Loan Sharks ─ The Birth of Predatory Lending

Predatory lending: A problem rooted in the past that continues today

Looking for an investment return that could exceed 500 percent annuallymaybe even twice that much? Private, unregulated lending to high-risk borrowers is the answer, or at least it was in the United States for much of the period from the Civil War to the onset of the Great Depression. Newspapers called the practice "loan sharking" because the lenders employed the same ruthlessness as the great predators in the ocean. State and federal governments finally adopted laws and regulations curtailing the practice but organized crime still took over much of the business. Lending to high-margin investors contributed directly to the Wall Street crash of 1929.

Loan Sharks is the first history of predatory lending in the United States. It traces the origins of modern consumer lending to such older practices as salary buying and hidden interest charges. Yet, as Geisst shows, no-holds-barred loan sharking is not a thing of the past. Many current lending practices employed today by credit card companies, payday lenders, and providers of consumer loans would have been easily recognizable at the end of the nineteenth century. Geisst demonstrates the still-prevalent practice of lenders charging high interest rates, especially to risky borrowers, despite attempts to control the practice, mostly by individual states. Usury and loan sharking have not disappeared, a century-and-a-half after the predatory practices first raised public concern.

Charles R. Geisst is a former investment banker who currently is the Ambassador Charles A. Gargano Professor of Finance at Manhattan College in Riverdale, New York. He is the author of nineteen other books, including, most recently, Collateral Damaged (2009) and Beggar Thy Neighbor: A History of Usury and Debt (2013).