HG tirm UC-NRLF LIBRARY UNIVERSITY OF CALIFORNIA, RECEIVED BY EXCHANGE Class SALARY LOAN BUSINESS IN NEW YORK CITY By CLARENCE W. WASSAM, AM Submitted in partial fulfillment of the requirements for the Degree of Doctor of Philosophy in the Faculty of Political Science Columbia University NEW YORK 1908 SALARY LOAN BUSINESS IN NEW YORK CITY SALARY LOAN BUSINESS IN NEW YORK CITY By CLARENCE W. WASSAM, A.M. Submitted in partial fulfillment of the requirements for the Degree of Doctor of Philosophy in the Faculty of Political Science Columbia University UNiV OF NEW YORK 1908 / Copyright, 1908 By the Charity Organization Society of the City of New York TABLE OF CONTENTS. CHAPTER I. PAGE. INTRODUCTION. 1 1 ERRATA. Page 34, line 2, " seven offices " should read, " six offices." Page 82, line 6, "$14.49" should read, "$13.49." 14 Page 64, " H. C. Courtwright " should read, " H. A. Courtright." REASONS FOR THE TRANSACTION. 18 Assumed motives of the loan companies. Real motive. Rea- sons for the loan on the part of the borrower: (i) Economic condition of the ordinary laboring man; (2) Sickness or death in the home; (3) Rental in advance and moving expenses; (4) To avoid buying on credit or on the installment plan; (5) Finan- cial obligations; (6) Presents to friends; (7) Gambling. Eco- nomic basis of the salary loan company. 183480 TABLE OF CONTENTS. CHAPTER I. PAGE. INTRODUCTION. n Necessity of borrowing. Difference in the treatment of the man who borrows a large amount and the man who borrows a small amount. Rate of interest necessary. General opinion of any charge greater than the legal rate. Development of the salary loan business. CHAPTER II. THE TRANSACTION. 14 Definition of a Salary Loan. Nature of security given. Re- lation of the employer to the transaction. Documents signed. Illustrations. CHAPTER III. REASONS FOR THE TRANSACTION. 18 Assumed motives of the loan companies. Real motive. Rea- sons for the loan on the part of the borrower: (i) Economic condition of the ordinary laboring man; (2) Sickness or death in the home; (3) Rental in advance and moving expenses; (4) To avoid buying on credit or on the installment plan; (5) Finan- cial obligations; (6) Presents to friends; (7) Gambling. Eco- nomic basis of the salary loan company. 183480 8 SALARY LOAN BUSINESS IN NEW YORK CITY. CHAPTER IV. PAGE. VOLUME OF BUSINESS AND CAPITAL EMPLOYED IN NEW YORK CITY. 22 Exact knowledge impossible. Amount spent for advertis- ing. Estimate based upon opinions of owners and managers of offices. Probable number of persons involved. CHAPTER V. CHARGES. 28 Necessity of a higher rate of interest than the ordinary legal rate. Basis of interest charge. Reasons for a higher charge: (a) Uncertainty of position ; (b) Collection of wages ; (c) Dif- ferent assignments of wages at the same time; (d) Amount of loan; (e) Lack of legal protection ; (f) Danger of court expense. Charges of different companies. Extra charges. CHAPTER VI. EXPENSE OF THE TRANSACTION AND ESTIMATED PROFITS. 40 Impossibility of securing the exact expense. Estimates for a typical salary loan office: (a) Amount of capital invested; (b) Annual operating expense. Indications of the profit in the salary loan business. CHAPTER VII. BUSINESS METHODS Now EMPLOYED. 43 Newspaper advertising. Personal letters and circulars. Work of the "Solicitor." Commsision to borrowers. Classes of loan offices in New York City. Treatment of borrower by the brokers of H. A. Courtright: (a) Papers signed; (b) En- dorsement secured; (c) Method of payment; (d) Work of at- torney; (e) Nature of notes signed by attorney; (f) Addi- tional charges for delinquent payments. Methods of business of TABLE OF CONTENTS. 9 PAGE. the Coast Cities Collection Company. Business methods of other companies. The managers of the offices. Real owners of the different offices. Papers signed by borrower: (a) Application Blank; (b) Power of Attorney; (c) Bill of Sale of Salary. Method of securing signature. Attitude of loan company toward interference of third party: (a) When a friend; (b) When an attorney; (c) When the employer. Connection be- tween the different companies. Need of a closer co-operation. CHAPTER VIII. LOAN COMPANIES AND THE LAW. 70 Tabulation of the laws of the different states. Police regu- ulations of Boston. Law governing the loan business in New York City. Judicial interpretation. Evasions of the law. Cases in which the court held in favor of the borrower. CHAPTER IX. EFFECTS OF THE LOAN COMPANIES. 79 Effect upon the employer. Attitude of employer toward the loan business. Influence upon the home. Effect upon the indi- vidual; decreased efficiency, worry, and crime. Effect upon the community. CHAPTER X. PROPOSED REMEDIES. 87 Co-operation of employers. Regulation of the advertising of loan companies. Co-operation of Post-office Department. Pub- licity. Establishment of a loan office which would charge rea- sonable rates and only loan to those in actual need. Control by legislation. Proposed law for the State of New York. APPENDICES. PAGE. Appendix I. Application Blank 93 Appendix II. Power of Attorney used by A. W. Connable 96 Appendix III. Power of Attorney used by H. A. Court- right 97 Appendix IV. Continuing Power of Attorney used by H. A. Courtright 101 Appendix V. Power of Attorney used by D. H. Tolman. 102 Appendix VI. Agreement of Guaranty used by Federal Discount Company 104 Appendix VII. Bill of Sale used by Federal Discount Company 106 Appendix VIII. Bill of Sale used by A. W. Connable. . . 