Are Payday Loans on the Rise or Decline?

Inside Subprime: Dec 5, 2018

By Grace Austin

As recently as two years ago, it looked as if payday loans were going to be regulated out of the market. But today’s landscape looks quite different.

In recent years, payday loans, both online and in brick-and-mortar stores, have been hit hard by state legislation and ballot referendums, as well as federal and state lawsuits. For example, in Colorado, ballot measure Proposition 111 passed in November 2018, which capped interest on payday loans to 36 percent a year. In Ohio, >House Bill 123 went into effect this fall, putting a 28 percent APR cap on loans up to $1,000 over a 12-month span. These state-led efforts effectively make payday loans illegal by regulating how much interest and fees a company can charge, the length of the loan periods, and the dollar amount of the loan.

These efforts, often coordinated by consumer advocates, religious groups, and lawmakers, have led to many payday lenders closing shop. While some payday lenders attempt to find loopholes with the new laws, those loopholes are eventually closed by state and federal authorities.

That was the case with one South Dakota payday loan firm which continues to face legal setbacks to stay in business, most recently before the state Supreme Court. South Dakota authorities revoked the payday lender’s license for introducing a loan product that violated a payday lending cap passed by referendum in November 2016.

State attorneys general have also stepped up their enforcement of payday lenders. For example, the Virginia Attorney General established a special Predatory Lending Unit in 2015, tasked with seeking out violations of state and federal consumer lending laws.

The numbers reflect the sharp decline: consumer spending on payday loans, both storefront and online, has fallen by about a third since 2012, according to 2017 data from the Center for Financial Services Innovation.

Payday lenders have also been hit with major lawsuits, including many of the bigwigs, like the “godfather of lending” Charles Hallinan, who was sentenced in July 2018. Many of these lawsuits involve coordinated investigations from the government’s financial and consumer agencies, including the Consumer Financial Protection Bureau and the Federal Trade Commission.

One federal initiative that led to a sharp decline in payday loan revenue the past few years is now up in the air: the CFPB’s Final Rule regarding Payday, Vehicle Title, and Certain High Cost Installment Loans. After an administration change at the consumer watchdog agency, the rule, first proposed in June 2015, will now be reconsidered starting in January 2019, according to the agency.

The CFSI found online and storefront payday loans netted $6 billion in 2016. As the data shows, until there are better alternatives for those in need of a short-term loan, payday loan firms will continue to find a market to stay in business.

For more information on payday loans, scams, cash advances, and title loans, check out our state financial guides including, Illinois, Texas, Florida and more.