Payday loans research

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Contents

PAYDAY LOANS - RESEARCH[edit]

What to do:
  • Stop the CPA {Continuous Payment Authorization) through your bank: Call bank >3 days before ACH draft to cancel draft

Market Overview[edit]

  • payday lenders generally do not report to credit reporting agencies.
  • Online payday market distinct from Storefront payday market

Loan Market[edit]

Today, fifteen large corporations, which together operate roughly half of all loan stores, dominate the industry. Of these fifteen, six are publicly-traded companies:

  • Advance America
  • Cash America
  • Dollar Financial
  • EZ Corp
  • First Cash Financial
  • QC Holdings.

(Source: DROM)

Stats:

  • 80% of Loan Volume due to churn [1]
  • $9bn is spent on payday loan fees
  • 12mm Americans take out payday loans each year
  • Average time borrower is in debt: 5 months.
  • Average fees $520 to borrow $375
  • Average fee at a storefront is $55/2wks
  • Average borrower income: $30,000, 58% struggle to meet monthly expenses
  • 7/10 borrowers use payday loans for regular recurring expenses such as rent and utilities (contrary to claim they're important for emergency/unexpected expenses)
  • Size of online loan market is difficult to measure -(online lenders claim to be exempt from state lending laws and licensing requirements) [2]
  • Estimated $3.1bn in fees online (2015)
  • Online pricing higher than storefront pricing - as high as $30 per $100 borrowed
  • High default rates online - 40% online payday, 55% online payday installment
  • Average $185 in bank overdraft fees ON TOP OF payday loan fees charged to borrowers for insufficient funds
  • ⅓ of online borrowers lose their bank accounts after a failed debit attempt by the lender
  • ¾ of payday loans go to those who take out 11 or more loans annually
  • The payday loan market is not price competitive. Most lenders charge the maximum rate allowed under state law. States without rate limits have the highest prices [3].
  • Available in 36 states (legal in 27, restricted in 9, banned in 14 states and DC) [4]
  • Average Interest 391% [5]

Surety Bonds:[edit]

Also known as a Payday Loan Bond, Surety Bonds are a form of insurance that is required of anyone selling payday loans. The payday loan bond protects you and your money from illegal or unethical actions on the part of the lender. Before lenders purchases a [6] from an agency, they must submit themselves to a credit check, have their application approved, and go through other screening processes. Source:[7]

  • What is a surety bond? Millions of American businesses need permits or licenses to operate: contractors, auto dealers, mortgage brokers and even health spa operators to name just a few. Many of these businesses are required to post a bond, usually with the State, a licensing agency or the entity that is contracting the work, before being allowed to operate.
  • Surety bonds are usually confused for insurance. It is important to realize that they are very different in the way they work and how they are underwritten.
  • A surety bond is a contract. There are three parties involved.
  1. The obligor is the party that is requiring the bond.
  2. The principal is the party that will perform the contractual obligation.
  3. Finally, the surety bond provider is the party that will be insuring the obligee that the principal will perform the obligations. While the bond issuer will pay the obligee in the event of a claim, it is important to know that the principal is responsible for the damages and is required to repay the bond issuer.
  • In 2016 the surety industry (all industries, not just payday) protected approximately $590 billion with surety bonds and $560 billion with fidelity bonds.

The top five surety and fidelity writers remain the same from 2015 to 2016. The top five surety writers were

  1. Travelers Bond
  2. Liberty Mutual Group
  3. Zurich Insurance Group
  4. CNA Surety Group
  5. Chubb, Ltd.

The top five fidelity writers were:

  1. Chubb Ltd.
  2. Travelers Bond
  3. American International Group
  4. Great American Insurance Companies
  5. CNA Surety Group

Source: [8]

Major Lenders:[edit]

Large bank lenders (in the form of "direct deposit loans") [9]

  • Wells Fargo
  • US Bank
  • Fifth Third
  • Regions
  • Guaranty Bank

Bond Market And Securitizations[edit]

  • P2P (fintech, online loans) began securitizations, and nontraditional bundled financing, in 2014 [10]
  • 2 Payday lenders (DFC Corp, and Check 'n Go) were looking at tapping securitization market as of June 2017 [11]

Major Underwriters/Issuers:[edit]

Major Bondholders[edit]

Market Performance[edit]

Political Overview[edit]

  • Borrower/Voter views on payday (2016) [12]

Political Pushback to Payday Loans[edit]

  • Report:"Controlling the Growth of Payday Lending Through Local Ordinances and Resolutions A Guide for Advocacy Groups and Government Officials" November, 2007 Written By: Kelly Griffith, Deputy Director Southwest Center for Economic Integrity mailto:kelly@economicintegrity.org

Full text available at:[13]

  • Report: "HOW MISSISSIPPI MUNICIPALITIES CAN PROTECT THEIR RESIDENTS FROM PAYDAY LENDING" By Leah A. Plunkett, Staff Attorney 12/16/10

Full text available at:[14]

  • Report: "The Power of Community Action: Anti-Payday Loan Ordinances in Three Metropolitan Areas"

Executive Summary: The purpose of this report is to describe and assess campaigns to curb payday lending in three localities: Salt Lake County, Utah; Dallas, Denton, and Tarrant counties in Texas; and Santa Clara and San Mateo counties in California ("Silicon Valley").1 This report builds on two previously published "how to" guides for individuals and organizations wishing to address payday lending with the tools available to local governments. The report adds breadth and depth to these guides by documenting several city-specific campaigns from start to finish. The report goes inside these campaigns through interviews with key leaders and their allies. Full text available at:[15][16]

  • Report: "PAYDAY PAY-TO-PLAY How Payday, Title, and Installment Lenders and their Trade Associations Lobby and Line the Pockets of Powerful Washington Politicians"

This report examines the large sums of money that quickfix consumer lenders spent on lobbying and campaign contributions in the 2013-14 election cycle. It includes data on payday, auto title and installment lenders along with other entities that play an integral role in their operations. These lenders and their trade associations reported over $15 million of political spending in the 2013-14 election cycle. Much of that money was spent by trade associations that represent the industry in Washington. For example, the Online Lenders Alliance (OLA) spent $2.1 million in this election cycle, and the Community Financial Services Association (CFSA), the national trade association for companies that offer small dollar, short-term loans or payday advances, spent $1.7 million. Source: [17]

Elected Officials[edit]

Federal Elected Officials[edit]

Most Supportive:[edit]
Least Supportive:[edit]

State Elected Officials[edit]

Most Supportive:[edit]
Least Supportive:[edit]

Municipal Elected Officials[edit]

Most Supportive:[edit]
Least Supportive:[edit]

Organizing Landscape[edit]

Ideology:[edit]

Policy Arguments/Rationale In Support:[edit]

  • Finance Groups file lawsuit against CFPB arbitration rule (10/2/2017) [18]
  • Group files lawsuit against rule banning mandatory arbitration clauses & allowing class action against banks (rule link here [19])
  • Who: U.S. Chamber of Commerce, American Bankers Association, the Consumer Bankers Association, Financial Services Roundtable, American Financial Services Association, Texas Association of Business, Texas Bankers Association, and in chambers of commerce located throughout Texas

Policy Arguments/Rationale Against:[edit]

  • Do Payday Lending Bans Harm Consumers? (No.) [20]

Potential Alternatives:[edit]

  • Huge NCLC Report on Alternatives: [21]
  • Bank-issued installment loans: [22]

Existing Groups/Organizations against predatory lending[edit]

Note on existing groups (Tyler): I've noticed that much of the activity is coming from faith-based (usually Christian) organizations, many of which are located in the American south. I think it's no coincidence, given that the south experiences rampant poverty and the history of progressive movements intersecting with religious institutions. Also, most of the advocacy coming from these organizations has been directed towards/in support of the CFPB. Without the CFPB/with a deflated CFPB, I imagine many of these efforts will have to be rethought, as they can no longer defer to the regulatory body.