107 Appendix IX. Assignment filed upon employer used by A. W. Connable 108 Appendix X. Copy of assignment filed upon employer used by H. A. Courtright no Appendix XL Notice sent to employer by Federal Dis- count Company 112 Appendix XII. Protest sent to borrower by H. A. Court- right 113 Appendix XIII. Note used by H. A. Courtright 113 Appendix XIV. Memorandum sent to borrower by H. A. Courtright 114 Appendix XV. Maryland Law of 1906 115 Appendix XVI. Virginia Law of 1906 117 Appendix XVII. New York Law of 1904 120 Appendix XVIII. Massachusetts Law of 1906 120 Appendix XIX. List of important salary loan offices in New York City 122 Appendix XX. Proposed Law for the State of New York 123 I. INTRODUCTION. The necessity of borrowing money for a short period of time is as old as the money economy under which it arises. It is common to the man of large and of small means, to the entre- preneur in business and to the man who works for a daily wage. Very few successful men could have attained their present posi- tion had it not been possible for them to secure loans in time of temporary need. Business experience furnishes innumerable illustrations of financial ruin because of inability to secure short time loans. It is not contended that borrowing should be encouraged, nor that the secret of success is found in the ability to secure a loan in time of need, but it is a fact that judicious bor- rowing is frequently an absolute necessity. Shakespeare has immortalized the man who takes an un- natural advantage of another's necessity to secure an unreason- able demand. In all ages it has been the man least able to pay the high rate and least able to protect himself who has been the object of the usurer. Such is the case at the pres- ent time. The business man when he secures a loan from his bank finds that the strong arm of the law has so regulated the banking business that the borrower is reasonably well protected. He also finds that there is no special disgrace con- nected with a loan secured by a mortgage on his real estate or on his business. His friends consider that he is speculating and is prosperous. The maxim that "One never becomes rich until he is in debt" is considered sound in the business world. A very different condition of affairs exists when a man is compelled to 12 SALARY LOAN BUSINESS IN NEW YORK CITY. borrow money for purposes of consumption. There is a reason for this difference. The one man used the money he borrowed as an investment, while the other man borrowed as a last resort to maintain his economic independence. The man who loans money to the latter type of borrower is very likely to be considered cruel and unreasonable if he attempts to collect his debt when the borrower is unable to pay. The very fact that it is necessary for an individual to borrow to meet living expenses is evidence that it will be difficult for him to meet his obligations. This condition of affairs naturally increases the risk of the loan, for which there should be a reasonable return. The position of the borrower is uncertain and the amount of the loan is small, and both of these considerations require a higher rate of interest. It is therefore evident that in order to conduct a business in which a small loan is made to salaried employees secured by an assignment of wages, it is necessary to charge a higher rate of interest than the ordinary legal one. These facts are often overlooked by the ordinary individual and when a money lender charges more than the legal rate he is imme- diately marked as a usurer. This popular opinion is reflected in the laws of the several states, practically all of which provide for a general usury law, but very few make any exception as to the amount of the loan or the nature of the security offered. The bill recently introduced in the House of Representatives at Albany by Representative Herrick from the Borough of Man- hattan, New York City, is a good illustration of this type of leg- islation. It provides that to charge more than 6 per cent per annum upon small loans secured by salary or household fur- niture shall be a misdemeanor. The presence of a very definite economic need, and the ab- sence of legislative protection to any organization which would legitimately fill such a need, has resulted in the development of the salary money lenders, commonly known as "loan sharks." Their operations are very extensive and they do a large busi- ness in practically all of the important cities of the United States. They either openly ignore the law or evade the spirit of it by some scheme of administration cleverly devised and charge a rate INTRODUCTION. 13 of interest which is believed to be not only sufficient to pay for the additional risk which they take, but adequate to secure enor- mous profits for those engaged in the business. It is the purpose of this study to describe the salary loan busi- ness as it is conducted in New York City at the present time. The facts presented in the subject matter have been obtained through personal acquaintance with employees who have had loans with the different companies and personal interviews with owners, managers and collectors of different offices. Facts are at hand concerning one hundred and thirty-two dif- ferent employees who have had loans with different companies. The managers of twelve different offices were interviewed con- cerning the methods used in their business. Since several of the managers consulted were in charge of offices which had branches under different names, the number interviewed shows the busi- ness method of twenty of the most prominent offices in the city. The relation between the writer and the owner of two large offices and the managers of five important offices was such that a considerable amount of information from their point of view was secured. II. THE TRANSACTION. A loan on salary is the advance of money by an individual or corporation to a salaried employee. The security given by the employee who obtains the money is an assignment of his wages due or to become due. This transaction has been called a loan without security, which in reality it is. In practice, however, in the majority of cases the lender is in a secure position; he loans only to individuals who have steady employment, and whose employers will recognize an assignment. The loans are of small amount, varying from $10 to $35, and the borrower must have a weekly wage sufficient to pay the full amount in case the company is required to pay the lender. The attitude of different employers toward the assignment of the wages of their employees is a matter of careful record on the part of the salary money lenders. If an employer will discharge a man when it is known to him that he has assigned his salary, the employees of this firm are considered good risks. It may appear to be a con- tradiction of terms, that a man in danger of losing his position will be a better risk than one who is not in such danger, but the explanation is simple. One of the chief points which all loan companies emphasize is that the transaction will be perfectly con- fidential and that the employer shall never know of the assign- ment. When the employee has broken the rule of the company and made the assignment of his wages, then it is that the loan company threatens to notify the employer, and rather than lose a good position the employee will pay the charges demanded by the loan company. From a legal point of view this threat is of little value, but in practice it is most effective. THE TRANSACTION. 