<P> Opposition to salary lenders was spearheaded by social elites, such as businessmen and charity organizations . Businessmen were encouraged not to fire employees who were indebted to loan sharks, as they unwittingly supported the industry by providing lenders with a means of blackmailing their customers ("pay up or we'll tell your boss and you'll be fired"). Charities provided legal support to troubled borrowers . This fight culminated in the drafting of the Uniform Small Loan Law, which brought into existence a new class of licensed lender . The law was enacted, first in several states in 1917, and was adopted by all but a handful of states by the middle of the 20th century . The model statute mandated consumer protections and capped the interest rate on loans of $300 or less at 3.5% a month (42% a year), a profitable level for small loans . Lenders had to give the customer copies of all signed documents . Additional charges such as late fees were banned . The lender could no longer receive power of attorney or confession of judgment over a customer . These licensing laws made it impossible for usurious lenders to pass themselves off as legal . Small loans also started becoming more socially acceptable, and banks and other larger institutions started offering them as well . </P> <P> In the 1920s and 1930s, American prosecutors began to notice the emergence of a new breed of illegal lender that used violence to enforce debts . The new small lender laws had made it almost impossible to intimidate customers with a veneer of legality, and many customers were less vulnerable to shaming because they were either self - employed or already disreputable . Thus, violence was an important tool, though not their only one . These loan sharks operated more informally than salary lenders, which meant more discretion for the lender and less paperwork and bureaucracy for the customer . They were also willing to serve high - risk borrowers that legal lenders wouldn't touch . </P> <P> Threats of violence were rarely followed through, however . One possible reason is that injuring a borrower could have meant he couldn't work and thus could never pay off his debt . Many regular borrowers realized the threats were mostly bluffs and that they could get away with delinquent payments . A more certain consequence was that the delinquent borrower would be cut off from future loans, which was serious for those who regularly relied on loan sharks . </P> <P> One important market for violent loan sharks was illegal gambling operators, who couldn't expose themselves to the law to collect debts legally . They cooperated with loan sharks to supply credit and collect payments from their punters . Thieves and other criminals, whose fortunes were frequently in flux, were also served, and these connections also allowed the loan sharks to operate as fences . Another type of high - risk customer was the small businessman in dire financial straits who couldn't qualify for a legal loan . </P>

Is it illegal to borrow from a loan shark