Americans for Financial Reform[edit]
  • Website: [23]
  • HQ: Washington, DC
  • MISSION STATEMENT: The mission of AFR isn't only related to payday lending and protecting the CFPB. Here's it's mission statement:

In the face of a full-blown global economic crisis, bold action is needed now by leaders in Congress, the Administration and the federal government to repair our nation's broken financial system, establish integrity in the financial markets, and facilitate productive economic activity that benefits all segments of our communities. It is only in doing these things that we can meaningfully address the public's shattered confidence in the fairness of the financial marketplace and establish a healthy, robust and productive economy. The good news is that a framework for the needed financial services regulatory reform already is in front of us: the "Special Report on Regulatory Reform," released on January 29, 2009, by the Congressional Oversight Panel identifies the key principles essential for meaningful financial reform. Chaired by Professor Elizabeth Warren, the Panel was established by Congress to monitor the bailout and to help ensure that aid to the financial sector is accompanied by meaningful market reforms. The January report concluded that "the present regulatory system has failed to effectively manage risk, require sufficient transparency and ensure fair dealings."

It proposes principles calling for reforms to:

  • more closely regulate financial institutions that pose systemic risk;
  • limit excessive leverage in key financial institutions;
  • increase supervision of the shadow financial system;
  • create a new system for federal and state regulation of mortgages and other consumer credit products;
  • put in place executive pay structures that discourage excessive risk taking;
  • reform the credit rating system;
  • establish a global financial regulatory floor; and
  • start planning now for dealing with the next crisis.

These principles provide an excellent framework for regulation that will constrain market excess and protect our nation's economic health. As consumers, we need financial products that are fair and reliable. We need to know that financial institutions are in compliance with laws meant to protect our civil and consumer rights and that an unequal, two-tiered financial system that puts low- and moderate-income and minority consumers at risk no longer exists. We need to preserve and modernize laws that serve communities and their access to credit. We need to be confident that there is proper oversight of the financial markets. As workers, we need our country's financial assets invested prudently.

We need productive economic activity that creates good jobs, supports arrangements for security in retirement, provides the goods and services that we need and want, and is sustainable over the long-term. As investors, we need full and accurate information that allows us to understand risk, make informed decisions and invest our savings prudently. The era of blind adherence to self-regulated financial markets and the unquestioning deference to the demands of special interests must end. That route has been travelled for well over a decade now, and the results have been nothing short of disastrous. Only when we establish a rational and well-functioning financial system that works in the interests of consumers, investors and workers will we have a sound and efficient financial system and productive economic activity.

It is clear that this is too big a job to be left only to the "experts" and market players who brought about the current state of affairs in which we find ourselves. The undersigned organizations - as representatives of consumers, workers and investors - have come together to ensure that our evolving financial system serves the interests of all Americans. We support the above-listed principles for reform. We will work together to educate and engage the American public, elected officials, and others in support of these principles in order to build the confidence of American consumers, workers and investors and to establish a vibrant, trustworthy and healthy financial system

  • AFR has a rather long list of coalition members. Here's the list [24].
  • Materials/research: AFR produces policy research, statements, and advocacy around payday lending, among other issues relevant to financial reform. *
  • Recently, they've produced literature on the deepening relationship between private equity and the payday loan industry [25].
Center for Responsible Lending[edit]
  • Website: [26]
  • HQ: Durham, NC
  • Mission Statement: The Center for Responsible Lending (CRL) is working to ensure a fair, inclusive financial marketplace that creates opportunities for all responsible borrowers, regardless of their income, because too many hard-working people are deceived by dishonest and harmful lending practices.

While the housing crash was devastating to families at all income levels, it was disproportionately destructive to entire communities of low- and moderate-income families and borrowers of color. In fact, it wiped out generations of family wealth in these communities. Many of these families had successful 30-year loans, but they were lured by the promises of deceptive marketing and then financially devastated when they were placed in egregious loan products.

CRL is a nonprofit, non-partisan organization that works to protect homeownership and family wealth by fighting predatory lending practices. Our focus is on consumer lending: primarily mortgages, payday loans, credit cards, bank overdrafts and auto loans.

  • Research: According to their website: CRL conducts ground-breaking research on the extent and impact of predatory lending, to provide useful information to consumers, community advocates, and policymakers alike. We develop reasonable, practical policy solutions and share these with advocates and policymakers interested in reforming lending practices at the state or federal level.

They're fairly prolific with their publications, and you can read them [27]. There is a payday loan filter, as well.

  • Position on PayDay Loans:

Definition of problem: Although marketed as a quick financial fix, the long-term debt is the typical borrower experience and the core of the business model. With each loan flip or new loan, borrowers are unable to both repay the lender and have enough money left until the next payday arrives. Payday loans are a debt trap by design and lead to cascade of other financial consequences such as increased overdraft fees and even bankruptcy. A recent trend is for payday lenders to make multi-payment "payday installment" loans, which can be for larger amounts and extend the cycle of high-cost debt even longer.

CRL position: A 36 percent interest rate cap on payday loans most effectively stops the cycle of debt. Currently 15 states and the District of Columbia have enacted double-digit rate caps. Since 2005, no new state has authorized high cost payday lenders, and some that used to now do not. States can and must continue to enact strong protections, such as a rate cap of 36% or less, to stop the payday debt trap.

Federal laws enacted with bipartisan support make it illegal to charge service members more than 36 percent interest on a loan. One of the key enforcement roles of the Consumer Financial Protection Bureau is to closely monitor lenders who continue to prey on military personnel.

  • Impact (according to their website):

Military Lending Act (2006). Congress took action to place a 36% annual interest rate cap on small consumer loans made to military service members and their families. In 2015, the U.S. Department of Defense enhanced these protections to effectively cover harmful forms of consumer credit and to close loopholes.

States act to stop payday loan abuses (2008). Following North Carolina's enactment of its rate caps in 2001, other states have done so as well. Since 2007, Arkansas, Arizona, Washington DC, Montana, New Hampshire, Ohio, Oregon, took steps to end 400% interest rates on payday loans. Several other states, such as Washington, Colorado, Virginia, and others have taken steps to eliminate some of the worst payday loan abuse. Over the last decade, CRL has worked policymakers and stakeholders in over a two dozen states to address payday loan abuses, both to help reign it in as well as prevent the expansion of these products.

End of bank payday loans (2014). We published the first research exposing that payday loans from banks were just like other payday loans, which helped bring about guidelines that led to banks' discontinuation of triple-digit payday loan products.

Federal rules, which we expect to address some elements of the debt trap caused by payday lending, are on the horizon.

Bank Payday Loan Exposé: [28]

Latest Publication on payday loans: Initial Analysis of CFPB's Final Rule to Address Payday & Car Title Loans [29]

Cooperative Baptist Fellowship[edit]
  • Website: [30]
  • Location: Athens, Georgia
  • Mission: Like Jubilee USA, its approach to debt forgiveness and payday loans[31] is faith-based.

