Unregulated Lending and the Making of the Everyday. Uses of Collateral in the Early 20th Century United States.

"Character is the basis of credit”, the expression of J.P. Morgan, is probably one of the most common motto of the lending industry in the United States. Every type of consumer credit provider, from early loan sharks to regulated small loan lenders to commercial banks or even contemporary pay day lenders eventually resort to this vague notion of “good character”. This first order moral fact (Abend, 2015) nevertheless hides very diverse ways in which lenders of unaffected money (money not attached to the purchase of a specific good or asset) have tried to guarantee these transactions and reduce the risk of default of their borrowers. This paper will primarily focus on the question of collateral, looking at three different types of securities and the way they were used and handled by unregulated, small loan credit agencies, in the beginning of the 20th century USA. These agencies, popularly known and labelled as “loan sharks”, have been a large center of attention in economic sociology in the recent years, but quite paradoxically these accounts, usually mobilize very few specific empirical observations. Our data mostly consists of records documenting the practices of the largest national chain of loan shark agencies, based in Atlanta GA., and which operated all over the US from 1908 until 1929.

We argue that the reduction of risk implies on part of the lender a process of “domesticization” of the borrower, by the lender, necessarily tying him to specific groups, networks, or organizations, which are seen as the legitimate, concomitant support of good credit risk. The three collaterals we will be studying are wages, chattel property and co-signers, which all require a (different) mobilization of the “intimate”, the “every day” in the process of exchange, whether at the moment the transaction is signed, or later, at the time of debt collection. This focus on collateral enables me to study the other end of credit relation : specific collateral are framed, and used by borrowers in everyday interactions, and we will study how these also conversely support specific group, network or organization dynamics. Looking at collateral enables me to circulate between the two dimensions of credit transactions, both as constraints on every day life and potential resources, or even games, for shifting collectives.

“Salary loans” are based on a worker's future earning capacity. they therefore require relatively a stable employment of the borrower. In an industrial society, this is achieved either by working for a very large stable firm, or by working as an independent contractor on a stable income . These loans are secured either by wage-assignments or promissory notes. Co-signers, or “co-maker loans” require the signature of one or two endorsers who will share the financial liability of the borrower in case of defaut. These two types of loans are known were “unsecured”. On the other hand, “secured loans” are, for contemporary actors, loans based on tangible property, actual goods, which in the case of small loans usually consisted of household furniture, and these were tied by garnishment procedures which entitle the lender to seize household goods in case of default. These three devices did not necessarily correspond to different types of loans : lenders would sometimes require two different types of securities, depending on the borrower's situation. These were rather imposed on and required from different populations : they were offered different services and therefore didn't necessarily interact, which, in a highly segregated society such as the early 20 th century US South, was an important organizational element.

We will use three examples to illustrate these processes.

The first one is salary advances, called “payday plans”, made to workers of large industries. These implied complicated relationships with the employer, as the stigma associated to assigning one's wages could be used as a threat by lenders to insure repayment. This was particularly the case in medium size firms, whereas in larger, anonymous firms, the collectors would usually go directly to the shops to collect payments every week. Lenders would try to build formal relationships with the companies to make assignment procedures as bureaucratic and automatic as possible, for instance dealing with payroll managers rather than employers, whereas workers would sometimes ask relief directly from their employer.

The second case is the one of African American women working in domestic services, and especially washerwomen. An account book from a debt collector working for a branch of a downtown “loan shark” concern shows a large majority of African American women, many of them working as washerwomen. These women would either pawn the clothes and wash them late in the week, or pay the debt collector every week after the job had been paid. Many records show that loan men were part of these women's life and their families. Loans made on chattel, although secured, were not necessarily less risky that the “payday plans”, and the notion of property was a much less stabilized notion that one may believe. Lenders were aware of this situation, the goods given as colleteral could easily be hidden, or used to leverage multiple loans. Additionnally, it was hard to know if the chattel mortgages didn't already have preexisting claims from instalment sellers on the goods, and lenders would try to investigate their borrowers, their homes, their belongings as much as possible. However, as this was a very complicated procedure, they relied more directly on everyday presence to insure repayment. Cases of default and procedures of garnishment were also an opportunity for political mobilization. Cases of rioting or strong protests against bailiffs are numerous,and we also find examples of more organization mobilizations against "loan sharks".

The third case is that of the co-maker plan, and in this case,“character” meant a sufficient level of social relations required on part of the borrowed. This was usually required on top of a wage assignment, sometimes even asking that the co signers be working for different industries than the borrower. It appealed to the wage earning status i.e., the worker as a member of a wage earning “community”.