go to almost any length to secure them. If legislation does no more than drive the loan shark under a more careful cover, it will only accentuate the evil by forcing him to still more exorbitant charges for the greater risk involved; and there will always be men willing to take the risk if it can be made profitable.

When legislation against the loan shark goes on the statute books it is necessary that there be set up substitutes for them, agencies of one sort or another that can minister to the very real need which has for centuries been the fundamental reason for the existence of the loan shark. Already a number of substitues have appeared. We may briefly sketch them as follows: 26 Charitable Loan Agencies. The earliest of these were probably found in the monts de Picte literally mounts of pity which originated in Italy about the middle of the fifteenth century. They began largely as religious enterprises, although they were later put on a somewhat secular basis by the supervision given them by the State.

They were designed to provide borrowing resources for the very poor who, having nowhere else to turn, were preyed upon the loan sharks of their day. Originally they were wholly philanthropic in character and charged the borrower no interest. Wealthy philanthropists were depended upon to supply the loan fund, expecting no return therefrom. On such a basis they were not successful because no guarantee existed as to adequate resources for carrying on the organization. In order to secure a dependable fund the man- agement was finally compelled to offer a remuneration interest to those whom they called upon to provide the working capital.

After that change was made the organization had better fortune and at one time or another its branches have been found in most of the countries of Europe. They are now supplanted by more up-to-date organizations. A number of religious organizations have today established, as a part of their system of benefactions, loan funds which are at the disposal of their own communicants. Notable among these is that of St. Among Jewish congregations it is common to find loan funds established. During this investigation the Department has obtained the addresses of no less than 25 of these in Chicago.

The statement is made by Mr. Wolfsohn, Editor of the "Jewish Voice" that scarcely a congregation of orthodox Jews can be found in the city which does not have such a provision. Loan funds are established as features of certain charitable societies. The Jewish Aid Society, and the United Charities of Chicago also make loans under excep- tional circumstances but do not operate a regular loan department. Employers' Loan Funds. With the idea of "welfare" work for their employes gaining ground every day, many large employers of labor have added to their benefit features a loan fund upon which their employes can draw in emergency.

Certain of these charge no interest at all, others require the legal rate. Several of the largest concerns of Chicago are among these, but prefer to operate the fund without publicity, fearing that if its existence were too generally known their employes might seek to make too free use of it. The methods of one of these concerns is contained in a letter from their welfare secretary, who requests the Department to withhold the Company's name in publishing the facts: "1.

Our superintendents frequently advance part of a man's wages in order to help him through an emergency, the amount being deducted from his check on pay day. While this seems a fair and sound method of handling the problem, you will probably be surprised to find how care- fully it has to be watched. There' is a type of individuals of whom there are many who find this way of meeting their difficulties so much easier than the wiser one of using thrift that there is a possibility of simply breaking down the self-restraint which is so important.

At this office, one of our officers, who was formerly a banker himself, makes loans in exactly the same way that a banker would make them. If the employe has security to give the loan is made at the usual rate of interest, the security being held until payment is completed.

I have charge of a loan fund which is used for extreme emergency in the case of employes who are usually not able to give any security and may be unable to pay interest. The employe gives a note promising to pay in monthly installments of a small amount beginning on a certain date. If a loan is given to a man who has been in the hands of loan sharks, we handle it in the following manner: One of our attorneys visits the loan company and makes an offer of cash payment with a reasonable rate of interest, such as the law would require.

The loan companies are usually very glad to settle for cash. A number of important concerns, recognizing the paternalistic character of the foregoing, instead of setting up a fund of their own for the purpose, encourage the organization of co-operative associations among their employes, who from their own savings, provide a fund to be used by themselves. The element of thrift which is encouraged by this plan is fully as important a result of the arrangement as that of furnishing temporary financial assistance to borrowers. Such co-operative companies are vastly more popular with the employes than are those operated by the Company itself.

Simmonds, manager of the Celluloid Club, explained why, in his paper before Academy of Political Science in November "Employes would object to their employers knowing just how much they were saving, and the best class of employes would suffer rather than ask for assistance through the office. There is a vast difference between telling ones troubles to a fellow-employe and telling that same story to an official. No outside agency is profiting by their necessity, and they are self-respecting in their personal independence secured in this way.

Employes' loan associations are in existence among a few Chicago firms. More should be organized. The Credit Union. In Massachusetts enacted a law which has since been widely copied in other states, permitting individuals "associated by reason of residence, occupation, fraternal association or otherwise" to organize and operate a credit union whose objects, as explained by Mr. The idea, while new to this country, is one of long standing, having been successfully known abroad for sixty-five years.