Perspective ("A Christian Response") [32]

CBF has aggregated resources on PayDay loans, such as:

  • A list of resources: [33]
  • Info on payday lending reform (with helpful graphic on distribution of loan usage): [34]
  • Summary of CBF advocacy efforts: [35]
Ecumenical Poverty Initiative[edit]
  • Website: [36]
  • HQ: Washington, DC
  • Mission: (From website) The goal of the Ecumenical Poverty Initiative is to empower and mobilize the faith community to speak and act to end the scandal of poverty in the United States. Churches have been powerful voices for generations on a range of defining social justice issues, most importantly the need to address poverty. Central to any Christian message is the call to care for the "least of these"-to love and care for our neighbors. With more people both in the United States and globally living on the economic margins, people of faith are drawing more deeply upon that rich tradition of social justice engagement to speak out on the need to address the range of poverty issues, and create community practices and national policies that lift people from a life of poverty.

The Ecumenical Poverty Initiative began as a ministry of the National Council of Churches USA and in July 2013 moved under the sponsorship of the Disciples Center for Public Witness. The Initiative continues to bring together national religious denominations as well as state ecumenical agencies and other religious organizations in the ministry to address poverty. The Ecumenical Poverty Initiative is staffed by Rev. Dr. Leslie Copeland-Tune who directs the program. Rev. Sekinah Hamlin is the senior adviser. The Ecumenical Poverty Initiative Working Group is co-convened by Rev. Dr. Ken Brooker Langston of the Disciples Center for Public Witness and Dr. Eli Burke of the Baptist General Convention of Virginia.

Partners:

  • The African Methodist Episcopal Zion Church [37]
  • Christian Church (Disciples of Christ)[38]
  • Christian Council of Delaware
  • Church of the Brethren
  • Community of Christ [39]
  • The Episcopal Church
  • Evangelical Lutheran Church in America
  • Interfaith Arkansas
  • NETWORK [40]
  • Ohio Council of Churches
  • Pennsylvania Council of Churches
  • Presbyterian Church USA
  • Rhode Island State Council of Churches
  • United Church of Christ [41]
  • Virginia Council of Churches
  • West Virginia Council of Churches

Statements/literature on payday lending: [42]

It appears they haven't confronted PayDay Loans since 2016, but the latest publications are below:

  • Faith leaders urge CFPB to strengthen final rule against predatory lending [43]
  • EPI Calls on CFPB to Strengthen Payday lending rule [44]
Jubilee USA[edit]
  • Website: [45]
  • HQ: Washington, DC
  • Faith-based (multi-faith) organization calling for mass debt jubilee.

Statement on payday lending (from website)

  • Payday lenders often market their products as a simple solution to a short-term need for cash. The costs, however, are high. The average payday loan carries an annual interest rate of almost 400% with additional fees and penalties. Payday lenders often require access to the borrower's bank account as a guarantee of repayment, which can result in overdraft charges if the borrower does not have sufficient funds for repayment.
  • Payday lending can trap borrowers into a cycle of debt and poverty, sometimes compelling borrowers to take out 10 or more consecutive loans. Borrowers often find it necessary to take another loan, along with additional fees, to pay off a previous loan. Eighty percent of short-term loans are re-borrowed in a month, and over fifty percent of all short-term loans are followed by at least 3 or more additional loans.
  • Payday loans disproportionately impact low-income populations and minority communities. Half of payday loan borrowers earn less than $25,000 per year. The majority have little to no savings or access to other forms of credit and sixty-nine percent of borrowers reported that payday loans covered a "recurring expense." Predominantly African-American neighborhoods have three times as many payday lending stores as predominantly white neighborhoods. Borrowing rates are 2 to 3 times higher for African-Americans.
  • Jubilee USA is an advocacy organization, working with government officials and producing research
National Baptist Convention, USA Inc.[edit]
  • Website: [46]
  • HQ: Nashville, TN
  • Faith-based organization, not issue-based, but they have produced literature and advocated for payday lending reform
  • Resolution on payday lending: [47]
  • Articles on their work around payday loans: [48] [49]
People's Action Institute[edit]
  • Website: [50]
  • HQ: Washington, DC
  • Mission (re: Debt): [51]

We're fighting for a new set of rules for Wall Street.

As our wages stagnate, more and more of us have to borrow to make ends meet. When we borrow, Wall Street is there to profit off our need. But Wall Street is doing more than lining its pockets. It's also distorting our entire economy. We need a financial system that works for people and communities, not the other way around.

Take predatory payday lending, which traps people in cycles of debt. Our financial struggles are predatory lenders' profits - and that needs to stop. That's why we're fighting for strong rules to rein in the payday lending industry.

We can replace a financial system that extracts from families and communities with one that invests. We're fighting to keep students from having to mortgage their futures for a college education. Debt-free higher education - including immediate debt relief - must be part of our education promise.

  • Statement on CFPB proposed rules on payday loans (October 2016), with literature and testimonials on the consumer debt cycle: [52]
PICO National Network[edit]
  • Website: [53]
  • HQ: Oakland, CA
  • Note: progressive faith-based organization
  • Mission:

PICO is a national network of faith-based community organizations working to create innovative solutions to problems facing urban, suburban and rural communities. Since 1972 PICO has successfully worked to increase access to health care, improve public schools, make neighborhoods safer, build affordable housing, redevelop communities and revitalize democracy.

PICO helps engage ordinary people in public life, building a strong legacy of leadership in thousands of local communities across America.

Nonpartisan and multicultural, PICO provides an opportunity for people and congregations to translate their faith into action. More than 40 different religious denominations and faith traditions are part of PICO.

With more than 1,000 member institutions representing one million families in 150 cities and 17 states, as well as a growing international effort, PICO is one of the largest community-based efforts in the United States. Together we are lifting up a new vision for America that unites people across region, race, class, and religion.

  • Statement on Payday Loans:

Each year, many households face financial crises. Over the last several decades, high-cost lending to those in need has increased significantly. More than 20,000 payday and car title loan stores operate nationwide. Taking advantage of loopholes and a weakening of traditional usury laws, many of these lenders now offer loans at 390% annualized interest (APR) and higher. Far too often, the result is families trapped in a cycle of debt with even less ability to pay the bills, keep food on the table, save for the next emergency or provide food for their children.

Over the past decade, faith communities across the country have sought to stop the payday loan debt trap - by offering credit, compassion and aid and by advocating to stop unscrupulous lenders from preying on their communities.

Faith communities now have a historic opportunity to help enact national reforms that protect against predatory payday and car title lending. The Consumer Financial Protection Bureau is preparing to issue new rules governing payday lending in the coming year. We can advocate to make these rules as strong as possible and to prevent new loopholes that would allow unscrupulous businesses to continue to take advantage of vulnerable people.

This toolkit was created by faith leaders and organizers for lay persons, clergy and congregations to help you listen to, educate, and mobilize your communities to fight predatory lending. Many thanks to the Center for Responsible Lending, along with many allied faith leaders, for leading the creation of these materials. (see below)

  • They've compiled some resources for understanding payday loans and educating your community about them, and how to recognize them, as well as the merits of CFPB: [54]
U.S. Conference of Catholic Bishops[edit]
  • Website:
  • USCCB Position on payday loans:

In 2013, Bishop Stephen Blaire of Stockton, CA, decried the way payday lenders [55] "take advantage of working people struggling to meet basic human needs" by exploiting the fact that their jobs do not pay enough. He urged Richard Cordray, director of the CFPB, to protect poor and vulnerable people from predatory payday lending and other harmful financial products. USCCB is a member of Faith for Just Lending. . . , an ecumenical effort to raise awareness of the harm caused by payday lending on families and communities. [56]

  • To combat predatory banking practices, the Catholic Campaign for Human Development, as the domestic antipoverty program of the Catholic Bishops of the United States, funds organizations throughout the country that develop alternative sources of credit for low-income working people and families. More information about these programs can be found at [57]and [58](Spanish).
  • Many state Catholic Conferences and diocesan offices are involved in local efforts to address unfair and unjust lending laws and regulations.Statement on lending on their blog: [59]
Faith for Just Lending[edit]
  • Website: [60]
  • HQ:
  • FJL is is a coalition of faith-based institutions working to end predatory payday lending. The Faith for Just Lending steering committee includes Catholic Charities USA, Center for Public Justice, Cooperative Baptist Fellowship, Ecumenical Poverty Initiative, Ethics & Religious Liberty Commission of the Southern Baptist Convention, National Association of Evangelicals, National Baptist USA, National Latino Evangelical Coalition, PICO National Network, and the United States Conference of Catholic Bishops.