15 The loan companies do not rely entirely upon intimidation and fear in the collection of their money. They require the bor- rower to sign a bill of sale of his salary or authorize an attor- ney to do the same for him. In case the matter is brought before a court it is contended by the loan company that the transaction is not a loan of money but a purchase of salary, like the pur- chase of any other commodity; and since the transaction is one of purchase and sale there can be no claim of usury. In the majority of cases the loan company demands in addition to the assignment of the salary of the borrower the assignment of the wages of from one to three other employees. These assignments become effective if the borrower fails to meet his obligations. A few illustrations will aid in the understanding of the trans- action. A salaried man is in need of money. He has a good position and receives fair wages, but an emergency arises in which his income will not meet the demands made upon him and he is compelled to secure a small loan. Hje calls at a loan brok- er's office and applies for a loan. If his references are good and the firm by which he is employed has a rule prohibiting any em- ployee from making an assignment of his wages under penalty of discharge, the money is secured without difficulty. The nec- essary papers are signed, by which he agrees to pay a certain amount each week until the debt is canceled. If he meets the payments promptly the transaction is closed; the borrower re- ceives a receipt in full and his signature from the papers signed ; and the documents themselves are destroyed. In case of failure to meet a payment when due, he is at once notified that his part of the agreement has not been fulfilled, that the promise of se- crecy is no longer binding and unless the matter is settled at once his employer will be notified. The danger of losing a good posi- tion is generally sufficient to force the payment of whatever the loan company demands. When the borrower is employed by a private concern whose attitude toward an assignment of the wages of an employee is unknown, or when the loan company for any reason questions the security offered by the borrower, from one to three endorsers are required as additional security. Should the investigation of the applicant and the endorsers prove l6 SALARY LOAN BUSINESS IN NEW YORK CITY. favorable the money is advanced. In this way the wages of several different employees become surety for the loan. If for any reason the borrower defaults in his payments a notice of assignment is filed upon the employer of each of the assignees, at the same time and for the same amount. In one of the cases investigated the borrower was discharged by his em- ployer before his obligation was fully met, causing a default in payment. The employer of the first endorser refused to recog- nize the file. He considered the debt unjust and was desirous of protecting his employee. Therefore when the representative of the loan company called he informed him that the man was no longer in his employ. The employer of the second endorser recognized the file and withheld the employee's wages. The loan company then demanded the entire amount with additional charges, ( a ) before the file would be released, although the origi- nal contract stipulated that payments should be made weekly. The most unfortunate part of the situation was that the employer not only withheld the amount necessary to satisfy the loan but the en- tire amount of his wages until the release was secured. It was with the utmost difficulty that the amount necessary to pay the exorbitant rates charged by the loan company was secured and the release obtained. The transaction is of a slightly different character when the borrower applies to one of the brokers ( b ) of H. A. Courtright of Providence, R. I. In a case recently investigated the borrower made his application in the office of Howard, 73 West Eleventh street. The necessary papers were signed and one dollar commission was paid the broker for his services in securing the loan. The broker agreed to return the commission in case the loan was not secured. The next day the applicant received a check dated at Providence, R. I., and signed by H. A. Court- right, for the amount of the loan. Enclosed with the check was a statement to the effect that the said H. A. Courtright had pur- chased several notes signed by the borrower and that they were payable at Providence, R. I. The amount of each note and the (a) See page 37 et seg. (b) Howard, Chesterklrk, Graham. THE TRANSACTION. I/ date of payment were also included. Several payments had been made by money order when one was delayed. The morning fol- lowing the date when the delinquent payment was due the bor- rower received a letter from the Coast Cities Collection Company, notifying him that the payment had not been made when due and informing him that as a result there was now due, in addition to the regular payment, a protest fee and a collection fee, all of which must be paid at once or his employer would be notified to withhold his salary. The Coast Cities Collection Company is ostensibly an independent concern which is employed by H. A. Courtright to collect his notes in New York City. In this par- ticular case the borrower was without collateral to secure a loan or friends able to advance him the desired amount. He was therefore forced to go to another loan company and assign his wages again in order to secure the amount necessary to pay the loan and to secure the release of his wages. . . III. REASONS FOR THE TRANSACTION. A distinctly philanthropic air is assumed by some of the own- ers of salary loan offices in New York City. Their speech and attitude are designed to inspire the belief that their motives are altruistic ; that their offices have been opened primarily to aid the poor ; and that any charge for their services would be a gross vio- lation of their ethical code. The advertisements in the daily press and the circulars sent out by the different offices are of the same tenor. One of the most appealing expressions of this phil- anthropic spirit is contained in a circular ( a ) sent to an employee of the Interborough Rapid