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A History of Payday Loans
I find it quite difficult, even with extended research, to learn much at all about the history of payday loans, but if one looks at other historical trends, clues abound as the possible evolution of the payday loan industry from many other forms of financial bartering. Many of you may remember tales of your grandparents, probably some from your own parents, of the housewife trading goods and/or services to the local merchantile; usually for consumables for her family, sometimes for a little cash. Another common arrangement was for the man of the house to set up and account with the merchant with which his family could purchase goods and “charge” the purchase to the family’s tab. The man of the house has given his “word” as security to the merchant as collateral. The tab would be paid as agreed. Often, the merchant added a few cents to the amount due as a “carrying charge”. The family was sure to have what it needed, and the merchant had additional means of income. Sounds like a pretty good deal. It hasn’t been so long ago that most banks and other financial institutions were locally owned, most likely by a neighbor. You paid a small fee for your banker to safeguard you money and valuables in his vault. He acted as the agent for you and your neighbors in making investments with the combined resources of the bank and its depositors, and in making loans to your neighbors. Income from these invested was shared with the depositors as interest. A small loan from your banker normally required only your good word. Larger loans may involve collateral, perhaps a pair of plow horses. The pawn broker has been around for centuries and has been and continues to be a source of financial assistance in times of cash shortages. It’s a pretty simple concept, you give the pawn broker some-thing of value to hold as collateral for the money he lends you and the fee he charges for the loan. You pay the loan back within a given time, and he returns your property. If you fail to repay the loan, the property becomes his to do with as he chooses. History tells us that it was the pawned jewels of Queen Isabella of Spain that financed Christopher Columbus in his journey to America. The three gold balls that make up the symbol for the pawnbroker were originally part of the family crest of the Medici family, a dominant financial power in Italy. When the family split apart in the 15th century, half of them became pawnbrokers, and the other half remained bankers. As it became increasingly harder for the normal working person to make it from pay check to pay check, more opportunity arose for entrepreneurs to make money from the plight of those of us who can’t qualify for credit cards or small loans from normal sources. The title loan industry sprang up as a way to make huge profits by lending money with the title of the vehicle used as collateral. Huge fees were attached to the loan, and if the customer couldn’t repay, the vehicle was repossessed. The title lender either got the outrageous fee or the value of the car. It wasn’t much of a stretch from there to the payday loan. Access to your checking account became the collateral for the loan. Before states became more active in regulating payday lenders, their collection tactics included threatening you with arrest. It is my understanding that this continues to happen on occasion. If you are threatened with criminal prosecution stemming from the check you gave a payday lender, contact your states Banking Commission or Attorney General.
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