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One reads about loaning money in the past and the subtext is, if you were not repaid according to the terms of a note you held, you could get the debtor arrested. Eventually, debtors' prisons and being arrested for debt were largely eliminated in the USA and so those loaning money had more difficulty collecting. So did this cause the advent of loan sharks, people who could force the collection of money without resort to law -- essentially, before the government acted as the enforcers of debt and now loan sharks had to do it themselves?

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    Pretty sure that even before the elimination of debt, the lenders would prefer their money back to simply allowing the debtor to go to prison... – user13123 Aug 30 '17 at 0:27
  • @HorusKol: Well, the idea was that imprisonment forced the debtor to pay up -- they stayed until it was paid or partially paid and of course the threat helped a lot. Nowadays it is basically effect on credit rating because someone defaulting on a debt is a nightmare to collect. – Jeff Aug 30 '17 at 0:50
  • considering religious proscriptions on usury, there were probably lots of lenders willing to avoid formal processes like debtors prisons – user13123 Aug 30 '17 at 1:14
  • @Jeff most debtor does not pay because he cannot, not because he doesn't want. Putting them in prison rarely improve their financial situation – Greg Sep 1 '17 at 0:30
  • @Greg: Nonetheless it happened. I think they may have been able to work of their debts sometimes but often families may have starved. – Jeff Sep 1 '17 at 0:41
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No. Loan sharks arose out of the developments of the finance sector and The West.

Debtors prisons were eliminated prior to the Civil War, via the development of early bankruptcy laws.

The Civil War triggered an expansion in the financial economy. It, and the resulting recessions and banking crises led to westward expansion of financial services. The lack of regulatory oversight and large demand for financial services encouraged many actors, such as businessmen, merchants, even clergymen, to offer high-interest loans. By the late 19th century loan sharking was an established cottage industry, the term "loan shark" also entered the popular vernacular, replacing the previous term usury.

See: Loan Sharks: The Birth of Predatory Lending By Charles R. Geisst

  • Even without debtors' prisons, could not failure to pay debts result in some sort of arrest? – Jeff Aug 30 '17 at 7:17
  • That sounds like a different question. Was there a time where you could be arrested for private debts, and when was this eliminated? – congusbongus Aug 31 '17 at 7:53

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