Transit Company from the office of Walter Graham, 150 Nassau Street: "In case you haven't all the money you need, ... I can be of service to you. I can save you time, trouble, annoyance and expense. If you have a loan from another company and are in trouble come and see me. I will pay it for you." Acting upon a similar offer contained in another advertise- ment, an employee obtained a loan of $13.25, for which he paid $25.48 in six weeks. At the end of this time his failure to meet a payment promptly resulted in a file upon his wages which cost him his position. The real motive of the loan company is not philanthropy but profit, and every effort is used to secure the largest returns pos- sible. The motive is legitimate. The loan broker performs a service for which he has a right to demand adequate re- muneration. The stockholders of banks and similar organiza- tions are not criticized for charges necessary to realize a fair (a) See page 49. REASONS FOR THE TRANSACTION. 19 return on the capital invested. The grocer, the merchant and the tailor all receive, and justly so, a fair return for their labor. It is only when need or weakness is exploited that adverse criticism arises. The borrower, on the other hand, is led to the door of the salary loan broker by a feeling of need, either real or imaginary. As a rule the occasion is a temporary emergency which cannot be met from regular income. The cause of his disability may be the resultant of any or all of those economic forces which sur- round the ordinary laboring man in New York City. The Committee ( a ) on the Standard of Living appointed by the State Conference of Charities and Correction of the State of New York as a result of its investigation found that a consider- able proportion of the families studied in Greater New York were not receiving a sufficient wage to maintain a reasonable standard of living. It is a regrettable fact that a very large proportion of the families of laboring men in the city spend their entire income on what appear to be the bare necessities of life. In the presence of any unusual expenditure they are utterly helpless, unless a loan is secured which may be repaid in small installments. In the cases investigated for the present study there were a number of different circumstances which had brought unusual expense upon the family and compelled them to seek a small loan. Sickness or death in the home is perhaps the most common cause of temporary need. The experience of a young man in the employ of the New York Central Railroad is an illustration. His mother had been ill for some time and the attending physician had prescribed a trip to the country as the only means of recovery. The son's salary had been sufficient to meet the ordinary expenses of the home, but this added burden was unprovided for. As there was no other source from which the son could secure the money he went to a loan broker, who furnished him the necessary amount. It was repaid in small weekly payments, the assignment of his sal- (a) See Report of Committee on the Standard of Living. New York State Conference of Charities and Correction Proceedings, 1907. 20 SALARY LOAN BUSINESS IN NEW YORK CITY. ary serving as security. In another case the death of a man's wife from tuberculosis was the occasion which made necessary a loan secured by the assignment of his wages. A similar drain upon the resources of the marginal laborer is the custom of demanding rental in advance. This, coupled with the expense of moving when for any reason new quarters are required, frequently exceeds the savings of a household, mak- ing an advance from some source a necessity. A man who had been out of employment for some time, found that when he had secured a position his landlord raised the rent to an amount which was beyond his ability to pay, and he was forced to seek cheaper quarters. A suitable apartment within his means was found, but to secure the advantage of the change, it was necessary to have a sufficient amount of cash to pay both the rent a month in advance and the cost of moving. He could not raise the amount, as the high rent he was already paying, with his small salary, made saving impossible. A small loan was sought which could be repaid in small weekly payments. An assignment of his wages and a mortgage upon his household furniture was offered as security. In spite of a very extended search for over two months, he was unable to find a place where he could secure the desired loan, except from the loan brokers, who charge such an exorbi- tant rate of interest that it was hopeless for him to attempt to pay it. The experience of this man is believed to be typical of a large number of individuals in New York City. A young man who has an extensive acquaintance in the city reports that it is a common practice among clerks and young employees to borrow a small amount of money when in need of a suit of clothes or anything which requires an un- usual expenditure, their reason for doing so being that they con- sider it more advantageous to borrow the money and repay it in small weekly payments than to buy either on credit or on the installment plan. Life insurance premiums, interest on mort- gages and similar obligations, Christmas and birthday presents are some of the less frequent but still not uncommon objects for which money is secured from the loan brokers. An enumera- tion of the causes which lead men to borrow money would not be REASONS FOR THE TRANSACTION. 