Evening star. [volume] (Washington, D.C.) 1854-1972, 1927-03-16
Mushroom Enterprises Vi
olate Stringent Usury Laws,
Stephens Declares.
CHARGES LEVIED TOTAL
AS HIGH AS so PER CENT
Agencies Found in Repair Shops,
Tire Stores and One Room Offices
in Residential Sections.

uSury laws here, ready money Is DelnS
openly loaned in Washington under
the guise of automobile financing
at interest rates ranging In some cases
as high as so per cent, an investiga-
ton by The Star has disclosed.
Springing up with mushroom sud
denness in automobile repair shops,
tire stores and one.room offices in
residential sections, these agencies
attempt to evade the stern restr1c-
tions imposed by the loan shark
statute" by crediting the bulk or
their charges to brokerage 1ees,
credit investigations. notary ana
clerical fees and sales commissions.
Declared Violation Of Law.
Corporation Counsel Francis H..
Stephens declared, however, after care
fully studying evidence obtained by a
reporter for The Star. that such busi-
ness enterprises were in his opinion
violations Of the law. He promised
at the same time that his office would
set machinery in motion Immediately
to take action against the practice.
The vast majority of the men and
women who subject themselves to ex-
tortionate interest rates. 1t was
~~NAN
least afford it, They need money bad
ly. Having no standing at a bank,
but possessing an automobile as col
lateral they fall easy victims to the
loan shark.
Replying, as a test. to an advertise
ment, a Star reporter found an agents
Office in the parlor of what had once
been a private dwelling. He ex-
planned that he would like to make
a loan. A young lady asked him to
be seated. disappeared into another
room and returned in few minutes
with genial, wide-open-faced man of
rotund proportions, who greeted him
like a doting father would receive a
son who has just returned from dis
covering a gold mine.
How Loans Are Negotiated.
The reporter made known his re-
quest for a loan of $500. offering his
car as collateral.
"Tell'ya what I'll do" said the man.
"I like va. Believe you're honest, too.
Let'ya have $500. Get 1t tomorrer, too.
Wot say?"
well I wanted $500, but I'll take
$500. / guess. I'll only need 1t for a
year" he said out loud.
"A year.. The man almost blew up.
Man, we never lend for more than
six months"
A moment of reflection, and then:
''Oh. shucks, kid. you've made hit
with me. Here's my proposition. III
give 1t to va for nine months. ! give
you $500. you pay me back $72 a
month. That's generous, amt it?"
The reporter figured a minute. Nine
times $72 totaled just $64S, or sl4S to
be paid for the use of $500 for
months. But that wasn't all. Fifteen
minutes more of conversation develop
ed that the borrower was to pay an
additional per cent interest on the
whole amount for the nine months,
take out an automobile collision pol
icy with the lender and turn over his
fire and theft policy to see whether
that should be increased, too.
Interest at 40 Per Cent.
This would mean borrowing $500 at
about 40 per cent interest for nine
months 1t didn't seem exactly gen.
erous. The big man insisted, how
ever. that it was the best that could
be gotten anywhere outside of a bank.
and later events were to prove that 1t
represented the terms of similar
agencies, at least A few offers to
loan money received from similar
places were bit less exacting. But
in all the interest rate was in the high
thirties.
Another offer the reporter received
was from a small garage, which of.
fered to lend him $500 for six months
for $25 per 800, or at $75 for six
months. There was something else, of
course.
Instead of actually lending money
on the car, the garage offered to buy
it outright for $500. At the end of six
months it would have sold II back for
1915. The reporter was told he would
have to make out regular bill of
sale. 1t was to contain no provision,
however, insuring the reporter against
being obliged to pay much more for
his car at the end of the six months.
He was told he would have to rely on
the company's honesty.
Items Adding to Charges.
When the agencies were asked to
explain how the interest rates &C.
cumulated so prodigously they cited
the following items as being included
Paying commission to investigator
for making report on applicant S
credit, clerical fees for preparing the
deed of trust on the car, notary fees.
cost of recording the deed of trust, in.
surance, appraisal fee and commits
sion, brokerage commission and inter
est at per cent. They declined to
explain the method of dividing the
costs among these items.
1t was learned that few, if any, OF
the agencies keep the notes received
through these transactions They sell
them in turn to other financing COM
panies, which exact their fee One
company that makes a practice OF
buying such notes figured that the
net profit to the agency, after pay
ing discount fees, was about 20 per
cent on the loan, the rest of the
money being divided among subse-
Quent purchasers of the note.
One agent declared that he was In
reality little more than a representa-
tive for larger concern. The money
he pointed out, came from the second
company, which accounted for a de-
lay of day before he could pay over
the money the borrower wanted
Other financing companies explained
that much the same practice was fol-
lowed In most deals of a similar char
acter.
Provisions Of Loan Law.
When these facts were laid before
Mr.. stephens, he called attention to
provisions of the so-called "loan-sharl1
law" which states that no lender of
money, except banks. licensed bankers.
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