The Personal Finance Business under Regulation

Abstract

The borrower's first line of defense against the loan shark is the licensed personal finance company. This will be evident from the statistics which follow. They show that, to a far greater extent than any other cash-lending agency, the licensed personal finance company invades the loan shark's own territory. Indeed, it was for the express purpose of making this assault possible that the Uniform Small Loan Law was drafted thirty years ago. Further proof is furnished by the loan sharks themselves. They attack only the licensed lenders and the laws under which they operate. In Kentucky, the leaders among the loan sharks even went so far, in attempting to prevent passage of the Uniform Small Loan Law, as to say to their brethren, all know that such a law will put us all out of business. For the present purpose, therefore, in our discussion of money-lending under regulation, we shall deal mainly with licensed personal finance companies. There is, to be sure, one other rigidly regulated agency-the credit union-which also carries its offensive into the very fields where the illegal lenders do most damage. The credit union is indispensable. Every month it makes small loans to thousands of potential victims of the outlaws, and at rates substantially lower than this class of borrowers could get from any commercial agency. However, as shown in Chart I, the volume of business of personal finance companies is several times as large as that of credit unions. In any event, we cannot here cover the operations of all the regulated and partially regulated makers of consumer loans. We shall consider mainly that agency which now does the most, wherever the laws permit, to thwart the ancient practice of usury by providing a legal source of small loans. From the regulated personal finance companies more than two million individuals, in a few more than half the states, have borrowed money during the past year. Moreover, it seems probable that of all wage earners and of all families not living on farms, about one out of five obtained loans, within the past three or four years, from licensed personal finance companies.' The greater part of the business