Payday Loans: A History
An OppLoans eBook
The information contained herein is for educational purposes only and is not legal advice. You should consult your own attorney or seek specific advice from a legal professional regarding your particular situation.
Payday Loans: A History
Some people say money can’t buy love. Some refer to it as the root of all evil. No matter what you believe about money, we can agree that when you don’t have enough, things can look bleak.
For as long as people have had difficulty making ends meet, lenders with financial stores have been ready to lend money to make a profit. Payday loan advocates say the product relieves financial stress by providing a bridge for credit challenged customers to get them through a temporary financial emergency. In return for providing a consumer who can show merely some proof of employment with the “fast cash” they need when they are in a pinch, payday lenders simply ask for a fee and that the consumer pay it back in a week or so.
Unfortunately, evidence shows that the people benefiting most from the payday loan industry are the owners of these businesses, not their customers. Payday lenders utilize a product intentionally designed to ensnare borrowers in an endless cycle of debt, according to Ron Elwood, supervising attorney for the Sargent Shriver National Center on Poverty Law.
“[The payday loan industry] exploits financially desperate consumers by charging unconscionable and unjustifiable interest rates, and, worst of all, trapping the most financially vulnerable in unending debt,” Elwood wrote in a July/August 2014 Clearinghouse Community article.
A payday loan typically features a sum of less than $500 to be repaid in a single payment on the borrower’s next payday, usually two to four weeks from the onset of the loan. The borrower provides a post-dated check or authorizes an electronic bank account debit, to include the full value of the loan, interest and fees. While caps on fees vary from state to state, a typical two-week payday loan with a $15 per $100 fee equates to an annual percentage rate (APR) of almost 400 percent, if the terms are not satisfied on time.
Historically known as loan sharks, predatory lenders, loan-flippers, churners, salary lenders and wage-buyers, payday loan providers have spawned an endless cycle of public outrage, legislation, and litigation. Laws governing the business of granting unsecured short-term loans appeared formally at the turn of the 20th century and regulations around the industry continue to evolve at local, state and national levels. This article provides information about the $6 billion payday loan industry and the ever-evolving regulations which continue to shape it.