Why faith leaders oppose the payday loan industry:

  • Payday lending is a practice with perverse incentives for borrower failure.
  • The payday industry utilizes aggressive, deceptive advertising methods and locates its stores in area of desperate need, driving up demand among those struggling to make ends meet and with few choices.
  • Payday lending undermines the dignity of the borrower when the borrower's failure leads to success and profit for the lender. People of faith are called to create and support financial systems that respect all persons as we are all created in the image of God.

They have published a series of resolutions and conventions on the payday loan industry: [61]

NYC-DSA Debt & Finance Working Group[edit]
  • Website: [62]
  • Location: NYC
  • Mission statement:
  • The Debt & Finance Working Group organizes with people in debt to build power against the financial institutions and government entities that profit from our indebtedness. Today many people are under-employed, unemployed, or paid so little that they are forced to take out loans to access basic needs. Indeed, the rising power of finance is one of the defining characteristics of neoliberalism. The ability of creditors to extract from us is both coercive and alienating, and reinforces a system that is unambiguously dependent upon white supremacy, sexism, and the degradation of workers. The Debt & Finance Working Group sees debtor organizing as a key to building bonds of solidarity across New York City, and an organizing effort that is critical to the broader struggle for democratic socialism.
  • Note: this is a new Working Group, and there will be more info soon. The only concrete plan in motion, at the moment, is the development of a debtors' clinic.
Rhode Island State Council of Churches[edit]
Poverty USA[edit]
Stop the Debt Trap[edit]

Existing Resources:[edit]

  • Pew Document (2012) outlining state-by-state restrictions on lending and interest rates: [63]
  • FTC Info Pages: [64] [65]
  • NCLC Issue Pages: [66] [67]
  • CRL Issue Page: [68]
  • Woodstock Institute: [69]
  • CFA's Payday Site: [70]

Resistance/Management Tactics:[edit]

Legal Regulatory Landscape[edit]

Current Regs And Laws:[edit]

CFPB Regulations/Enforcement:[edit]

  • October 5, 2017: CFPB Fact Sheet [71]
  • CFPB Sues Four Online Lenders for Collecting on Debts Consumers Did Not Legally Owe [72]

FTC Regulations/Enforcement:[edit]

  • FTC Judgement on fake collections: [73]
Current Federal Laws:[edit]
  • ECOA (Equal Credit Opportunity Act): The Equal Credit Opportunity Act (Ecoa) prohibits discrimination in consumer lending by race, gender or other protected classes. It does not prohibit discrimination against poor people, however. That always seems to be legal, which often plays out as racial and gender discrimination via economic status.
  • TILA (Truth In Lending Act): The Truth In Lending Act (TILA) is a big bill that requires lenders to disclose certain facts about loans, creates a standard way to calculate interest rates, and regulates other aspects of the lending system.
  • FCTA (Federal Trade Commission Act): The Federal Trade Commission Act (FTCA) contains a provision prohibiting "Unfair and Deceptive Acts and Practices" (Commonly Called "UDAP" Or "Consumer Fraud"). This is the baseline protection against creditors misleading you or engaging in other shady behavior.
  • CFPA (Consumer Financial Protection Act): The Consumer Financial Protection Act (CFPA) has added protections to the FCTA.
  • Bankruptcy: Bankruptcy laws are federal laws.

Current State Laws:[edit]

  • Pew Document (2012) outlining state-by-state restrictions on lending and interest rates [74]
  • Giant NCLC Report on state-by-state statutes [75]
  • State-By-State MAP: [76]

States that BANNED payday lending:

  • Arizona
  • Arkansas
  • Connecticut
  • Washington DC.
  • Georgia
  • Maryland
  • Massachusetts
  • Montana
  • New Hampshire
  • New Jersey
  • New York
  • North Carolina
  • Pennsylvania
  • Vermont
  • West Virginia

This does NOT mean that there aren't exploitative, high-cost loans available in these states, as they allow six-month loans from banks and credit unions and cash advance loans with credit card companies.

States that allow payday lending and have STRICT regulation:

  • Colorado
  • Delaware
  • Florida
  • Maine
  • Minnesota
  • Oregon
  • Rhode Island
  • South Dakota
  • Virginia
  • Washington

STRICT is defined as "exacting requirements", with at least one of the following three types of regulation:

  1. rate caps, usually around 10 percent of the borrowed principal, which are lower than most states but still permit loans to be issued up to triple-digit APRs;
  2. restrictions on the number of loans per debtor;
  3. allowing debtors multiple pay periods to repay loans.

States that allow payday lending have PERMISSIVE regulation:

  • Alabama
  • Alaska
  • Hawaii
  • California
  • Idaho
  • Illinois
  • Indiana
  • Iowa
  • Kansas
  • Kentucky
  • Louisiana
  • Michigan
  • Mississippi
  • Missouri
  • Nebraska
  • Nevada
  • New Mexico
  • North Dakota
  • Ohio
  • Oklahoma
  • South Carolina
  • Tennessee
  • Texas
  • Utah
  • Wisconsin
  • Wyoming

PERMISSIVE is defined as "least regulated and allow initial fees of 15 percent of the borrowed principal or higher. They allow for payday loans due in full on a debtor's next payday with APRs usually in the range of 391 to 521 percent ($15-$21 per $100 indebted for a two-week loan)."


Unconscionability Laws

Unconscionability laws are laws that prohibit "terms that are so extremely unjust, or overwhelmingly one-sided in favor of the party who has superior bargaining power, that they are contrary to good conscience". (Wikipedia) Some states have unconscionability laws against payday lenders.

According to the NCLC, there are 15 states that have unconscionability laws [77]:

BANNED states

  • West Virginia

STRICT states

  • Colorado
  • Maine

PERMISSIVE states

  • Alabama
  • California
  • Idaho
  • Indiana
  • Iowa
  • Kansas
  • Louisiana
  • Oklahoma
  • South Carolina
  • Utah
  • Wisconsin

New Mexico (PERMISSIVE state) has implied unconscionability laws through the "state deceptive practices statute" (NCLC 2015 report appendix [78] and [79])

Most states have exemptions where "a charge or practice expressly permitted… is not in itself unconscionable." States that do NOT have this exemption are: Alabama, California, and potentially Colorado. Louisiana also includes "necessarily implied" conduct, while in South Carolina, a "prepaid charge that substantially exceeds usual and customary charge may be found unconscionable." (SC code S 37-5-108(9))

Three states have extensively long statutes: Iowa, South Carolina Wisconsin:

