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3. Detailed Analysis of Selected Cases (continued)

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3. Detailed Analysis of Selected Cases (continued)

3.4 Loan-Sharking

In Canada, loan-sharking is officially designated as a criminal offence if the effective rate (including fees and penalty payments) exceeds 60% per annum. This offence was created during the 1970s, some say, out of a widespread and inflated fear of the mob.

Problems in the analysis of loan-sharking begin with actually defining the trade. After all, pawnshops in major cities routinely charge 20% per month or more, far above the legal limit. However, police who visit them look only for stolen goods; they only infrequently query the rates. It seems that loan-sharking is seen, in the eyes of law enforcement (as distinct bad credit installment loan New York from in the eyes of the law), not as a problem per se but only as a problem when carried on by a certain type of individual in a certain milieu (i.e., the notion that it is an important source of income to “organized crime”). This type of confusion of acts with actors typifies much of the treatment of profit-driven offences.

Two things distinguish loan-sharking from ordinary finance. One is extraordinarily high interest rates. This seems to make it fall into the commercial category it is a legal service (i.e., lending money) delivered by illegal means; it involves market-type exchange but on “unfair” terms, because the terms of trade are twisted by asymmetries of power; and it leads to redistribution of existing (rather than creation of new) income.

On the other hand, the second characteristic is the unique nature of the collateral in extremis, the borrowers own person, or so the popular theory goes. A business reputedly marked by intimidation and violence would appear little different from extortion. That would suggest it should be seen as a predatory offence falling into the grey area between legitimate business and criminal activity more typical of commercial crimes.

A Typology of Profit-Driven Crimes

However, if it turned out that intimidation was the exception, that clients overwhelmingly enter voluntary contracts with loan sharks with full knowledge of the terms and consequences, then arguably it should be categorized as a ong willing participants of a commodity or service in defiance of regulations restricting the terms. Only an close empirical analysis can settle the question.

According to a popular view, for which the evidence is restricted to a few sensational mob stories, during the 1930s, mobsters who grew rich during Prohibition used usurious loans as a device for infiltrating and eventually taking over legitimate businesses strapped for cash in the Depression-induced credit crunch. That story has set the tone for most subsequent discussions of the loan-sharking phenomenon in the USA and abroad. Thus, during the 1970s there was much political, press, and police attention, mainly in Quebec, but also elsewhere in Canada, to the phenomenon, even though anecdotal evidence suggests that most loan-sharking was linked to illegal gambling. Even as late as the mid-1980s, the USA Presidential Commission on Organized Crime insisted that loan-sharking was the second most important source of criminal earnings; the most important being labour racketeering. However, by the end of the decade in both countries, drugs had definitively displaced things like loan-sharking and illicit gambling as the major concern. The result is that today loan-sharking seems largely, although not entirely, forgotten. Some police officers interviewed recently insisted there was no such thing as loan-sharking. On the other hand, a police veteran, who dealt extensively with this offence during his career, insists the problem is still rampant. In a sense, both are right.

The old view was that the loan-sharking business was organized hierarchically. The process started with a mob boss who regulated the terms, arbitrated disputes, controlled the use of violence, and taxed the profits. Sometimes, too, the mob boss would put up some or most of the capital, lending to mob members or associates. (In fact, in some cases, allegedly, those occupying a lower position in the mob pecking order would borrow from the boss, not because they needed the money, but because their debt helped to confirm the patron-client relationship.) The members or associates, in turn, would lend to retail loan sharks, most of whom would be independent of the immediate “family.” Then the retail loan shark would use one further intermediary stage in the form of a “steerer” or “finder” – a cab driver, nightclub doorman, bartender, etc. – who would, for a fee, search out customers. This process permitted the “banker” at the top to keep several layers of insulation between himself and the street action.