Bringing 'Honest Capital' to Poor Borrowers: The Passage of the Uniform Small Loan Law, 1907-1930

41 Pages Posted: 4 Jun 2009  

Bruce G. Carruthers

Northwestern University

Timothy W. Guinnane

Yale University - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Yoonseok Lee

Syracuse University - Center for Policy Research; Syracuse University - Department of Economics

Date Written: June 3, 2009

Abstract

The Uniform Small Loan Law (USLL) was the Russell Sage Foundation's primary device for fighting what it viewed as the scourge of high-rate lending to poor people in the first half of the twentieth century. The USLL created a new class of lenders who could make small loans at interest rates exceeding those allowed for banks under the normal usury laws. About two-thirds of the states had passed the USLL by 1930. This paper describes the USLL and then uses econometric models to investigate the state characteristics that influenced the law's passage. We find that urbanization and state-level economic characteristics played significant roles. So did measures of the state's banking system. We find no evidence that party-political affiliations had any effect, which is consistent with the USLL's "progressive" character. Finally, we find little evidence that the passage of the USLL in one state made passage more likely in neighboring or similar states. If anything, the cross-state influences were negative. Our findings suggest that the Russell Sage Foundation only imperfectly understood the political economy of the USLL, and that a different overall approach might have produced a result closer to their aims.

Keywords: Uniform law, small loans, consumer credit, usury laws

JEL Classification: N21, N22, I38, G21, G28, K23

Suggested Citation

Carruthers, Bruce G. and Guinnane, Timothy W. and Lee, Yoonseok, Bringing 'Honest Capital' to Poor Borrowers: The Passage of the Uniform Small Loan Law, 1907-1930 (June 3, 2009). Yale Economics Department Working Paper No. 63; Yale University Economic Growth Center Discussion Paper No. 971. Available at SSRN: https://ssrn.com/abstract=1413905

Bruce G. Carruthers

Northwestern University ( email )

1810 Chicago Ave
Evanston, IL 60208
United States
847-467-1251 (Phone)

Timothy W. Guinnane (Contact Author)

Yale University - Department of Economics ( email )

28 Hillhouse Ave
New Haven, CT 06520-8268
United States
(203) 432-3616 (Phone)
(203) 432-3898 (Fax)

HOME PAGE: http://pantheon.yale.edu/~guinnane

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Yoonseok Lee

Syracuse University - Center for Policy Research ( email )

Syracuse, NY 13244
United States

Syracuse University - Department of Economics ( email )

Syracuse, NY 13244-1020
United States

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