  • Iowa code S. 537.5108 (1) "In an action other than a class action, if the court finds the agreement or transaction to have been unconscionable at the time it was made, or to have been induced by unconscionable contract, the court may refuse to enforce the agreement…" Iowa laws seemingly do not apply for class action lawsuits! (4) "a. Belief by the seller, lessor or lender at a time a transaction is entered into that there is no reasonable probability of payment in full of the obligation by the consumer or debtor… However, the rental renewals necessary to acquire ownership in a consumer rental purchase agreement shall not be construed… if the consumer may terminate the agreement without penalty at any time." Iowa laws may not apply for debtors whose terms are unjust but can be cancelled without penalties. "d. The fact that the creditor contracted for or received separate charges for insurance with respect to a consumer credit sale or consumer loan…" Separate charges for insurance might mean extraneous fees and charges. "e. The fact that the seller, lessor or lender has knowingly taken advantage of the inability of the consumer or debtor… to protect the consumer's or debtor's interests by reason of physical or mental infirmities, ignorance, illiteracy or inability to understand the language of the agreement, or similar factors." The payday lender knowingly gave a loan to a debtor who was ignorant, has disabilities or was misinformed about the terms.
  • South Carolina code S. 37-5-108 (1) "With respect to a transaction that is, gives rise to, or leads the debtor to believe will give rise to, a consumer credit transaction, if the court as a matter of law finds…" SC laws seemingly have no class action exemption, unlike Iowa. (4) "In applying subsection (1), consideration must be given to applicable factors… (i) in the case of a consumer credit sale, consumer lease, or consumer rental-purchase agreement, knowledge by the seller or lessor at the time of the sale or lease of the inability of the consumer to receive substantial benefits from the property or services sold or leased." Basically, the payday lender is knowingly starting a bad or poor-quality loan with a debtor. "(v) taking a nonpurchase money, nonpossessatory security interest in household goods… except that when a purchase money credit transaction is refinanced or consolidated, the security lawfully collateralizing the previous consumer credit transaction continues to secure the new consumer credit transaction…" If a creditor takes the debtors' personal household possessions away to pay off a debt, SC may define that as "unconscionable", except when a debtor agrees to it when negotiating with the creditor. This statute probably applies more to pawn shop loans or payday-pawn shop hybrids. "(b) In applying subsection (1), consideration may be given to the extension of credit to a consumer if, considering the consumer's current and expected income, current obligations, and employment status, the creditor knows or should know that the consumer is unable to make the scheduled payment on the obligation when due."
  • Wisconsin Stat. Ann. S. 425.107 & S. 426.108 (3) "Without limiting the scope of sub. (1), the court may consider, among other things, the following as pertinent to the issue of unconscionability: (a) That the practice unfairly takes advantage of the lack of knowledge, ability, experience or capacity of customers…" This is seemingly repeated in a later, similarly-worded statute: "(d) That the practice may enable merchants to take advantage of the inability of customers reasonably to protect their interests by reason of physical or mental infirmities, illiteracy or inability to understand the language of the agreement, ignorance or lack of education or similar factors." "(e) That the terms of the transaction require customers to waive legal rights." This is especially relevant to arbitration clauses that payday lenders may use! "(g) That the natural effect of the practice would reasonably cause or aid in causing customers to misunderstand the true nature of the transaction or their rights and duties thereunder."


Worst Offenders

Ohio

  • "Ohio has the highest payday loan prices in the Nation" Pew Charitable Trust, Dec. 16, 2016 [80]
  • "Payday loans in Ohio are the country's most expensive, with a typical annual percentage rate (APR) of interest at 591%. Lenders charge higher prices in Ohio than in any neighboring state; debtors are charged up to four times what debtors in other states pay.
  • It costs $680 in fees and interest to borrow $300 from a payday lender for 5 months.
  • 1 in 10 adults in Ohio - roughly 1 million people - has taken out a payday loan.
  • The Ohio state legislature passed the Short-Term Loan Act in 2008 to lower rates, but lenders avoided regulation by obtaining licenses to operate as credit service organizations, which were not subject to fee limits.
  • "The Ohio General Assembly has the power to license and set reasonable terms for these loans; the federal agency [CFPB] does not."

Alabama

  • "Easy Money, Impossible Debt: How Predatory Lending Traps Alabama's Poor" Southern Poverty Law Center (SPLC), Feb. 27, 2013 [81]
  • Alabama has four times as many payday lenders as McDonald's stores. 630 licensed shops vs. 250 McDonald's.
  • Annual Percentage Rate (APR) of interest is at 456% for payday loans, 300% for title loans.
  • "The profit model of this industry is based on lending to down-on-their-luck consumers who are unable to pay off loans within a two-week (for payday loans) or one-month (for title loans) period before the lender offers to 'roll over' the principal into a new loan."
  • There is NO LIMIT to the amount of rollovers a payday lender can issue, and for title loans, the payday lender decides whether to rollover or seize one's car; the title loan debtor has no control.
  • "Most borrowers have outstanding loans for many pay periods, and the high interest rates [82] are not tied to the risk associated with these loans [83]. This is especially evident with title loans, because the loan is secured by a car valued at an amount greater than the principal loan amount."
  • There are often no verifications of the ability to repay, no installment plans offered, and payday lenders have direct access to debtors' bank accounts


Recent Local/State Grassroots Legislative Efforts[edit]

Alabama Alabama Senate Bill 138 (SB 138) is being debated this 2018 session, [84] and it would:

  • Prohibit payday lenders from making loans with debtors who already have outstanding loans of $500+ with another lender
  • Have payday lenders authorize checks "with the actual name under which the licensee is doing business".
  • Extend the repay time from 2 weeks to 30 days
  • Require payday lenders provide "a written explanation in clear, understandable language of the fees to be charged by the licensee and the date on which the check and authorization may be deposited or presented by the licensee"
  • Debtors who fail to make a payment for their payday loan due to lack of funds can't be convicted criminally
  • Require payday lenders to display clear warnings about interest rates on signing documents
  • Spearheaded by the Alabama Anti-Predatory Lending Coalition (AAPLC), with members like the SPLC; Tuscaloosa Citizens Against Predatory Practices and North Alabama and Alabama-West Florida Conferences of the United Methodist Church (UMC)

AAPLC's grassroots strategy to win SB 138:

  • "Responsive mobilizing" as opposed to "deep organizing": building capacity and awareness in key legislative districts
  • Two main tactics: (1) Hosting community forums throughout the state and (2) building relationships with people so AAPLC can activate local constituent networks at "key times"
  • Having relationships with folks on the ground in committee members' districts so that they can get a flood of calls and emails sent out the day before a vote
  • AAPLC had a rally and statewide lobby day at the Montgomery state capitol, Feb. 1, 2018: [85] Over 50 people attended and talked with their reps.
  • Surface-level support from legislators: consensus that something needs to change, but the trick is (and has been) getting bills out of committees and onto calendars in a timely fashion
  • Payday lobby here knows that they don't have broad support in the legislature or the public, so they invest in a few key legislators to slow walk reform efforts
  • SB 138 finally made it out of the Senate Banking & Insurance committee


South Dakota Initiated Ballot Measure 21 passed on Nov. 8, 2016, [86]

  • PASSED with 75.58% voting yes, 24.42% voting no
  • Capped interest rates for payday loans to 36%, both directly and indirectly: "including all charges for any ancillary product or service and any other charge or fee incident to the extension of credit."
  • "A violation of this section is a Class 1 misdemeanor. Any loan made in violation of this section is void and uncollectible as to any principal, fee, interest, or charge."
  • Measure 21 support was outspent by payday lender-backed opposition 15 to 1: $1.5 million was raised to oppose the caps while just $86k was raised in support
  • Payday lenders also backed another measure happening also on the 2016 ballot, Amendment U, which would alter the South Dakotan constitution: "No lender may charge interest for the loan or use of money in excess of eighteen per cent per annum unless the borrower agrees to another rate in writing. No law fixing an annual percentage rate of interest for the loan or use of money is valid unless the law provides borrowers the right to contract at interest rates as may be agreed to by the parties."
  • Designed to allow lenders control over the amount of interest to be charged if the desired rate was agreed to in writing by the borrower
  • Lender would only have been able to charge up to 18 percent interest per year if written agreement with the borrower was not secured
  • Amendment U was DEFEATED with 63.26% voting no, 36.74% voting yes