21 complete if it failed to mention gambling. The temptation to gamble is especially strong if a debt is owed which it is impossible to meet from current income or other available resources. In such cases small loans are obtained in the hope that the proper turn of a card or selection in a race will result in a sum necessary to cancel the entire debt. It is the opinion of a prominent money lender in the city that about seventy-five per cent of the individuals who borrow from loan companies are men with families who are temporarily in need and are helped out of difficulty by a loan, and that twenty- five per cent are men who could get along better without the money, as it is spent in gambling, intemperance and vice. The managers of five different loan offices expressed the opinion that a majority of persons who patronize their offices are men with families who are honest and industrious, but who have met some temporary emergency which the loan helped them to overcome. Undoubtedly a large number of the men borrow because of a temporary need, and by repaying the loan in small weekly in- stallments are soon out of debt. The service rendered by the loan company in such cases is of great importance. The family is thereby spared the humiliation of seeking aid from friends or from charity, the temporary emergency is overcome, the family is again self-supporting, and through it all the community has not been called upon for assistance. It is evident, therefore, that under present conditions in New York City there is a very definite economic basis for organiza- tions which advance money in small sums to salaried employees, secured by the only collateral which they possess, viz., an assign- ment of their wages. The evils in the present system should be remedied, the poor who are compelled to borrow in time of need should be protected from the unjust charges of the money lender, but care should be taken not to destroy the present system until something better has been developed to take its place. IV. VOLUME OF BUSINESS AND CAPITAL EMPLOYED IN NEW YORK CITY. An examination of the books of all the salary loan offices in New York City would be necessary in order to secure an accurate statement of either the amount of capital employed or the vol- ume of business transacted. This, at the present time, is ob- viously impossible. There are several methods, however, of making a reasonably satisfactory estimate. A very common way of estimating the extent of any business is a study of the amount expended for advertising. It is safe to conclude that no com- pany will spend more for advertising for any considerable length of time than its business will warrant. The table on page 23 gives the amount spent for advertising in the leading English and German daily papers ( a ) for the weeks ending September 25, October 9, and December 5, 1907. The total amount expended for the week ending September 23 was $686.28 ; for the week ending October 9, $688.01 ; for the week ending December 5, $807.17. The average weekly cost for the three weeks was $727.15. Based upon this average the sal- ary loan companies expend annually $37,811.80 for newspaper advertisements. This is only a portion of the whole amount, as a large sum is expended in sending out personal letters and (a) The following papers were consulted : The New York Herald, The New York Times, The World (morning edition), New York American, New Yorker Staats Zeitung, The New York Press, The Sun (morning edition), New York Tribune, The Morning Telegraph, New Yorker Morgen-Journal, New York Com- mercial, The Journal of Commerce, The Wall Street Journal, The Brooklyn Daily Eagle, The Daily Standard Union, The Brooklyn Times, The Brooklyn Citi- zen, The New York Evening Post, The Evening Sun, The Evening Mail, The World (evening edition), The Evening Telegram, The Glohe, The New York Evening Journal. VOLUME OF BUSINESS AND CAPITAL EMPLOYED. lunnny pa^.'Bnii^sjj CO 1 1 9 CO i CO CO s s ^ TH -rH TH 00 CJ r*H r^\ S 7-H G3 CO ^ r? jaqmn^ woi CJ 1-1 ^ H /^ CJ F SuispaaApy o T* 1-H 10 3 O stnat^ jo J9qum^ Ci 11 U4 W Ln CO CO GO o Tf 1O O J^- CO GO ^ TH ^ TH rH TH TH TH M p stnjj.j jo jgqron^i CJ y w o CO o CO ^^ CO CJ co 4 k^ CJ CO ^ o be t^ ^ Q _ Tt?ir*T TH OS CJ oo -^ a o "l-n *''' AY I**T"JU CJ CO 5 g i s 5^ w J* S9uiq jo 2 cS i o CJ O TH i> CJ CO J" o w S rt 1-1 CO en H H ^ 3aisi^j8Apv stnjy[ jo jaqranx 00 i-H ^ 00 -* - CO 25.00 5.00 M 24.00 4.00 8 32.00 8.00 N 25.00 1.75 24 42.00 17.00 Q 25.00 2 95 12 35.40 10.40 R(c) 26.00 2.45 16 89.20 13.20 I 24.00 5.00 6 30.00 6.00 G 24.50 4.00 8 32.00 7.50 D 24.00 5.00 6 30.00 6.00 F 24.00 5.00 6 30.00 6.00 0(c) 24.00 2.25 16 86 00 12.00 P 27.00 2.45 16 89.20 12.20 J 27.00 2.45 16 39.20 12.20 L 25.00 2.85 12 34.20 9.20 C 25.00 2.50 14 35.00 10.00 K 25.00 2.50 14 35.00 10.00 E 25.00 8.00 11 33.00 8.00 H 25.00 2.75 12 33.00 8.00 B 25.00 30.00 Ha) 30.00 5.00 R(c) 26.00 8.00 12 86.00 10.00 C 30.00 3.00 14 42.00 12.00 K 30.00 3.00 14 42.00 12.00 P 27.00 3.00 12 86.00 9.00 J 27.00 3.00 12 36.00 9.00 N 80.00 8.25 12 39.00 9.00 G 30.00 20.00 2(a) 40.00 10.00 E 30.00 3 00 13 39.00 9.00 M 3500 3.25 16 52.00 17.00 R(c) 34.00 2.65 20 58.00 19.00 D 84.00 2.65 20 53 00 19.00 N 86.00 6.75 8(b) 54.00 18.00 C 35.00 3.50 14 49.00 14.00 K 85.00 3.50 14 49.00 14.00 J 35.00 2.65 20 53.00 18.00 P a^.oo 2.65 20 53.00 18.00 35.00 2.65 20 53.00 18.00 35.00 2.PO 20 52.00 17.00 E 3500 4.50 10 45.00 10.00 N 4000 3.15 20 63.00 23.00 J 40.00 3.15 20 63.00 23.00 P 40.00 3.15 20 63.00 23.00 C 40.00 4.00 14 56.00 16.00 K 40.00 4.00 14 56.00 16.00 R(c) 39.00 9.00 6(b) 54.00 15 00 0(c) 39.00 8.90 8b) 53.40 14.40 E 4000 4.00 13 52.00 12.00 (a) Monthly payments. (b) Semi-Monthly payments. (c) Commission of $1.00 charged upon first loan. Charges are given for the first loan. (d) In each group the loans are arranged according to the amount of charges. CHARGES. 3 1 of the charges of the different companies upon loans of ap- proximately the same amount. The table was compiled from loans actually negotiated. This precluded the possi- bility of using examples involving loans of exactly the same amount for different companies. The loans are arranged in six groups: (i) loans approximating $15.00, (2) loans approximat- ing $20.00, (3) loans approximating $25.00, (4) loans approxi- mating $30.00, (5) loans approximating $35.00 and the last loans approximating $40.00. The highest gross charge in the table is by S on a loan of $14.00 payable in twelve weekly payments of $1.95 each. The lowest gross charge is by B on a loan of $25.00 payable in one month. The charges vary considerably with the different companies and for different amounts. Companies R, O, and S charge a commission of $1.00 upon the first loan. The charges in the table are upon the first loan. In case an additional loan is taken with any of these three companies the charge is $1.00 less. The time for which the loans were secured varies from one month in the case of T and B to twenty weeks in the case of several of the other companies. The average time for all the loans given in the table is about 13 weeks. The payments were weekly, semi- monthly, or monthly. About 90 per cent of them were weekly. The frequency of the payments is determined by the pay day of the employee. The loan company makes it a rule to have the payments become due either the day when the borrower receives his salary or the day following. The amount of the weekly payments varies from $1.50 to $5.00, the semi-monthly payments from $6.75 to $9.00. Thus it is evident that the policy of the loan companies is to< keep the payments reasonably small. The manager of one of the loan offices in the city said to the writer : "We prefer to make the payments small because it is much easier to collect a small payment than a large one." Table 2 shows the amount of cash received by the bor- rower, the conditions of repayment, the total amount repaid, the difference between the amount of cash received by the borrower and the amount repaid in installments, and the SALARY LOAN BUSINESS IN NEW YORK CITY. gross per cent of return upon the loans of different amounts by one of the leading loan offices of the city. TABLE 2. TABLE SHOWING TOTAL CHARGES EXPRESSED IN TERMS OF AN INTEREST RATE, (c) UPON SELECTED LOANS MADE BY ONE REPRESENTATIVE SALARY LOAN COMPANY. 