15 Facts About Loan sharks – Loan sharking is a type of financial exploitation in which an unscrupulous loan broker or loan shark approaches other loan applicants and makes them pay large amounts of money to get a loan. The victims are often poor people who cannot afford the high interest rates and steep down payment required to get a mortgage or any other personal loans. Although the practice has been illegal for decades, it still happens across the United States. Loan sharks often target borrowers who are already struggling financially, as well as borrowers from low-income communities. They may also use other forms of financial exploitation such as debt bondage or wage slavery to force victims to work for them. Borrowers at risk of being scammed should never meet with loan brokers alone. Even if they can afford to bring an attorney with them, they still run the risk of being taken advantage of. Here are 9 facts about loan sharks that might help you avoid becoming their next victim:
Loan sharks often target the poor and vulnerable.
Poor people often find themselves in the crosshairs of loan sharks, as they often lack the financial wherewithal to negotiate their interest rates and other types of high-interest debt. The Federal Trade Commission reports that the average interest rate on a home loan in 2011 was more than 20 times the average interest rate on a vehicle loan. Even for people with good credit scores, low-interest government loans like home equity loans or nonprofit loans are often out of reach for people who make less than $50,000 a year or have relatively high monthly bills. Loan sharks prey on this gap in financial knowledge, as well as people’s lack of awareness and knowledge about their rights as borrowers. In many cases, loan sharks don’t even require their victims to sign a contract or enter a formal loan agreement. Instead, they use verbal promises, high-pressure tactics, and legal threats to extract the payment they desire.
Loan sharks are free agents who operate outside of any legal or institutional framework.
Although they’re sometimes associated with banks, loan sharks don’t strictly belong to a specific industry. They can operate as a sole proprietorship, as a partnership with other loan brokers, or as a membership-based organization. That said, each form of business has its own set of rules and regulations. As a “free agent,” a loan shark is free to set their own rates and use any tactics they see fit to help or harm their customers. Some of the more common tactics used by loan sharks include high-pressure sales, false advertising, and debt management plans. A debt management plan is a legal agreement between a borrower and lender that regulates the amount of debt a borrower can incur and the type of debt payoff plan the borrower follows if he/she falls behind on payments. These rules often prevent loan sharks from taking informal shortcuts like using a loan sign language or using a simple “yes” or “no” answer to questions about whether or not the borrower is able to repay their debt.
The vast majority of loan sharking victims are from low-income communities.
Loan sharks typically target people who are at or near the poverty line, as they can charge higher interest rates and often require a larger down payment or other financial commitments from their victims. The average interest rate on a home mortgage loan in 2011 was more than 20 times the average interest rate on a vehicle loan. The average interest rate on a commercial loan was more than 36 times the average interest rate on a vehicle loan. Most people who get loan sharks end up being poor or low-income because they don’t have the ability to negotiate a better interest rate or other terms and conditions. Many people also don’t understand their loan sharking rights and the process for fighting back. Once a loan shark has taken funds from them, they have no legal or financial tools to fight back.
Loan sharks usually target borrowers who are already struggling financially, as well as borrowers from low-income communities.
Like most forms of financial exploitation, loan sharking is most common among people who are already financially distressed. Borrowers with credit card debt, bad credit ratings, mounting medical bills, and other ongoing financial problems are ideal candidates for loan sharks. Even in situations where the victim is in a position to negotiate a lower interest rate or other terms, it’s still possible for a loan shark to charge higher rates and fees. Borrowers with a history of similar financial situations should also be on the lookout for loan sharks, as these scammers often target new borrowers with no record of payments.
Loan sharks also use other forms of financial exploitation such as debt bondage orwage slavery to force victims to work for them.
Some of the more common forms of financial exploitation among loan sharks include debt bondage or wage slavery. In debt bondage, a loan shark who victimizes you doesn’t have physical or legal control over you. Instead, you owe them money and you owe it without a legal right to pay it back. In some cases, a loan shark may try to make you work off the debt through hard labor or through reduced hours at a job. In others, you may have to work for nothing after you repay your debt. In any case, debt bondage is one of the most extreme forms of slavery you can face as a victim of loan sharking.
Loan sharks use a variety of tactics to isolate their victims, including cons and luring through false advertising/promOTS (debt management plans).
Like many forms of financial exploitation, loan sharking also includes ways to isolate and deceive your intended victims. In some cases, the tactics used to isolate and deceive your intended victims are obvious, such as using high-pressure sales tactics. Other times, the ways loan sharks trick and mislead you are less obvious but just as damaging. For example, some lenders may refer to a certain type of loan that you’re eligible for as “recourse,” which is a legal term suggesting that you have a right to get your loan from another lender in case the first one falls through. But in other cases, you may be led to believe that a certain type of loan has been approved when in fact you’re not eligible for it.
When borrowers do manage to get out from under their loan shark’s thumb, it can be extremely difficult and expensive to recover from debt bondage or wage slavery conditions they were force to work under while being exploited as a loan broker or loan shark employee.
The average length of time it takes for a victim of loan sharking to come out of debt is between one and three years, with some people going on as long as five years before they finally see relief or even see a benefit from their financial struggle (like an affordable mortgage). Even after these time periods, some people may be unable to pay off their debt and end up in trouble again, or face serious cash flow issues that complicate their ability to pay their bills. Some people also struggle to leave behind a legacy of debt for their children, which makes resolving their financial struggle even more challenging.
The vast majority of loan sharking victims are from low-income communities.
As mentioned above, loan sharks predominantly target people who are already poor or financially struggling. These firms also tend to be located in communities of color, and often target communities where there is a large socio-economic divide. A study of loan sharks operating in Philadelphia found that 90% of the lenders exist in just five neighborhoods: Southwest Philadelphia, Southwest North Philadelphia, Northeast Philadelphia, North Philadelphia, and South Philadelphia. Other studies have found similar results.
Loan sharks are often free agents who operate outside of any legal or institutional framework.
Loan sharks are free agents who operate outside of any legal or institutional framework. As a “free agent,” a loan shark is free to set their own rates and use any tactics they see fit to help or harm their customers. These tactics range from high-pressure sales to false advertising to debt management plans. Some of the more common tactics used by loan sharks include high-pressure sales, false advertising, and debt management plans. A debt management plan is a legal agreement between a borrower and lender that regulates the amount of debt a borrower can incur and the type of debt payoff plan the borrower follows if he or she falls behind on payments. These rules often prevent loan sharks from taking informal shortcuts like using a loan sign language or using a simple “yes” or “no” answer to questions about whether or not the borrower is able to repay their debt.