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Are payday loan companies legal loan sharks?

No. But they are often compared to loan sharks.

Payday lenders are often labeled "legal loan sharks" by opponents. Often, the practice of payday lending is called "legal loan sharking."

About one in five pieces of news we view in the media contains some form of comparison between payday lenders and loan sharks. To the credit of the press, usually the term will appear in a quote from a source--where the source is labeling a payday lender a loan shark--and the label is not applied by the journalist writing the story. (Although the journalist does use the quote.)

Generally, "loan shark" is used to label the industry by opponents who cite high fees and aggressive collection practices as being like those used by loan sharks.

PLIWatch contacted the FBI to learn more about loan sharking in the United States. We were granted an interview with FBI Special Agent Pete Kowenhoven to ask questions about the topic.

It became clear to PLIWatch after interviewing Agent Kowenhoven that payday lending is not loan sharking.

Payday lending and loan sharking do both have high interest rates and associated fees when compared to other forms of credit. But, a fair comparison stops there.

Here are some key differences:

(1) Payday lenders are regulated. Loan sharks are not. (This seems obvious but it is a key point: Payday lenders must abide by the law.)

(2) Payday lending is legal (depending on the State). Loan sharking is always illegal.

(3) Payday loans are not "under the table" transactions. Records are kept.

(4) Payday lenders will not use threats of violence or violence to collect on payday loans. (For example, they will not threaten to harm you or kill a member of your family if you don't pay.)

(5) Loan sharks are almost always tied to organized crime networks.

(6) Payday lenders are regulated by State laws about how many times (if any) loans can be "rolled over" or "floated" before they collect. Loan sharks will float their loans for as long as a fee is paid.

For more information, listen to the PLIWatch podcast about loan sharking.

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Interview with Pete Kowenhoven - Special Agent, FBI
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