Payday Loans: The Early Beginnings

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The information contained herein is for educational purposes only and is not legal advice. You should consult your own attorney or seek specific advice from a legal professional regarding your particular situation.


The Early Beginnings

The earliest documented form of the payday loan originated in the United States in the late 19th century as a result of large employers delaying wage payments until the issuance of a regularly scheduled paycheck.

According to accounts of author and attorney F. B. Hubachek, the average wage-earning employee needed funds immediately and couldn’t wait for the pending paycheck. The employee was given the option to purchase a portion of his own paycheck for a rate of 10 to 33 percent of the amount of the loan, with the condition that he pay it back in full upon receipt of his next check. This steep repayment scheme created more hardship for the borrower resulting in the repeat of the cycle indefinitely, with a 240 percent interest rate.

By 1923, salary buying was being practiced in tremendous volume, especially in the south and then spreading north. Loan sharks were also beginning to fill in the pay gaps throughout the U.S. with high-interest loans and antisocial repayment devices, including property seizure and violence. [1]

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