Definition
A fringe banking outlet is any retailer that provides high-interest loans to consumers not served by traditional banking institutions.
Analysis
Fringe banking is one of the oldest forms of commerce. Usury laws have been enacted largely to contain the predatory terms of financing provided by fringe banking outlets.
Examples of fringe banking include:
- Payday lenders
- Cash advance outlets
- Check cashing centers
- Title loan companies
- Pawnshops
- Loan sharks
The lines between different types of fringe banking outlets are often blurred, and some companies may engage in multiple forms of lending. Interest rates tend to be exorbitant, and collateral is normally required.
Some forms of fringe banking are illegal, but they often continue in many areas. Loan sharks operate in violation of numerous laws. Payday lenders often skirt state usury laws by offering loans over the internet.
