Predatory Lending: A Danger to Society

Types of loans 

Loan type	Collateral Required	Suitable For
Unsecured Loans	No	General purpose loans, no assets
Secured Loans	Yes	Large purchases, bad credit
Fixed-Rate Loans	Varies	Budgeting, long-term financing
Variable-Rate Loans	Varies	Short-term loans, risk-takers

To apply for a loan in Italy, you must fulfil the following requirements:

• Be over 18 years old and under 70 years old. Some banks might have loans available to you even if you are over 70.

• Have your place of residence in Italy. So, it is possible to apply for loans in Italy for foreigners. However, some financial institutions, in connection with bigger loans, might as well require Italian citizenship.

• Have a stable income source. Banks offer loans based on getting back the money after the runtime has passed. If you have no income source, you cannot pay back your loan with the added interest, which in turn means you will not be able to take a loan in the first place.

• Have an Italian bank account.

Lending Money 

Every natural or legal person has the right lend money freely, at their risk, however due to the complexity of the operation people prefer to borrow money from an intermediary rather than another private, in fact through the bank the transaction is on average safer and easier to complete, because a licensed intermediary as a bank has always the possibility to guarantee you the amount of money that you need.

Nowadays in the process of assign the right to a loan is not bias anymore as is used to be  due to the fact that the type of the loan, the maximum amount and the interest rate is defined by the credit score of the requesting private, moreover seeking a loan from a bank ensure that every legal practice was performed correctly. 

In addition lending money between privates, therefore without the use of an intermediary, is always permitted, especially if the lender does not charge any interest upon, however the agreement has to be put to writing for mainly two reasons: 

1. In case of controversy etc. If the debtor doesn’t fulfil his obligation the creditor then has the means and the undeniable proof that is entitled to a restitution/compensation, or the other way around if the debtor suffered from a unilateral or arbitrary modification of the agreement, he is protected.

2. To control the financial statements of the parties and therefore assuring that both parties are not involved in any kind of fraudulent / illegal monetary practice, etc. money laundering or tax evasion in general 

In Italy from January 2018 - 31 March 2018.

•  For personal loans the average rate is 10.2489% while the usury rate is fixed at 16.8111% 

• For mortgage loans the average fixed rate is 2.9380% while the fixed interest rate is set at 7.6725%.

A new Hustle or a menace to society: Payday loans 

What are payday loans 

A payday loan is a short-term, high-interest loan typically due on the borrower's next payday. These loans are designed for people who need immediate cash before their next paycheck but often carry very high fees and interest rates, potentially creating cycles of debt for borrowers. They are gradually gaining more popularity, especially in the US—in fact, 12 million Americans take out payday loans each year, spending $9 billion on loan fees. These are personal or emergency loans that don't require any security and are issued even to those with bad credit, and this is a risky business because lenders can't protect themselves against borrower fraud. While most states have usury laws that limit interest charges to anywhere between 5% and 30%, payday lenders fall under exemptions that allow them to charge many times that amount in certain states. Currently, 37 states have laws that permit payday loans, although many impose restrictions on them and some prohibit them altogether. 

The Green Arrow Solution Case

Green Arrow Solutions, operating as Green Arrow Loans, has been implicated in multiple federal class action lawsuits across various states, including Indiana, Illinois, and Massachusetts. The central allegation in these cases is that Green Arrow issued loans with exorbitant interest rates—often exceeding 700% annually—that far surpass state-imposed usury limits. 

In defence, Green Arrow Solutions claims affiliation with the Big Valley Band of Pomo Indians, asserting that this tribal association exempts them from adhering to state lending regulations. However, plaintiffs argue that the company's operations are predominantly managed by non-tribal members from locations outside tribal lands, such as North Logan, Utah. This arrangement is characterised in the lawsuits as a "rent-a-tribe" scheme, purportedly designed to circumvent state laws. 

Notably, Dan Shaw, a Henderson City Councilman, and his business partner, Greg Jones, have been identified as key figures in Green Arrow Solutions. Both have been named defendants in several of these lawsuits, facing accusations of issuing illegal loans through the tribal lender. 

The plaintiffs in these cases seek various remedies, including declarations that the loans are void, injunctions against further collection efforts, restitution of amounts paid, and compensatory and punitive damages for alleged violations of state interest laws and consumer fraud statutes. 

A Matter of Efficiency?

The question of economic efficiency in our debt-driven economy warrants critical examination. As debt levels increase, interest rates tend to rise due to growing mistrust towards the middle class's ability to repay, creating wider financial disparities and effectively transferring financial burdens to future generations. This raises a fundamental concern: what happens when we reach the maximum sustainable debt threshold?

Student loans provide a compelling case study. The combination of borrower financial illiteracy and unrealistic expectations from lending institutions has led to widespread loan delinquency. This phenomenon has triggered a troubling cascade effect: lending institutions impose increasingly stringent requirements for educational loans, restricting access to higher education and potentially violating the fundamental right to education as established in Article 26 of the Universal Declaration of Human Rights (UN General Assembly, 1948). Furthermore, this restricted access to education may result in a significant reduction in specialised professionals. The socioeconomic implications of such shortages extend far beyond the healthcare sector, potentially affecting innovation, productivity, and social mobility across society.

Freedom of contracting against Fairness 

The phenomenon of payday loans can have tremendous consequences on communities. They undermine the financial stability of entire families and often condemn or even enslave individuals for the rest of their lives with interest fees. Even when complying with regulations, payday loans mostly have negative outcomes, harming both the borrower and the community more indirectly. So why aren't they banned?

The answer lies between the concepts of fairness in contracting—which is endangered because those seeking payday loans are typically forced to do so without other options to cover unexpected expenses—and freedom of contracting. In principle, everyone should be allowed to make poor financial decisions. For instance, everyone knows gambling isn't a sustainable form of investment, yet no one can legally stop you from betting your monthly salary in hopes of doubling it.

A solution: The “Halal” lending

A plausible solution, following the example of how Muslim bankers deal with the problem of fairness, is to implement a profit-and-risk-sharing model. Instead of using interest rates, which typically have elasticity, they substitute a pre-agreed monthly fee based on the loan amount and duration. In this system, the lender and borrower agree on a structured repayment plan that includes either a fixed service fee or a share of the potential profits generated by the borrowed funds.

Murabaha or cost plus selling: Common Islamic banking product where bank purchases an item and resells to customer at marked-up price on installment. Profit is fixed upfront with an unchanging selling price. Late payment options: third-party guarantees, collateral, or penalties directed to charity.

Ijara or leasing: The bank purchases and leases a product to the customer instead of issuing a loan. The customer takes ownership at the lease's end.

This approach ensures fair compensation for the lender while aligning their interests with the borrower's financial success. Additionally, it mitigates excessive debt accumulation by providing predictable costs for borrowers. Such a model promotes ethical lending, reducing financial exploitation and fostering a more balanced economic relationship between parties.

References and Further Reading

"Henderson city councilman sued — again — over alleged illegal loans” (Nevada Current) 

“Islamic Finance: How Does It Make Money Without Interest?” (Global Islamic Magazine)

“Lending & Secured Finance Laws and Regulations USA 2024-2025” (ICLG.com)

“Payday Loan Facts and the CFPB’s Impact” (The Pew Charitable Trusts)

“Personal loans” (Banca d’Italia)

“Plaintiff alleges usurious loans against internet lender” (Cook County Record)

“Quali sono gli interessi usurari per un prestito?” (LexDo.it)

“Toler v. Green Arrow Solutions et al.” (ClassAction.org)

“What Is a Payday Loan? How It Works, How to Get One, and Legality” (Investopedia)