The New York Times
April 23, 2001, Monday
In Some Immigrant Enclaves, Loan Shark Is the Local
Bank
By DEXTER FILKINS
Juan Luis, a Washington Heights businessman, built a sprawling empire of fried chicken
stands in the 1970's and 80's, financing much of it with money borrowed from loan
sharks at punishing rates of interest. When much of the business collapsed, the loan
sharks took his home in the Dominican Republic and most of his money.
Yet just last August, when Juan Luis needed $10,000 to pay a tax bill on what remained
of his business, he telephoned two of his most reliable loan sharks, bargained for the best
interest rate and arranged for a drop at one of the 10 chicken stands in the city that he still
owned. The next day, the moneylender double-parked in front of the restaurant and
tossed a paper bag full of $20 bills onto a table in front of him. ''Bloodsuckers,'' says Juan
Luis, who withheld his last name for fear of retribution. ''But everyone in the community
uses them.''
This is banking for thousands of Latinos in immigrant neighborhoods in New York and
across the country, where loan sharking and other unregulated lending is thriving, often
within sight of commercial banks. Unlike the loan sharks of yesteryear, with links to the
mob and reputations for brutality, the ''prestamistas,'' as they are known here by the
Spanish term for moneylender, often constitute a mainstream institution, financing
everything from bodegas to discos for the poor and the middle class alike.
While many prestamistas lend money at illegal interest rates, some compete directly with
mainstream banks. They are fast, reliable and often understanding, and in many of New
York City's Latino neighborhoods, the prestamistas are the lenders people turn to first.
''Loan sharks are our biggest competitors, and they're killing us,'' said Dennis Reeder,
executive director of the Washington Heights and Inwood Development Corporation, a
nonprofit group that makes loans to small businesses.
Mr. Reeder says the vast majority of his clients have borrowed money from loan sharks,
often at interest rates as high as 10 percent per week, and his organization often lends
money to help people to pay them off. In a study of the Washington Heights area, Mr.
Reeder's group concluded that there was a local market of $10 million a year for business
loans under $10,000, and that the demand was being met almost entirely by the
prestamistas.
''There is a lot of money to made here,'' said Tony, a prestamista who says he has
financed dozens of businesses in Washington Heights and the Bronx. In an interview,
Tony refused to reveal his real name.
Informal types of lending like loan sharking have been around for years, but the volume
and variety of recent immigration have brought an array of new types.
Korean immigrants, for instance, make wide use of a system called kye (pronounced
kay), in which members contribute to a savings pool and take turns borrowing. Some
Latino communities use a similar system known as tanda or sociedad.
In many communities, the moneylenders ask fewer questions and prove remarkably
flexible when a borrower cannot pay. ''These informal lenders are providing a valuable
service,'' said Jay Rosengard, a faculty member at Harvard's Kennedy School of
Government, who has studied informal financial networks in immigrant communities.
''People will pay the interest rates, because they want the access to credit.''
Sometimes the lawless financial world turns violent. In May 1998, two well-known
moneylenders in the Korean community were murdered as they sat in their Lexus in a
Queens neighborhood. A Korean grocer who had allegedly owed the couple $34,694 was
charged in the murder, but a jury acquitted him after his lawyer argued that there were
many others who may have had a motive to kill.
In New York's Latino neighborhoods, some people say they are following the tradition of
their homelands, where the poor often have no banks and little money to save. They say
they are reluctant to use regular banks because of questions about their immigration
status. Some say they do not keep the detailed financial records needed to qualify for a
loan.
One major reason for the prestamistas' popularity may be the lack of success many
Latinos have had in trying to borrow from banks. Jose Sanchez recently borrowed
$70,000 from a loan shark to take over the lease on a small grocery store in the
Kingsbridge section of the Bronx. Mr. Sanchez says he was turned down for loans at
Citibank and Chase several years ago, and does not bother trying anymore.
''I don't like the prestamistas, but I use them,'' he said.
In the world of the impoverished immigrant, where a big telephone bill can shatter a
month's budget, the speed and certainty of loan shark money often matter more than the
high interest rate. Maira Gonzalez, a waitress at a restaurant in Washington Heights,
recently borrowed $2,000 from a local prestamista to pay for a trip to the Dominican
Republic, where her three children live. The weekly interest is 5 percent.