1 Payments. K h .a a? II ^ >. o - Q 03 c? H 'O S 'o ^o -*^ x-^ QQ *d fe g . O >* < rt c/l . \) j^ S o B _Z X C J^ C ^ TJ S o b a *"* C ^ r. C *"* *i ^ 2 "O *- g -j o >> n ^ ^ ^ S CJ s S 'g ^^ rt ^ C ^ ^ X I 'I ? ~ S 'U 2 rt O *3 S ^ - _c 3 o' o *-* J3 5 W ^ V> {/j w rt r -> *^ W o te en ^p, 'C - O r 1 r- n T! >"M frS o ., T3 ? s s-g - 2 x rt I g W coc.t:^^^^ |5| is'i^ ^ '* r/> if-s's c > ^ o ^ XI tc rt c p g S 2 ^ I '^ * c " tc s -' c r, - ~~~ _O c/i "*" C ~^ C J i c c c S *v i|:i w S 'e i M V > < CJ *^^ ^ O &c z* .i^ *-> rt 5 t/i ^ ^ ro fc ^rt > I rt ^ "7v ^ ^ g.s S ^ i! rg tl &c $ 2 _| CflJ C >-*- ^ ^ O S rt rt rt c be . t> S s ?. 1 I -Hi a S I " B *5 O -3 ~ -g 11 lj :ement or a tw 1> ;/; rt u C 5signment < >rney are h >f the same >-, c rt ''c SJGNMEN PLOYED, O & <: H W E r~> -< her attornt 8 IN O o "O 5*. rt ctf o r s -o u 1*8 o^ s^ O *j f3 c ^ 1 1 ^ fc 2 ^ 1 O w . c -r t> ^ * E J ts-s? i S'sS^SSf II P- H ?. t , W c ** 'o " aj rttiti ^ P "5 *^ *--OtI' fc ""'C2l-'- > U *3 8*5*' .-''"*" ^*^ : *"" C S X a: ^ X BUSINESS METHODS NOW EMPLOYED. 53 Almost invariably these offices require from one to three endorsers. The manner in which these endorsers are often se- cured is significant. The only paper which the endorser is required to sign is the Agreement and Power which faces this page. When the applicant is told he must secure endorsers he calls upon his friends and assures them it means nothing more than a recommendation so that he can secure the money. The agent of the loan company calls immediately upon the consenting friend with a copy of the Agreement and Power which he is asked to sign. The agent assures the endorser that the paper means prac- tically nothing and that it is only a recommendation for his friend in order that he may secure the money. This is shown by the following affidavit : CITY AND COUNTY OF NEW YOBK, ss.: GEORGE A. KAY, being sworn deposes and says: that I reside at No. 1116 Nelson Avenue, Highbridge, City of New York. That on the llth day of December, 1907, a man called upon me at my place of business, 55 White Street, the office of the American Mills Company, where I am employed. That he showed me a certain paper and asked me to sign my name thereto; he said that the paper was of no legal import- ance; that the entire matter or transaction was a matter of form; that I was just attesting to the good character of William Richardson; that he had said paper placed upon the flap of a wallet and that as I began to read it he withdrew said paper and discouraged any further attempt on my part to read same and that he re- peated it was but a matter of form; at no time was the paper taken out of his hands. That at no time when said man was at the office of the American Mills Company, did he tell me the paper to which I was to put my name to was a Power of Attorney; that I was offering my wages as security for a loan made by some loan company to said William Richardson. At no time did said person tell me that if Rich- ardson did not repay the loan made to him by the loan company that I would have to pay that loan out of my wages. That I did not know that the instrument I was signing was a Power of Attorney. That said person was about five feet five inches in height, of medium weight, dark hair, of florid complexion, that he had a small mustache. GEORGE A. KAY. Sworn to before me this | 12th day of March, 1908. j BERNARD ROBINSON, Com. of Deeds, N. Y. C. 54 SALARY LOAN BUSINESS IN NEW YORK CITY. With this assurance and with the Agreement and Power pre- sented in such folded form as to show only the portion repro- duced in the cut facing this page the signatures of the desired number of endorsers are secured. The applicant also signs a power of attorney. ( a ) The money is not advanced by the office from which the employee supposed he was borrowing, but a check is received from H. A. Courtright of Providence, R. I., and enclosed with the check is a memorandum ( b ) stating that the said Courtright has bought a certain number of notes giving the amount of each and date when due. The notes have been signed by the attorney (M. Wilmarth) whom the borrower authorized to sign his name to any legal document by signing the power of attorney. The bor- rower does not see the notes and therefore has no idea of what they contain. Each of these notes ( c ) signed by the attorney contains the following clause: "Interest from and after date of maturity, two per cent per month or fraction of a month" also, "This note is one of a series dated this day and signed by me, and I agree that if this, or any one of said series, is not paid by me on the date when due, that each and every one of said notes become forthwith due and payable on said date of first default . . ." The notes are payable in Providence, and if the borrower succeeds in getting the money to Providence each week on time, when the notes are paid the debt is canceled. If, however, the money fails to reach the office of H. A. Courtright upon the date when the note becomes due, according to the clause in the note all of the series become due immediately, and a protest fee and also a collection fee are due upon each note. This occurs so frequently that one is inclined to believe that the protest fee and the collection fee are only a device used to collect a higher rate of interest on each loan. A few illustrations will show the manner in which circumstances are taken advantage of to secure the additional charge. In case I the