Economics becomes a science · 1770s–1920s

1916

Taming the loan sharks

Reformers draft a model law that licenses small lenders so borrowers have an alternative to loan sharks.

Around 1900, 'salary lenders' in US cities lent small sums to workers at rates that could top several hundred percent a year, then collected with threats and by shaming borrowers at work. People called them loan sharks.

In 1916 the Russell Sage Foundation drafted the Uniform Small Loan Law, which let licensed lenders charge up to 3.5% a month, enough to profit, and banned the rest. Most states adopted a version of it, and lending outside those limits became a crime.

Ideas it gave us

• 🏦 Interest rate

  An interest rate is the price of borrowing money, stated as a percentage of the loan per year. For savers it is the reward for lending their money to a bank.

• 🧺 Compound interest

  Compound interest is interest earned on both your original money and the interest it has already earned, so savings grow faster over time.