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Loan-Sharking

NCJ Number
86869
Author(s)
C P Simon
Date Published
Unknown
Length
28 pages
Annotation
The government's four policy options for dealing with the loanshark industry are to continue the current policy, to increase consumer awareness of the services offered to increase competition and bring interest rates down, to enforce the laws more effectively, or to change the current laws and practices.
Abstract
Loansharking involves two markets, one for small loans of less than $1,000 and one for large loans. Lending agreements between borrowers and loan sharks all have the following characteristics: a high rate of interest, generally 20 percent per week; a fairly explicit understanding that borrowers are pledging their physical well-being and that of their families as collateral for the loan; and a belief by the borrower that the lender has connections with criminal organizations. Since secrecy surrounds the loanshark industry, the only thorough study of it is the 1968 doctoral dissertation of John Seidl. Loanshark borrowers generally cannot borrow through normal lending sources due to a lack of necessary collateral, a questionable purpose for the loan, or impatience with the complexities of regular lending channels. Very few loanshark transactions involve the use of force. In 1960, the income of the loanshark industry was probably between $300 million and $6.5 billion. The benefits to society of loansharking are the satisfaction to individual borrowers and the provision of employment to many people who may officially be listed as unemployed. Costs include the incentives for the maintenance of large-scale criminal organizations, the infiltration of legitimate business, fear created in borrowers, corruption, and the costs to government of lost revenue and enforcement activities.

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