ABSTRACT
Historically, the credit needs of the poor were partly met by loan sharks who were often backed by organized crime. Interest rates were high and the failure to repay frequently resulted in physical injury or even death. Taking their cues from the illegal street economy, American entrepreneurs soon realized that money could be made by providing legal financial services to those outside the economic mainstream. In some cases, the same mainstream banks that denied credit to the poor financed fringe lenders or owned subsidiaries that lent money to low-income individuals and families (DiStefano, 2002; Hudson, 1996; Mortgage Bankers Association of America, 2001). Legal “quick cash” loans targeted at the poor serve a similar purpose as credit card advances for the middle class. Namely, they provide cash for an emergency or when income is insufficient to make ends meet. These loans are not designed as a long-term financial solution. Quick cash loans can be divided into two categories: non-secured or promissory loans and secured collateral-based loans. In an unsecured loan, the borrower promises to repay the lender and no collateral is required. Interest rates and fees tend to be extremely high for all quick cash loans, and cash advances on credit cards can accrue an annual percentage rate (APR) of 21 percent or more. In secured loans, the borrower provides collateral (either property or guaranteed future income) that is worth as much or more than the loan. While the middle class can generally access non-secured loans, they are often denied to the poor or those with bad credit.