Aftermath

  • Several local and state giants, like "Dollar Loan Center", have sued South Dakota for Measure 21 [87] while other lending places have closed down and left the state [88]
  • Dollar Loan Center lost their legal battles with regulators and also closed down [89]
  • South Dakota is mostly payday lender-free, however residents can still search and access payday loans online and some lenders have converted to the car title loan industry

Grassroots strategy to win Measure 21:

  • SDRL is a bipartisan group: local Democratic and Republican activists and community leaders came together under common ideas against payday lenders as bad for business and poor people
  • Got signatures of 5% of people who voted for SD governor in the last cycle about 20,000 signatures were turned over summer 2015
  • Signatures were gathered public events, festivals, farmers' markets; some local businesses participated with their customers
  • Given the media climate and reputation of payday lenders in the state, many people were aware about previous attempts to regulate payday lenders and supportive of Measure 21
  • Big voter mailings to churches, worship halls would serve as venues for town halls, meetings and speaking venues
  • Amendment U was a measure filed by payday lenders to fool voters; payday lenders professionally hired people to harass and threaten SDRL members that became a media spectacle that led to their downfall


Nebraska Legislative Bill 194 (LB 194) is currently being negotiated this 2018 session, and it will:

  • Maximum monthly payments set at 5 percent of a borrower’s gross monthly income
  • Interest charges of 36 percent per annum with a maintenance fee proportional to the size of the loan, not to exceed $20 per month
  • Maximum allowable charges of 50 percent of principal over life of the loan with no limits on the duration of the loan allowing lenders some flexibility on loan terms
  • Maintains $500 loan limit that is currently in place
  • Spreads costs evenly over time with principal, interest and fees precomputed into equal and affordable monthly payments
  • Spearheaded by Omaha Women's Fund and Women's Network of Nebraska

Omaha Women's Fund grassroots strategy to win LB 194:


Missouri A coalition of faith groups, community orgs. and unions tried to do a ballot initiative to cap interest rates to 36% APR during the 2012 election season.

  • Ballot initiative supported by state rep. Mary Still and then-governor Jay Nixon
  • Coalition needed 95,000 signatures, but believed that once the bill was on the ballot, it would easily pass
  • Churches mobilized hundreds of volunteers for the canvassing effort: 50 churches from St. Louis were recruited in the Metropolitan Congregations United and in Kansas City, 80 churches and orgs. were involved
  • Predominately-Black churches were especially active in mobilizing their members to sign and canvass, but the issue attracted predominately-White churches in the suburbs
  • Activists eventually submitted 118,000 valid voter signatures, 23,000 more than the required amount, but the state’s rules required that they collect signatures from at least 5% of voters in six of the state’s nine congressional districts. They met that threshold in five districts — but in the 1st District, which includes North St. Louis, they were 270 signatures short
  • Due to an egregiously deceptive and unethical scare campaign by payday lenders to oppose the ballot measure, activists couldn't secure enough signatures to complete the first district, and had to surrender and withdraw their initiative from the 2012 ballot

Payday Lenders' Strategy to Defeat Ballot Measure

  • Outlined in this 2013 ProPublica report
  • In summer 2011, Missourians for Equal Credit Opportunity (MECO) was formed as a 501c4 front group for the payday lending industry, responsible for scare campaign against rate-cap measure and recipient of over $2.8 million of campaign donations from lenders
  • MECO first sent intimidating letters in Jan. 2012 to several churches in support of the rate cap stating their involvement was deemed "illegal", and filed suit against the initiative. A lower court sided with MECO in April 2012 and almost defeated the measure, but was later overturned by MO. supreme court
  • During that time, MECO aired false TV ads about how rate-cap measure was just "outside special interests" and explicitly told voters not to sign ANY petition. They also filed a decoy initiative (similar to Amendment U in SD) and sent out "canvassers" via ProActive Signature Solutions to confuse voters and detract them from real rate-cap initiative
  • Installment lenders like World Finance formed their own group, Stand Up Missouri (SUM) to oppose rate caps with letter-writing, ads, video "testimonials" of satisfied debtors, and even a 100-person rally at the MO. state capitol
  • SUM made it explicit that they are not "payday lenders" and do not collaborate with MECO, and admitted to ProPublica that "some financial reform" should happen to lending industry, but SUM blames rate-cap supporters for "not working with lenders" and "intense lack of interest in... market-based reforms"
  • SUM targeted Black communities by hiring Black lobbyists, including Willie Green, a former NFL player and payday loan shop owner, to meet with Black clergy and leaders and convince them on the "benefit" of payday loans for the Black middle class. Green is reported to have lobbied for payday loans in North Carolina, Georgia, DC., Arkansas and Colorado
  • MECO's "canvassers", through ProActive Signature Solutions, became agent provocateurs who would follow, outnumber and verbally assault and threaten canvassers of the real rate-cap measure. They would cause enough commotion for businesses and the police to disperse and ban all canvassing activity. Matthew Patterson, a volunteer coordinator, had his car broken into in April 2012 and had 2,500 signatures stolen. Activists filed for a temporary restraining order against ProActive Signature Solutions, the "canvassing" company responsible for agent provocateurs, but it was denied
  • Very little can be found online about ProActive Signature Solutions: on their Facebook page that has been inactive since late 2015, they claim to "travel across the country organizing and coordinating hundreds of local and professional petitioners who are passionate about ensuring that the will of the voters is heard loud and clear". They show a phone number and email but no company website.
  • MECO and SUM together filed suit when activists submitted 118,000 signatures, saying the 270 signature shortage was legitimate and far more signatures should be thrown out
  • Scare campaign combined lawsuits, propaganda and hired agents as strategies to defeat the MO. ballot measure

Aftermath (New Attempts)

  • House Bill 1541 (HB 1541) has been introduced this 2018 session in state legislature that would issue the same rate cap of 36% APR
  • HB 1541 supported by Missouri Faith Voices, a faith-based coalition that includes many of the same players
  • "On June 2, 2016, we brought buses of clergy and laity from across the state to testify for predatory lending reform at the federal Consumer Financial Protection Bureau (CFPB) hearing in Kansas City. This historic hearing was significant in that the CFPB released rules that proposed regulation against payday lenders..."
  • "On the local level, Faith Voices of Southwest Missouri hosted the executive leadership of the CFPB in a town hall during the Fall of 2015. In this meeting there was public testimony from those in the debt trap. As a result of this meeting, Faith Voices of SWMO persuaded the Springfield City Council to add predatory lending reform to its legislative priorities and to endorse strong regulations from the Consumer Financial Protection Bureau..."