''Nobody wants to borrow money, but we are poor people and sometimes we have to,''
said Ms. Gonzalez, who earns about $250 a week.
New York law caps interest rates on most bank loans at 25 percent per year, 16 percent
on person-to-person loans. The going rate among loan sharks in some Latino
neighborhoods is 2 to 5 percent per week -- or about 104 to 260 percent per year.
Loan sharking in New York's Latino neighborhoods appears to be flourishing despite law
enforcement efforts. Daniel J. Castleman, the chief of the Manhattan district attorney's
investigations division, said loan sharking prosecutions were traditionally spun off from
inquiries into illegal gambling and often associated with organized crime. Loan sharking
in New York's newly arrived immigrant communities, he said, is a different phenomenon
and hard to pursue.
''There is an ingrained money lending business,'' he said. ''I've always understood that it
worked pretty well. People respect the rules. We don't get a lot of reports about
intimidation.''
The business of private lending is also thriving despite the presence of large banks, which
have made mixed efforts to penetrate the city's poorer neighborhoods. Some public
interest groups say bank mergers in recent years have diminished the number of banks
and the quality of services in poor neighborhoods, making it harder for people to borrow
money and all but forcing them into the hands of the loan sharks.
The big banks say that they have made efforts to penetrate the city's poorer
neighborhoods, but that they face formidable obstacles -- cultural and financial -- to
attracting customers. Federal banking records show, for instance, that the number of bank
loans to businesses with revenues of less $1 million per year in poor areas of the Bronx
nearly doubled from 1996 to 1999 and that the total dollar value of those loans rose by
about 140 percent, to nearly $38 million.
Another reason may be that some prestamistas are willing to drop interest rates for their
best customers. Mr. Sanchez, who recently borrowed $70,000 for the store in the Bronx,
got the money at a 20 percent annual rate for being a loyal client of his prestamista.
The loan sharks portray themselves as ordinary businessmen providing a service where
their mainstream competitors fear to tread. Tony, the loan shark active in Washington
Heights, says that he and his two partners have lent millions of dollars to mostly
Dominican clients to help start area businesses. One of his biggest loans, he said, was
$2.5 million to start a supermarket in Washington Heights.
“We do about eight deals a week,” said Tony, dressed in an expensive suit. “Every one
of them has been denied at a bank.”
Tony, who spoke during an interview at a friend's office in Washington Heights, said his
''bank'' was worth about $20 million. He said that he and his partners disguised their
business behind a legitimate mortgage brokering business, and that they reported little of
the income they made from the loans. Tony deals only in cash and usually charges 5
percent a week.
Tony, like other prestamistas interviewed, said that he did not use coercion to force
repayment from defaulting clients.
Instead, he said that much like a bank, he and his partners secured collateral to seize if the
loan failed -- often property the borrower is trying to lease or buy. Tony said that was
usually accomplished by holding the title of the property until the loan was repaid. Such
an agreement may not be legally enforceable, he said, but the practice works, even if
sometimes it is accompanied by threats.
''We're not going to break any legs,'' Tony said, ''but we have taken property back.''
Carlos, a South Bronx prestamista who says he lends no more than $3,000 to any one
person, keeps a safety deposit box full of collateral like gold chains and wristwatches. To
ensure that his clients do not disappear, Carlos says he often holds a borrower's
immigration papers until the loan is repaid.
''I know my people,'' he said. ''They get some money, they'll go to Santo Domingo,
especially at Christmas, spend it all and come back with nothing.''
Even with loan sharking thriving in the city's Latino neighborhoods, leaders of local
nonprofit groups say they try to coax people into banking's mainstream.
Milton Balcacer, who operates a tiny grocery store on the Grand Concourse in the Bronx,
said he borrowed $14,000 from prestamistas over the years, and paid back $28,000 with
interest. Then, in 1999, Mr. Balcacer saw an ad in a local Spanish-language newspaper
for Neighborhood Trust, a nonprofit credit union in Washington Heights, from which he
has borrowed several thousand dollars to spruce up his store.
The interest rates are wonderfully low, he says. ''I'll never use the prestamistas again.''