Paper led long-ago hunt of loan sharks

State Small Loan Act product of pressure

By Stephen Franklin | Tribune staff reporter

May 12, 2008

They found him dead in a dive hotel on North Clark Street with nothing but loan sharks' receipts in his pocket.

He wasn't as lucky as the middle-age construction worker, a father of eight, who vowed to kill himself if he couldn't pay back the loan sharks. A story about him in the newspaper stirred immediate help.These were tales from a century ago, but efforts to reform and regulate the business of short-term, high-interest loans is ongoing.

In that earlier era, newspapers chronicled the drama. There was the bookkeeper, who embezzled money from the factory where he worked, paid off the loan sharks and skipped town, leaving his wife and kids behind. After wandering the Midwest, he finally returned home and apologetically told Chicago police:

"Since I left Chicago, I have suffered the pangs of hunger and I often walked the street at night because I did not have the price of a bed."

The Tribune ran these and many other stories nearly a century ago about people caught in the clutches of loan sharks. But the newspaper didn't just report and editorialize on the woes caused in Chicago by what many considered the country's largest concentration of loan sharks.

The newspaper launched its own anti-loan-shark bureau in 1912, inviting readers to send complaints to volunteer attorneys who would defend them against unscrupulous lenders.

The newspaper's crusade revealed countless tales of abuse, named loan sharks and detailed their scams and allies. After years of clamoring for laws to control the loan sharks, the state legislature in 1917 passed the Illinois Small Loan Act, also known as the anti-loan-shark law.

"It was an extraordinary example of devotion and use of resources," said Robert Mayer, a political scientist at Loyola University who has studied the history of loan sharks in Illinois at the turn of the 19th Century. "The Tribune was a key factor in forging the coalition of reformers and making the public aware that this was a problem that needed to be addressed."

But Mayer said it also took others to make a difference. They included local businesses and business groups upset by the flood of employees stuck with exorbitant loans, attorneys from the Legal Aid Society, jurists led by federal Judge Kenesaw Mountain Landis and politicians willing to face the wrath of the rich and politically powerful loan sharks.

As Illinois and other northern states passed laws governing small loans, the loan-shark business shriveled. But it thrived across much of the South, where such laws did not exist, and by the 1930s, mobsters picked up the loan sharks' legacy in Chicago and New York.

By the early 1990s, payday loan stores began to sprawl across the U.S. as a result of court rulings, loopholes in state laws and banking deregulation, said Christopher Peterson, a University of Utah law professor.

Today there are more than 24,000 payday loan stores across the country, an industry that is estimated at $42 billion annually, as well as countless online loan Web sites.