The History of Cash Loans

By | November 25, 2016

Cash loans are an important source of money for anyone dealing with an emergency. It is also good for people who want to pay for a particular expense as soon as possible. The best thing about these loans is that anyone can qualify for them regardless of his credit history. The repayment terms are flexible unlike those offered by banking institutions. Payday loans have been in existence for more than two centuries. In contrast, modern banking systems have been there since the 1300’s. Here are some of the things that you should know about cash loan history.

Where did Cash Loans Start?

The 1800’s were a trying time for the United States of America. The newly independent country had emerged from a brutal war with Great Britain. It had won its independence, but its financial system was rudimentary compared to the one that existed in Britain. More specifically, ordinary workers could not access loans from the few banks that operated in the country so they turned to loansharking, check cashing, and pawn broking.

Illegal Activities in the Industry

Payday loans developed from loansharking activities. At that time, the United States had various laws on interest rates that prohibited raising them past a given level. Many loan sharks violated these laws. For example, Chicago and New York had capped interest rates at 6%, which meant that lenders could barely survive. These lenders choose to raise their interest rates above the permitted level. They did so clandestinely. You should note that some loan sharks used violence to make sure that defaulters paid what they owed.

The End of Violence in the Industry – The Early 1900’s

Many people suffered at the hands of unscrupulous loan sharks and some prominent personalities took notice of these shameful activities. For example, a few lenders rained blows on a young clerk because he had failed to honor his repayment schedule. A prominent politician at the time, Thomas E. Dewey, took notice of this incident. He led an investigation into this crime and other incidents involving violence meted on defaulters by lenders. His efforts led to the arrest of 27 loan sharks. His investigation brought sanity into the industry and as such, it facilitated the rise of honest payday lenders.

The Reduction in Cash Loan Interest Rate Regulation – The Late 1900’s

Only one problem persisted in this industry after government authorities cracked down on violence against defaulters i.e. the regulation of interest rates. More specifically, the government was interfering in the money-lending industry making it impossible for the free market to determine the interest rate. In 1978, a decision by the Supreme Court of the United States of America ruled that anti-interest laws did not apply to national banks. In other words, these banks could charge the interest rate allowed in their home state as opposed to those imposed on them when they operated in states with anti-usury laws. Payday lenders took advantage of this opportunity by collaborating with banks to repackage their products as banks loans.

The End of Cash Loan Interest Rate Regulation

Usury laws were still prohibitive for many US companies despite the Supreme Court ruling on them. In response to this business impediment, the government passed the Monetary Control and Depository Institutions Deregulation Act in 1980. It paved the ways for an end to laws on usury at the state and local level.

Unfortunately, lenders were already looking for alternatives outside the United States. Many of them opened similar firms in the UK. For example, one US payday company expanded from one location in the UK to 273 locations in addition to 64 franchises. The flight of cash lenders to the UK was astonishing. In fact, five of the seven largest payday lenders in the UK are companies owned by US investors.

Payday Loans in Contemporary Society – The 2010’s

The lending of cash loans in the United Kingdom and Canada is no longer as profitable as it was in previous years. The reason for this reduced level of prosperity for payday lenders in these countries is increased government regulation. Specific examples include the 2006 Supreme Court decision in Canada that limited interest rates cash lenders could receive on loans. This ruling occurred in a case known as A-OK Payday Loans v, Kilroy.

In the UK, increased scrutiny by the Federal Conduct Authority led to an exodus of half of all the cash lenders in the country to other nations. Currently, the United States offers the best regulatory environment for both payday lenders and recipients of loans from these business-people. The internet also makes it easier and safer for people to secure a payday loan than it was before this era of information

Cash loans are an important source of money for anyone dealing with an emergency. It is also good for people who want to pay for a particular expense as soon as possible. The best thing about these loans is that anyone can qualify for them regardless of his credit history. The repayment terms are flexible unlike those offered by banking institutions. Payday loans have been in existence for more than two centuries. In contrast, modern banking systems have been there since the 1300’s. Here are some of the things that you should know about cash loan history.