Payday Loans: Regulations Emerge

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: Regulations Emerge

In 1907, a philanthropic organization called the Russell Sage Foundation presented and promoted research to mitigate the societal problem of high-rate lending to poor people. Their findings supported the need for small dollar lending but that such lending should be regulated to prevent fraud and oppression. The National Federation of Remedial Loan Associations, established in 1909 by non-commercial lenders, added its support to the movement and with the support of commercial lenders in the American Association of Small Loan Brokers in 1916, the Uniform Small Loan Law was adopted. This law allowed specially-licensed lenders to charge much higher interest rates, up to 36 percent, in exchange for adherence to strict supervision and regulations. Through trial and error, this national small loan policy was amended repeatedly until some form of it was adopted by nearly two-thirds of the states by the 1940s. The following is a progression of state adoption [1]:

  • 1911 – Massachusetts
  • 1914 – New Jersey
  • 1915 – New York, Ohio, and Pennsylvania
  • 1917 – Illinois, Indiana, Maine, New Hampshire, Utah;
  • 1918 – Maryland, Virginia;
  • 1919 – Arizona, Colorado, Connecticut;
  • 1920 – Georgia;
  • 1921 – Iowa, Michigan;
  • 1923 – Rhode Island;
  • 1925 – Florida, Michigan (revision), Tennessee, West Virginia;
  • 1927 – Alabama, Missouri, Wisconsin;
  • 1928 – Louisiana;
  • 1929 – Connecticut, Missouri, and Ohio (all revisions);
  • 1931 – Oregon and California (both revisions);
  • 1932 – New Jersey and New York (both revisions);
  • 1933 – Indiana, West Virginia, and Wisconsin (all revisions);
  • 1934 – Kentucky;
  • 1935 – Colorado and Illinois (both revisions);
  • 1937 – Pennsylvania and Rhode Island (both revisions), Arkansas, Hawaii, Vermont;
  • 1939 – California and Michigan (both revisions), Minnesota, New Mexico, Dominion of Canada.

However, even after six revisions and the individual states’ adaptations, the Uniform Small Loan Law proved insufficient to prevent fraud and oppression. Many of the experimental laws merely entrenched existing problems by legalizing high charges without commensurate controls and most deficient were the methods used to describe and limit the maximum controls.

“The illegal lender simply framed his transactions to place them outside the scope of the law,” F. B. Hubachek wrote. He went on to argue that illegal loan providers fought the enactment of the small loan law every way they could and exploited every loophole. [1]

For information about current payday loan landscape in America, check out our State Financial Resource Guides.

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