post-office order was sent the day preceding the date when the pay- ment was due. For some reason it failed to reach the office in (a) See Appendix III, page 97. (b) For copy of memorandum, see Appendix XIV, page 114. (c) For copy of note, see Appendix XIII, page 113. c ^ . H. TOLMAN ROOM 816. DOWNING BUILDING 108 FULTON STREET Nsw YORK CITY IMPORTANT NOTICE TO MY PATRONS. This is to oaution my customers against being mislead by any seeming 'inducements that may t>& offered by any of my late employes under whatever fictitious or assumed name the business may be conducted. Rival concerns have from time to time conspired with and employed some Of my employes, trying thereby to steal my business and I deem the present word of caution and explanation to my customers due them, as to how their names become known and business solicited. There are certain unscrupulous men, would be competitors, who have opened several offices under various fictitious or assumed names, who are afraid to do business under their own names. There is a reason, such firms are usually irresponsible and frequently have to pledge what they get from customers for capital to do business with; such business thus becomes public and in case of insolvency of firm, might cause customers irreparable damage and jeopardize their positions. There are many other reasons as you can imagine why such firms are afraid to do business in the open. Consider whether it is not safer and better to deal with a man who has *>een established in all the leading cities of khe country for many years, than with an unknown concern. Remember, I have no interest in any other concern, and that my old customers are always welcome and appreciated. Yours truly, D. H. TOLliAN, Room 816, 108 Pulton St., New York city Rodm 406, 31 West 42nd St. , . " " Room 513, Arbuokle Building, Brooklyn Room 312, 76 Montgomery St. , Jersey city. The papers signed by the borrower are similar in the cases of the different companies. The Application Blank, Bill of Sale of Salary, and Power of Attorney are the three legal docu- ments ( a ) which are always signed unless the power of attorney (a) Copy of the different documents given in the Appendices. BUSINESS METHODS NOW EMPLOYED. 67 is so worded that the signature to the bill of sale is unneces- sary. In a few cases the loan company requires the bor- rower to sign a number of notes, one for each payment, also several blank papers which are to be filled out later. These blank papers when filled out constitute an assignment of wages and are served upon the employer in case the employee fails to meet his payments. In one office the writer saw four of these blank papers which had been signed by an applicant. The manager explained that they would be used only in case the borrower refused to pay. It would seem that a man with ordinary intelligence would refuse to sign a blank paper giving the loan company the power to fill it out later; it would seem also that he would refuse to sign the power of attorney which in the majority of cases is most binding. ( a ) As a rule, however, there is no objection on his part. There are several reasons for his willingness to sign the dif- ferent papers. He expects to meet his payments promptly and the penalties for failure to pay cited in the documents do not alarm him. His economic condition is generally such that the se- curing of the money is an absolute necessity and the thought up- permost in his mind is the procuring of the loan. A number of cases have been investigated by the writer in which the need of immediate relief was so great that the individual involved was willing to sign almost anything in order to overcome the emergency. The nature of the documents themselves and the inability of the ordinary individual to understand legal terms make the securing of the signature less difficult. The manner in which the papers are often arranged for signature makes the reading of them impossible. They are either so folded ( b ) that their character is concealed or arranged under other papers so that the entire document is covered except the space for the signature. Numerous cases have been found in which the bor- rower denied having seen the papers which he had evidently (a) An attorney expressed the belief that the Power of Attorney used by H. A. Courtright is the most binding document he had ever read. For copy of same, see Appendix III, page 97. (b) For copy of the folded paper, see page facing page 54. 68 SALARY LOAN BUSINESS IN NEW YORK CITY. signed. ( a ) Should any question arise in the mind of an appli- cant as to the contents of the papers to be signed it is immedi- ately dispelled by the firm assurance of the manager that the paper is of no practical value, that it is only a necessary form which must be carried out in order to make the transaction le- gal. The manager of several large offices said to one of her friends that the individuals in charge of the different offices were instructed to arrange the papers so that the applicant could not read them. The reason given was the fear that if the contents of the papers were known to the borrower he would refuse to sign them. Several employees have denied signing the papers when they were presented to them, but they were forced to admit that the signature was genuine. The attitude upon the part of the loan companies toward a third party who attempts to settle for a borrower should be considered. It depends very much upon the relationship of the thirdj party. If he is a friend of the borrower, the company demands the entire amount and will not consider any other prop- osition. If he is an attorney, the company generally shows a marked disposition to arbitrate and settle the matter at once. In the majority of the cases in which an attorney has attempted to settle, and could secure the cooperation of the employer, the loan company has settled for the amount of cash received plus a reasonable rate of interest. If the third party is the employer of the borrower and he refuses to pay the amount demanded, it is very seldom that the loan company takes any legal action as they believe this kind of publicity detrimental to their bus- iness. The only important case in recent years in which a loan company seriously contested the law was the case of Thompson versus Interborough Rapid Transit Company. ( b ) The connection between the different loan companies is a subject which has attracted