The loan fund is one erected by savings of the members themselves, being kept up by purchase of shares in the union. It can be drawn upon only by members and by them only after a credit committee decides that the loan is desired for a constructive and beneficial purpose. The character of the member is the chief determinant in Question of whether or not he shall be admitted to mem- bership and whether after being admitted the loan shall be granted to him. Except in the details of the organization and the fact that it is subject to state supervision, the employes co-operative loan associations already discussed, might very well be classified as credit unions.

It would take very little trouble to turn them into bona fide unions. To these figures which he has compiled, Mr. Ham adds the following statement concerning its growth : "Russia which, in , had unions, now has 14, On January 1st, , there were 18, unions in Germany making loans to members in one year of over a billion and a half dollars. In Japan alone had 2, unions, and the little country of Roumania, where the movement started, in had 2, unions with a membership of ,, or 35 per cent of the entire population of the country. After Massachusetts led the way, New York and a number of other states followed, a step which Illinois should be urged to take.

In its adherence to self-help as the best help, the union will fill a place which will enable the workman to save himself from the crushing burden imposed by his loan shark relationship. The Morris Plan. In there were organized in Norfolkj Virginia, the first of a series of institutions known as the "Morris Plan Banks," which now extend to two dozen or more cities of the United States. Originated by Mr. Arthur J. Morris of Norfolk, the plans are advertised as "owned and developed by the Industrial Finance Corporation," 52 William Street, New York, from whom permission must be obtained before a bank may be established in new territory.

Usually a fee is charged by the corporation for the exclusive right to the use of the plan in a given city. While frankly operating as a commercial enterprise, one of the largest claims which the company puts forward for recognition is its character as a substitute for the loan shark. This certificate is assigned as collateral for the.

Two weeks later his note falls due. From the foregoing description of how loans are made it will be seen that each week the Morris Plan companies receive from borrowers in payment on "class C" Investment Certificates, purchased and pledged as collateral, an amount equal to 2 per cent of the outstanding loans. Therefore in addition to loaning the amount of its capital at 6 per cent the Company reloans 2 per cent of each loan each week.

In other words, a company having already charged one borrower 6 per cent on each dollar that he has borrowed, immediately loans that same money, as soon as an installment is paid, to someone else at another 6 per cent. This process enables the Company to earn a gross profit on each dollar of capital of 13 per cent and up, according to the activity with which its funds are turned over. It has, however, received cordial comment from a number of the New York papers the Times.

Post, and World.

'He would not lose'

It rejected two-thirds of applicants. Writer: Jeremy Leven. The only problem with the book is that it ends. My debt continues to grow as I find it difficult to pay the full payment month to month. Because of this my current address on the letters I sent was constantly replaced by one 10 years old because of the skip tracing. The student debt crisis is a major issue and if it's not resolved soon, it could become the downfall of us all.

The Financial Chronicle, American Banker. Wall Street Journal, the Outlook. The Survey, The independ- ent, and a number of others have also mentioned it favorably. Efforts have been made to promote the Morris Plan for Chicago, but it is not possible to organize it under the existing State law. The most effective agency which has yet come into existence to meet the loan shark evil by com- petition is found in a group of organizations which are affiliated with the National Federation of Remedial Loan Associations. The association was formed at Buffalo in , largely through the earnest endeavors of Mr.

Finley of Baltimore. It was composed originally of fourteen companies which were at that time working single-handed in 13 cities of 10 states, to combat the activities of the professional usurer by providing loans at a much lower rate than that of the loan shark. The members declared themselves, "desirous of promoting the work in which we are engaged to the end that similar associa- tions may be organized throughout the country wherever needed," and effected a permanent organization having as its object "the formation of local organiza- tions to guide and direct persons interested in the work and to contemplate organizing remedial societies by giving such information and advice concerning legislation, finance, problems of legislation, and general information necessary for organization and management.

A roster of its membership and its constitution are found in Appendix D of this report. These 39 societies are divided into three classes, namely those that make loans upon security of chattel mortgages; those that make loans upon security of personal property pledged or pawned with them; and one which loans upon security of wage assignments.

It is in this latter field that some of the greatest abuses of the loan shark have been perpetrated, owing to the fact that a loan made upon a wage assignment gives the lender a power over the borrower growing out of contact with his employer. Most of these societies have been brought into existence under special laws which permit a higher rate of interest to be charged than is permitted to lenders not so organized. See Appendix B for a digest of laws under which the various states have organized remedial loan societies.

This rate is from 1 to 3 per cent in the case of pawners and chattel companies and is 3 per cent a month in the case of the one wage loan society. This rate seems exorbitant and differing from that of the loan shark only in degree to one confronted with the proposition for the first time. The necessity of charging a rate so much higher than the usual contract rate is not obvious at once, but when one begins to examine closely into the matter as experts have done, he discovers that the smallness of the loan and the brief time for which it is made constitute a much heavier overhead expense for handling than is the case with the ordinary loan.

