Financial History Issue 130 (Summer 2019) | Page 27
CITY OF DEBTORS
A Century of Fringe Finance
A check cashing store in Chicago
offering cash advances, 1998.
pressed by the need of money,” have var-
ied over time as well. By some estimates,
roughly 40% of the American population
lived in or near poverty in the early 20th
century but—over the last three decades—
the official poverty rate has never exceeded
20%. Moreover, rising standards of living
have improved the lot of all Americans,
including low-income households. Fami-
lies struggling to get by in the modern era
may own televisions and other consumer
goods that did not exist a century ago. But
thanks to the growth of the mass media,
these households have also become more
keenly aware of their relative hardship
as compared to those higher up on the
income distribution.
Along the way, legal and economic
change has helped kill off some forms of
small-dollar credit and encouraged others
to grow, eventually yielding our present-
day “fringe lending” institutions, which
include the payday lenders and rent-to-
own stores that now cluster in low income
neighborhoods and operate storefronts in
cyberspace. The small-sum lending busi-
ness has grown exponentially over the
course of the past hundred years, from a
marginal enterprise into a big business that
generates over $10 billion in revenue each
year. At last count, there were over 15,000
payday lender storefronts in the United
States, and over 9,000 rent-to-own stores
in the United States, Canada and Mexico.
Yet, the problem of high-rate, small-sum
lending continues to trouble both policy-
makers and ordinary people. Americans
remain divided over how to police the
industry. Most acknowledge that working-
class households “now and then, must have
money,” as the Chicago Tribune reporter
observed over a century ago. Nonetheless,
many worry about the high cost of small
loans and fear that lenders are taking advan-
tage of the most vulnerable households.
Policymakers and everyday Ameri-
cans are perpetually torn between dueling
desires, wanting to protect working-class
debtors while also allowing them easy
access to credit and control over their
own financial lives. Both favorable and
critical views of the business persist, in the
celebration of microfinance as an engine
of social mobility and the vilification of
payday lending as a modern form of debt
peonage.
For decades, little loans have troubled
many Americans because they raise a big,
vexing policy question: what is the mean-
ing of justice within capitalism? Since
the rise of the small-sum cash lending
business in the 1890s, those on the lowest
rungs of the economic ladder have been
asked to pay the greatest cost for credit.
Time and time again, Americans have
puzzled over why the smallest loans to the
most fragile borrowers seem to come with
the biggest price tags.
The long struggle to regulate fringe
finance began over 100 years ago, at the
dawn of the 20th century, when lend-
ing to urban, working-class households
first grabbed newspaper headlines and
the attention of progressive reformers.
Although pawnshops or “hock shops” had
existed for centuries, other forms of small-
sum lending grew rapidly only after the
Civil War, when an increasing number of
households became dependent on wage
labor for their support. For wage workers,
small loans offered a means of scraping
by when they suffered inevitable bouts of
unemployment or were otherwise in need
of cash. Borrowers could assure lenders
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