considerable attention. It is a not uncommon belief that the various loan offices in the city have a clearing house where the names of the customers of all the offices are on record. This however is not the case. The keenest competition exists and it is impossible for one company (a) For affidavit of George Kay, see page 53. (b) 49 N. Y. Miscellaneous 102. BUSINESS METHODS NOW EMPLOYED 6*9 to secure the names of the customers of another. The absence of a central clearing house is proved by the fact that cases are not uncommon in which the same individual has loans from several different companies at the same time. Several attempts have been made to secure some method of cooperation but they have all failed. The reason given by the managers of the loan offices is the fear that some of the companies would use the central office as a means of securing customers. One manager said, "If we have a good customer, we don't want to lose him ; if we have a poor one we would like to have him do the other com- pany the same as he has done us." The companies all agree that some plan which would make it impossible for the same individual to borrow from several dif- ferent companies at the same time would be extremely desirable. Aside from the offices which are owned by the same person there is a certain amount of cooperation among a few of the other companies. It takes the form of friendly relationship between the managers and they converse with one another freely concern- ing the individuals who have loans with them. A common method of attempting to secure information is to inquire by tele- phone of the different offices whether or not a certain individual has a loan with them and also whether he is considered a good risk. This method is often unreliable as is shown by the follow- ing experience : A certain employee had considerable trouble with several companies but finally secured the necessary money and paid them all in full. He applied at another office for a loan and the manager telephoned to one of the companies with which he had a previous loan and asked the manager about him. She replied that he was "all right, only a little slow." The office which gave the favorable report considered the man in question to be posi- tively dishonest and had refused him another loan. VIII. LOAN COMPANIES AND THE LAW. Several states have attempted either to regulate or to prohibit entirely the loaning of money secured by an assignment of wages. The table inserted herewith presents in tabular form the most important provisions of the laws of the different states, to Jan. i, 1908. Seventeen states have some legislation upon the subject. The scope of the legislation varies. Louisiana and New York are types of states which have very little, while Massachusetts and Maryland give illustrations of rather extensive laws. Vir- ginia, Georgia, Colorado, Michigan and Tennessee have in eluded the regulation of loans secured by an assignment of wages and loans secured by mortgage on household furniture in the same law. Indiana and Georgia definitely prohibit the assignment of unearned wages under any condition. Georgia, however, per- mits the assignment of wages which have been earned at the time of the assignment. Ten states have determined by law the wages that may be assigned, five of which make legal the as- signment of future wages, one the assignment of wages earned at the time of the assignment, and four wages either earned or to be earned at the time of the assignment. Seven of the states require that the assignment be recorded and four require that the assignment be acknowledged before an officer of the law authorized to take acknowledgements. Five states definitely limit the time for which the assignment may be made. The time varies from thirty days in Colorado to two years in Massa- SUMMARY OF THE LAWS OF THE DIFFERENT STATES State. Wages that may be assigned. Acknowledg- ment re- quired. Entry in Public Rec- ords. Limit of time for which fu- ture wages may be as- signed. Notificatio] of employ el Colorado. Wages or sal- ary earned or to be earned. Recorded with County Recorder within fire days from date of assignment. 30 days from date of as- signment. Notice of 1 assignmer i in writing! given to employer within 10 days afte: execution. Connecticut. Applies to future earn- ings. Must bear certificate of acknowledg- ment of as- signor. Must be re- corded with Town Clerk. Time definite- ly stated in contract. Copy of i \ signment must be given the employer. Georgia. Applies to wages due at the time of the as- signment. 1 Illinois. Wages to be earned in whole or in part. Acknowledged in person by assignor be- fore Justice of Peace. Must be en- tered upon the docket of the Jus- tice of Peace. Six months from time of assign- ment. Copy of a? signment served upo employer within 3 days from date of ac- knowledg- ment. Indiana. Iowa. Must be ac- knowledged before an officer of the law. Notice in writing of assignmenl given to employer. Louisiana. Future wages. Maine. Recorded with Clerk of County. Actual nol thereof to employer. Maryland. Acknowledg- ment before Justice of the Peace, Must be recorded. Six months from date of assign- ment. Notice of signment execution served upo uTf&Tt'r days. 5JONCERNING THE ASSIGNMENT OF WAGES JANUARY J, J908. ^=7 tionj 1 Concurrence of husband and wife. Charges allowed. Contents of assignment. Consent of employer. License. Other pro- visions. Gent * er 10 fter ion. Signature of both husband and wife necessary. 2 per cent per month upon actual amount re- ceived. Must state the amount of salary assigned. i License must be secured from Board of County Commission- ers or City Council. One-half the fines to in- former and one-half to school fund. ofJ! ent ' be the , J. I Rate of in- terest, time of assignment and amount of indebtedness. - License re- quired. Any assign- ment of fu- ture wages void. Lender bonded. iv of as amen vedu ployer bin 3 fs from -of ric rat. Must be ex- ecuted and Acknowledged by both husband and wife. Assignment of future wages void. Mitt in mting of Husband and wife must both acknowl- edge the as- signment. Assignment shall have priority in order of execution upon em- ployer. Employer must con- sent in writing. , j. ixt'cuted and Six per cent per annum. Evidence of notice to em- ployer to be his signature i AIM upon original assignment. 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