Legal Definitions - loansharking

Loansharking refers to the illegal practice of lending money at extremely high, often unlawful, interest rates. A defining characteristic of loansharking is the use of threats, intimidation, or violence to ensure the borrower repays the debt, often extending beyond the original principal and interest.

Here are some examples to illustrate loansharking:

• Example 1: The Desperate Small Business Owner

  A small bakery owner, facing an unexpected equipment breakdown, desperately needs $5,000 to keep her business running. Unable to secure a traditional bank loan due to a recent dip in credit, she turns to an informal lender. This lender offers the $5,000 but demands repayment of $7,500 within one month, along with a veiled warning about "unpleasant consequences" if the payments are not made on time. The monthly interest rate effectively translates to an annual rate far exceeding legal limits.

  This illustrates loansharking because the lender is providing money at an excessively high, usurious interest rate (50% in one month), and is using an implicit threat of harm or intimidation to ensure the borrower repays the debt.

• Example 2: The Individual Facing an Emergency

  A young professional needs $1,500 immediately to cover an emergency medical bill for a family member. With no savings and maxed-out credit cards, he approaches an individual known in the community for providing quick cash. The individual agrees to lend the money but requires repayment of $2,500 in just two weeks. When the borrower struggles to make the first payment, the lender sends intimidating messages, including photos of the borrower's home, implying they know where he lives and will take action if the money isn't paid.

  This situation demonstrates loansharking due to the exorbitant interest rate (over 66% for a two-week period) and the explicit use of intimidation and threats (sending photos of the home) to extort repayment from the borrower.

• Example 3: The Gambling Debt

  A person with a severe gambling addiction accumulates a significant debt to an illegal bookmaker. To "help" him pay off the initial debt and continue gambling, the bookmaker offers a "loan" of $10,000, but with a repayment schedule that includes a 10% interest charge *per week*. When the borrower misses a payment, the bookmaker dispatches associates to his workplace, who subtly threaten his job and physical safety if the outstanding amount, including the rapidly accumulating interest, is not settled immediately.

  This is an example of loansharking because the bookmaker is lending money at an extremely high, illegal interest rate (10% per week). The use of associates to threaten the borrower's employment and physical safety constitutes extortion and intimidation to enforce the repayment of the usurious debt.