Moreover the lenders are dealing in shakier securities than is the case with hanks, and losses are correspondingly higher. Two of these 39 societies are operating in Chicago. Both of these are limited by law to a 6 per cent return upon funds invested, and both are subject to close supervision. Fuller statements concerning them both will be found in another part of the Bulletin.

In looking over the various types of substitutes one may roughly group them In four classes: 30 The purely philanthropic which, whether under a religious organization or as a non-sectarian charity or fraternal order, operates a loan fund, charging no rate of interest to the borrower. In this respect it is a charity pure and simple and should be considered just as much so as a gift of food or clothing or rent The semi-philanthropic organization is established primarily for the sake of the borrower, but it is capitalized and is run upon business principles, not only paying expenses, but giving a small profit to its backers.

The members of the National Federation of Remedial Loan Societies are almost entirely of this character. These are business organizations with a social purpose, and should be stated as such. They are not charitable in the sense of giving something for nothing, and they are not commercial in the sense of being primarily a money-making enterprise. Their dividends are usually limited by law. The purely business type is organized primarily as a matter of investment. While it may serve a definite social purpose, it is not organized for that purpose and performs it only incidentally.

These organizations keep within the law and so are not to be confused with the loan shark whose characteristic is that of usurious money-lending. The self-help type probably the most constructive of all is the fourth which is exemplified in the credit unions and employes co-operative associations already described. They put a premium upon thrift and saving and the element of mutual benefit, appraise character at its highest, and recognize it as a definite form of security. An additional advantage resides in the fact that they are independently organized and so their success or failure depends upon them- selves.

The community must come to realize that in dealing with the usurer it is dealing with a power of first magnitude, one that is backed by large capital, in some cases by political and personal influence, and that it is based upon a definitely correlated organization.

Against such entrenched forces something more is needed than an occasional outburst of righteous indignation. It is a system which must be undermined, and this cannot be accomplished by the elimination of an occasional operator or two. Loan shark organization must be opposed by a more powerful organization; adequate legislation adequately en- forced must be put on the statute books; adequate provision must be made to serve the need which the loan shark has made his peculiar property in a cheaper and better way; the loan shark must be met with his own weapons and in his own field; competition must be afforded which he shall be compelled to meet.

Unhappy as the situation is at the present time with reference to the business of extortionate money-lending, as has been set forth in the preceding pages, the situation is by no means hopeless. It is incumbent, however, upon the public spirited citizens of Chicago to get behind an organized movement against the business.

In such a movement the Department of Public Welfare is ready to assist. The materials which have been assembled during the pro- gress of this investigation are freely at the service of the public if they can be used to advantage against the business. The importance of substitutes for the loan shark has been discussed. Re- ligious and philanthropic societies, employers' loan funds, and co-operative loan associations, fill a place with a certain limited part of the population. But for the vast majority the only relief lies in the establishment of remedial loan societies open to the general public.

These should be closely supervised and should have dividends returnable to investors limited to such a percentage that there will be no inducement to enter the business because of large profits. Interest charges should be made as low as is consistent with business security, 31 frankly recognizing the fact that such a business must charge a higher rate than banking interests, because of the greater risk, and the heavier overhead expense.

Borrowers should be safe-guarded by law in every possible way, that extortion may not be practiced. There should be remedial loan provision for every form of legitimate secur- ity. We may distinguish four forms: First wage assignments; second, portable chattels of a pawnable character; third non-portable chattels, such as household goods, etc.

At the present time there are in Chicago remedial loan societies covering the first two of these: The First State Industrial Wage Loan Society takes wage assignments as security; the First State Fawners Society receives portable chattels and pawnable security. The other two fields are still uncovered, and it does not seem that the state law as it exists at present would permit their erection.

This is a matter which should be remedied by a change in legislation. The Department of Public Welfare therefore recommends: 1. That steps be taken to provide remedial loan societies which will accept non-portable chattels as security for small loans; and 2. That steps be taken to provide remedial loan societies which will make it possible for personal character to be recognized as a form of security. This does not mean that any person shall be able to borrow "upon his face," nor that any stranger making application for a loan to the remedial society shall be granted it right away just because he looks honest.

It does mean that machinery should be provided whereby a person of good character, who can establish that fact by his ability to secure two reliable endorsers, shall be al- lowed to borrow, within certain definite limits, without other security than these endorsements. It is in this field that there resides at the present time probably the greatest need not yet covered. The man who is out of work or who is in temporary stringency on account of his income being temporarily cut off has no recourse which he is willing to employ. Some provision should be made whereby he can be tided over and still keep his self-respect.