Current Federal Legislative Efforts[edit]

Frequently Referenced Statistics[edit]

  • In the early 1990s, there were fewer than 200 payday lending stores in the United States. Today there are 23,000-more than there are McDonald's locations-making payday lending a $50 billion industry.
  • Average 391% interest
  • $9bn is spent on payday loan fees
  • 12mm Americans take out payday loans each year
  • Average time borrower is in debt: 5 months.
  • Average fees $520 to borrow $375
  • Average fee at a storefront is $55/2wks
  • Average borrower income: $30,000, 58% struggle to meet monthly expenses

Resources[edit]

Fact Sheets:[edit]

  • Pew Charitable Trusts (May 2016): [91]
  • SPLC (2015) [92]
  • CFPB Reg Fact Sheet (Oct 2017) [93]
  • Silicon Valley Community Foundation (Feb 2013): [94]
  • STL Fed Curriculum for HS Students: [95]
  • Missouri Families (Nov 2009): [96]
  • Industry PR FAQ (Feb 2014): [97]
  • CFA Online Lending Fact Sheet (Oct 2013): [98]
  • CFA payday website: [99]

Explainers / Infographics:[edit]

  • Pew Video Explainer "Payday Loans Explained": [100]

White Papers/Reports:[edit]


FAQs:[edit]

What is the difference between a payday loan and a deposit advance? ([109])

  • Payday loans and deposit advances are both short-term, high-cost loans. Some of the key differences are who makes the loans, how the loan is requested, and how they are repaid.
  • Payday lenders make payday loans online or to people who visit their storefront locations. In contrast, banks and credit unions that offer deposit advances generally do so only for their customers who have accounts with them and meet certain other eligibility requirements
  • A payday loan is usually due to be repaid on the borrower's next payday, which is often two to four weeks from the date the loan was made. The specific due date is set in the payday loan agreement. The borrower can either return to the payday lender to repay the loan or allow the lender to withdraw funds from a checking account.
  • With deposit advance, banks and credit unions will usually pay themselves back automatically when the next electronic deposit to the customer's account is made, regardless of source, which could be much sooner than two to four weeks. If the amount of the incoming deposit is not enough to pay back the loan, the bank or credit union will repay itself out of subsequent deposits. Typically, if any loan balance remains after 35 days, the bank or credit union will automatically charge the customer's account for the remaining balance, even if that causes the account to become overdrawn.
  • Both payday loans and deposit advances charge fixed fees that are usually much more expensive than many other forms of credit. A typical two-week payday loan with a $15 fee for every $100 borrowed equates to an APR of almost 400%.

What does it mean to renew or roll over a payday loan? ([110])

  • Generally, renewing or rolling over a payday loan means you pay a fee to delay paying back the loan. This fee does not reduce the amount you owe. You will still owe the principal and fees for the rollover.
  • Some payday lenders give borrowers the option to renew or rollover their loans if they cannot afford to pay off the loan when it's due. However, many states limit or ban these renewals or rollovers.
  • If your loan is renewed or rolled over instead of being repaid in full on its due date, you are paying a fee to extend the loan due date. Renewing by paying just the fees does not reduce the principal amount you owe.

I was asked to sign an "ACH authorization" to allow electronic access to my account in order to repay a payday loan. What is that? ([111])

  • An Automated Clearing House (ACH) authorization is a payment authorization that gives the lender permission to electronically take money from your bank, credit union, or prepaid card account when your payment is due. You can revoke this authorization.
  • Consumers usually are asked to provide the payment authorization as part of the process of getting the loan. The authorization will be in your loan document and it may have a place for you to initial as approved. If you approve, the lender will take your payments directly from your account without any further action by you. You may choose to refuse the authorization.
  • There are a variety of payment options for payday lenders to obtain repayment. Some lenders frequently obtain multiple types of authorizations, such as taking a post-dated check along with the consumer's debit card information.
  • Under federal law lenders cannot condition a payday loan on obtaining an authorization from the consumer for preauthorized (recurring) electronic fund transfers.

I'm in the military, are there limits on how much I can be charged for a loan like a mortgage, student loan, auto loan, or credit card balance? ([112])

  • Yes, if you are in military service, the Servicemembers Civil Relief Act (SCRA) limits the amount of interest you can be charged for certain loans or other obligations you took out prior to entry into active duty military service to 6 percent.
  • The 6 percent interest rate cap applies to several types of loans or obligations, including: auto loans, mortgages, credit cards, other installment loans, and most student loans. In order to qualify for the 6 percent interest rate cap, you must:
  • Currently be in active duty military service;
  • Have taken out the loan before entering active duty military service;
  • Notify your lender in writing and include a copy of your military orders calling you to active duty.
  • You can request an interest rate reduction from your lender at any time while you are serving on active duty and up to 180 days after release from active duty.
  • The SCRA also applies to loans that you and your spouse took out together.

What is a payday loan? ([113])

  • While there is no set definition of a payday loan, it is usually a short-term, high cost loan, generally for $500 or less, that is typically due on your next payday. Depending on your state law, payday loans may be available through storefront payday lenders or online. Some common features of a payday loan:
  • The loans are for small amounts, and many states set a limit on payday loan size. $500 is a common loan limit although limits range above and below this amount.
  • A payday loan is usually repaid in a single payment on the borrower's next payday, or when income is received from another source such as a pension or Social Security. The due date is typically two to four weeks from the date the loan was made. The specific due date is set in the payday loan agreement.
  • To repay the loan, you generally write a post-dated check for the full balance, including fees, or you provide the lender with [114] an authorization to withdraw the funds from your bank, credit union, or prepaid card account. If you don't repay the loan on or before the due date, the lender can cash the check or electronically withdraw money from your account.
  • Your ability to repay the loan while meeting your other financial obligations is generally not considered by a payday lender.
  • The loan proceeds may be provided to you by cash or check, electronically deposited into your account, or loaded on a prepaid debit card.

My payday lender said my loan would cost 15 percent but my loan documents say the annual percentage rate (APR) is almost 400 percent. What is an APR on a payday loan and how should I use it? ([115])

  • The APR, or annual percentage rate, is the standard way to compare how much loans cost. It lets you compare the cost of loan products on an "apples-to-apples" basis. Your lender must disclose the APR before you agree to the loan.
  • To calculate the APR, the interest rate and fees are compared to the amount you borrow and calculated over a one-year period. This allows you to compare the costs of a credit card to a six-month installment loan, or a two-week payday loan. It is also why APRs are often different from simple interest rates.
  • Remember, your lender must disclose the annual percentage rate (APR) and other costs before you agree to the loan. If you were not given this information, your lender violated the law.

I heard that taking out a payday loan can help rebuild my credit or improve my credit score. Is this true? ([116])

  • Answer: Probably not. Payday loans generally are not reported to the three major national credit reporting companies, so they are unlikely to impact your credit scores.
  • Most storefront payday lenders do not consider traditional credit reports or credit scores when determining loan eligibility. They also do not generally report any information about payday loan borrowing history to the nationwide credit reporting companies.
  • However, if you don't pay your loan back and your lender sends or sells your payday loan debt to a debt collector, it is possible the debt collector might report this debt to one of the major national credit reporting companies. Debts in collection could hurt your credit scores
  • Likewise, some payday lenders bring lawsuits to collect unpaid payday loans. If you lose a court case related to your payday loan, that information could appear on your credit reports and may lower your credit scores.

How Do I repay a payday Loan? ([117])

  • In order to obtain a payday loan, you typically must either provide a personal check to the lender or an ACH (Automated Clearing House) authorization to electronically withdraw money from your bank, credit union, or prepaid card account. Carefully read your loan documents so you know exactly how repayment works.
  • Although you are generally required when obtaining a loan to provide a post-dated check or authorization for an electronic debit of your account, some lenders strongly encourage, or in some cases, require consumers to return to the store when the loan is due to "redeem" the check. Encouraging or requiring borrowers to return to the store on the due date provides lenders an opportunity to offer borrowers the option to roll over the loan or, where rollovers are prohibited by state law, to reborrow following repayment or after the expiration of any cooling off period. If you do not return, your lender might repay itself by depositing your check to your bank or credit union or withdrawing funds electronically from your account.
  • If you have taken out a loan online, [118] you authorized the lender to electronically access your checking account for repayment on the loan due date. So, while the way you repay a loan may depend on whether you took out a loan in a storefront or online, usually you provide the lender a way to repay itself the full amount as part of the loan application process.
  • Some lenders might set up payments assuming you only want to pay a renewal fee on the loan's due date and require you to take action several days before your loan comes due to pay it in full. This could result in you paying several rounds of renewal fees while still owing the entire original loan amount.


