A Regulatory Small Loan Law Solves Loan Shark Problem

Abstract

The Minnesota Small Loan Act,1 based substantially on the Sixth Draft of the Uniform Small Loan Law, was passed early in the 1939 legislative session and was signed by Governor Harold E. Stassen on February 15, I939. The effective date of the Act, June i, I939, marked the end of the shark era and the beginning of regulated, licensed lending of small sums in Minnesota. A history of events leading to eventual passage of the Minnesota Small Loan Act probably is characteristic of experiences in other states in most respects. However, a review of the usurious loan problem that existed and how it was corrected in Minnesota may not be clearly understood without a brief review of the economic structure and population distribution of the state. Minnesota is essentially an agricultural and mining state, although in recent years, it has gradually changed its economic pattern to achieve a desirable balance between manufacturing, agriculture, trade, and service. Minnesota's population in I950 was 2,982,483,2 with about one-third of the total centered in the large metropolitan area of Minneapolis (i95o population, 52I,7I8) and St. Paul (I950 population, 31I,349). Population centers in Minnesota drop sharply to Duluth, at the head of the Great Lakes, handling the bulk of iron ore shipments from northern Minnesota mines, with a population of I04,51I, and Rochester, St. Cloud, Winona, and Austin, located in agricultural areas, with populations in the 20,000 to 30,000 class. There are only eleven other cities in Minnesota, outside the metropolitan area of Minneapolis-St. Paul, with populations in the Io,ooo to 20,000 class. In size Minnesota is eleventh in the union with an area of 84,286.53 square miles. It ranks as the fifth leading state in total agricultural production. It poured more than I43,788,000 tons of iron ore into the nation's blast furnaces during I95I and 1952 (65 per cent of the country's total for that period), and does an estimated $200,000,000 in tourist business annually. Yet, due to the extreme concentration of population in the Minneapolis-St. Paul area, and to a lesser degree in Duluth, practically all of the activities of illegal lenders prior to passage of the small loan law, and the greater share of consumer lending service of licensed lenders since I939 have been concentrated in these focal points. Therefore, a review of the