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In the establishment of such societies and in the regulation of the small loan business in general, there are a number of important phases which should be covered. It is the opinion of the Department of Public Welfare, after con- ference with some of the leading authorities in the field, that any law to he satisfactory must include the following items: 1. The license should be issued by a department of the State of Illinois; this might be in a department especially created for the purpose, but should preferably be a branch of the state bank department or the state auditor's office.

The license should be granted to be renewed annually. The person or corporation so licensed should be required to file a bond of not less than one thousand dollars, this to constitute a fund from which any damages could be drawn in case they should be awarded by the court to a contestant against the money lender. The supervising authority should be empowered and required to examine the books and business methods of licensees, at least once a year, and they should be required to provide him with a detailed annual report.

The supervis- ing authority should be empowered and authorized to refuse to issue a license when, in his judgment, there is danger that the law will not be observed; he should under no circumstances issue one without previous investigation to de- termine the applicant's fitness to hold a license.

The power to revoke licenses upon sufficient grounds, should also reside in the supervising authority. He should have power to make necessary rules and regulations. The rate of interest should be not to exceed 3 per cent, a month, and no additional fees of any sort should be allowed. Many times the money lender exacts usury under other forms than those which are technically classifiable 32 as interest. Interest, moreover, should be charged only on unpaid balances, and it should be paid only after it has been earned never in advance.

The borrower should be given copies or memoranda of all papers signed by him in connection with the loan, a copy of the law regulating charges, and a clear statement of the terms of the loan. He should be given receipts for all payments made, and when his loan is liquidated the papers originally signed should be returned. Loans made at illegal rates should be made void and unenforcible. Penalties of fine and imprisonment should be provided for persons operating without license, and for licensed operators who violate the law. The Department of Public Welfare hopes that it may be of assistance in getting legislation of the foregoing character written into the statutes of Illinois.

With the field covered as fully as it would be should such recommendations as the above be put into effect, it is realized that there would still remain the hopelessly improvident, the person who is willing to gratify tastes which are beyond his means, the person who cannot save money, and who is willing for the pleasure of the moment to pledge away his future earnings.

It is not desirable that any provision should be made to encourage persons in these tendencies. No loan should be made which is not constructive; that is, unless it contributes in some way to the actual well-being of the person who borrows. This should be carefully determined by every society in every case, and will be determined by all who operate conscientiously. The language of the State of Illinois with reference to the rate of interest which may be charged is the following Kurd's Revised Statutes, , p.

And all contracts executed after this act shall take effect, which shall provide for interest or compensation at a greater rate than herein specified, on account of non-payment at maturity, shall be deemed usurious, and only the principal sum thereon shall be recoverable. It is a prohibition practically without penalty, inasmuch as the money lender is guaranteed his principal in any event. And it has been held by the courts that even usurious interest cannot be recovered once it has been voluntarily paid by the borrower.

It is this law which makes the loan shark's business absolutely safe as well as a most remunerative occupation. The usurious money lender may safely count on the fact that at least 99 out of every borrowers do not know that this is the law. And he may safely expect that few of those who do know the law will be in a financial position to invoke it.

If the law is invoked nothing comes of it which can in anyway interfere with his further operaton. Wth reference to wage assignments as security in particular: Prior to the amendment of Section 18 of the Practice Act, which amendment was passed in , the person who borrowed money from a loan shark was assigned his wages to secure the payment of the debt was practically at his mercy.

A person who borrows money has a right to assign his wages earned or to be earned from his present employer to secure the payment of the money he so borrowed, and the loan shark has a legal right to accept such an assignment, and it is valid and binding on the parties interested Massie v.

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This was irrespective of the amount that might be due to the loan shark from the employe, or whether 34 that amount exceeded or was less than the amount due from the employer to the employe the borrower. The courts were bound to enforce the assignment of wages strictly. If the amount of wages due the borrower, and recovered by the loan shark from the employer, exceeded the amount due the loan shark from the borrower, the borrower was relegated to an action against the loan shark to recover the difference. Independent Credit Company v. South Chicago City Railway Co. The "loan shark" question, or rather the problem of handling employes who are forced to borrow money for personal needs but who have no bankable security has been a great source of worry to employers of large concerns for many jfears.

Many ideas and plans have been brought forward and tried out, some proving successful for that particular concern trying them out, while other ideas and plans that sounded plausible in theory have not worked out when put into practice. The good work has not been as extensive as it should have been. Some years ago many of our most prominent establishments passed a rule among their employes, i.

They hoped that in passing this drastic rule they would be able to eliminate the evil from their ranks. The effect, unfortunately, was just the opposite from what they in- tended it should be. They forgot that many of the loans made from the "loan sharks" were for absolute necessities and that the only place open for them to go for money was to the "loan shark" and take a chance of their employer not knowing of the transaction.