How can I tell if a Payday lender is licensed in my state? ([119])

  • If you want to know whether a payday lender is licensed to do business in your state, verify the information with your [120] or [121].
  • Not all states allow payday lending. Some states allow payday lending and require lenders to be licensed. In some states, if a payday loan is made by a business that is not licensed in that state, the payday loan may be void. In that circumstance, the lender may not have the right to collect or require the consumer to repay the payday loan.

Could I be arrested if I don't pay back my payday loan? ([122])

  • No, you cannot be arrested for defaulting on a payday loan. However, if you are sued or a court judgment has been entered against you and you ignore a court order to appear, a judge may issue a warrant for your arrest
  • You should never ignore a court order. If you get a court order to appear, you should go to court and provide any required information. You may want to consult with an attorney to help you with your court appearance. If a lender threatens to have you arrested, you should report the lender's threat to your state Attorney General [123] and to your state banking regulator [124].

My payday lender claims to be located in another country and therefore does not have to comply with U.S. federal laws that protect consumers. Is that true? ([125])

  • Generally, if you take out a payday loan online as a resident of the United States, the lender with whom you're doing business must follow U.S. federal laws.
  • Use caution when doing business with lenders who claim not to have to comply with U.S. laws. If you send your personal information to someone located outside the United States, they might not follow U.S. law with regards to proper storage and protection of your personal information
  • Some state laws may also offer protections for state residents. Those protections may include licensing, requiring any lender to follow state law, and other rights.

Can a payday lender garnish my wages? ([126])

  • A payday lender can only garnish your wages if it has a court order resulting from a lawsuit against you.
  • If you don't repay your loan, the payday lender or a debt collector generally can sue you to collect. If they win, or if you do not dispute the lawsuit or claim, the court will enter an order or judgment against you. The order or judgment will state the amount of money you owe. The lender or collector can then get a garnishment order against you.
  • Wage garnishment happens when your employer holds back a legally required portion of your wages for your debts. Bank garnishment occurs when your bank or credit union is served with a garnishment order. The bank or credit union then holds an amount for the payday lender or collector as allowed by your state law. Each state will have different procedures, as well as exemptions from garnishment, that apply to both the wage and bank garnishment process.
  • Be aware that some payday lenders have threatened garnishment in order to get borrowers to pay, even though they do not have a court order or judgment. If that should occur, you may want to seek legal assistance.

How can I stop a payday lender from electronically taking money out of my bank or credit union account? ([127])

  • You can stop electronic debits to your account by revoking the payment authorization, sometimes called an "ACH authorization." Revoking or cancelling your automatic payment does not cancel your contract with the payday lender. If you revoke or cancel an automatic payment on a loan, you still owe the balance on that loan.
  • You have the right to stop a payday lender from taking automatic electronic payments from your account, even if you previously allowed them. You may have signed a payment authorization, which is sometimes called an ACH Authorization "[128]" This gives the payday lender the ability to debit your account when your payment is due. If you decide you want to stop automatic debit payments from your account, here is what you can do:
  1. Call and write the company. Tell the company that you are taking away your permission for the company to take automatic payments out of your bank or credit union account. This is called "revoking authorization." You can use this sample letter: [129].
  2. Call and write your bank or credit union. Tell your bank that you have "revoked authorization" for the company to take automatic payments from your account. You can use this sample letter: [130]. Some banks and credit unions may offer you an online form.
  3. Stop payment. Even if you have not revoked your authorization with the company, you can stop an automatic payment from being charged to your account by giving your bank a "stop payment order." This instructs your bank to stop the company from taking payments from your account. You can use this sample letter [131] to "stop payment order." Here are the steps.

a. To stop the next scheduled payment, give your bank the stop payment order at least three business days before the payment is scheduled. You can give the order in person, over the phone or in writing. b. To stop future payments, you might have to send your bank the stop payment order in writing. If your bank asks for a written order, make sure to provide it within 14 days of your oral notification. c. Be aware that banks commonly charge a fee for stop payment orders.

  1. Monitor your accounts. Tell your bank or credit union right away if you see a payment that you did not allow (authorize) or a payment that was made after you revoked authorization. Federal law gives you the right to dispute and get your money back for any unauthorized transfers from your account as long as you tell your bank in time. You can use this sample [132].

Why did my payday lender charge me a late fee or a non-sufficient funds (NSF) fee? ([133])

  • If you do not have enough money in your account when the lender attempts to repay itself, there could be additional fees. Depending on your state law and your loan agreement, you might be charged a late fee as well as a returned payment fee by the lender and a non-sufficient funds (NSF) fee by your bank or credit union. Review your loan agreement closely to see what fees are included in the terms of your loan.
  • When you took out your payday loan, you probably gave a check to the lender or gave the lender permission to take money from your account when the loan was due.
  • If you do not have enough money in your account when the lender attempts to repay itself, your bank or credit union may cover the payment and charge you an overdraft fee. If your bank or credit union does not cover the payment, the loan will not be paid and you might be charged a "bounced check" or NSF fee by your bank or credit union and a late fee and a returned payment fee by the lender.
  • State laws vary on the fees that can be charged. Some states specify the number of times and the maximum amount a lender can charge for these types of fees.

What can I do if I can't repay my payday loan? ([134])

  • If you're having trouble repaying your payday loan, you might be able to ask your lender for an extended repayment plan.
  • An extended repayment plan lets you repay the loan in smaller installments over a longer period of time. Whether you can get an extended repayment plan will depend on your state law or on the payday lender's policy. This repayment plan may be offered for free or it might carry an additional fee.

Do I have to put up something as collateral for a payday loan? ([135])

  • You don't have to give collateral like at a pawn shop, but you generally do have to provide a post-dated check or electronic access to your bank, credit union, or prepaid card account.
  • Payday loans are considered a form of "unsecured" debt, which means you do not have to give the lender any collateral, or put anything up in return like if you went to a pawn shop.
  • The lender will ask you for permission to electronically take money from your bank, credit union, or prepaid card account, or to provide a check for the repayment amount that the lender can deposit when the loan is due. Under federal law lenders cannot condition a payday loan on obtaining an authorization from the consumer for preauthorized" (recurring) electronic fund transfers.
  • If you do not have enough money in your account when the lender tries to withdraw the payment, your bank or credit union will likely charge you fees for the check bouncing or for overdrawing your account. Depending on your state law, the payday lender may also be able to charge you an additional fee if your check or electronic authorization does not result in the loan being paid.

What do I need to qualify for a payday loan? ([136])

  • Generally, payday lenders require you to have:
  • An active bank, credit union, or prepaid card account
  • Proof or verification of income from a job or other source
  • Valid identification, and be at least 18 years old

What are the costs and fees for a payday loan? ([137])

  • Payday loans generally charge a percentage or dollar amount per $100 borrowed. The amount of this fee might range from $10 to $30 for every $100 borrowed, depending on your state law and the maximum amount your state permits you to borrow. A fee of $15 per $100 is common. This equates to an annual percentage rate of almost 400% for a two-week loan. So, for example, if you need to borrow $300 before your next payday, it would cost you $345 to pay it back, assuming a fee of $15 per $100.
  • Rollovers. If you are unable to pay when your loan is due and your state law permits rollovers, the payday lender may allow you to pay only the fees due and then the lender extends the due date of your loan. You will then be charged another fee and still owe the entire original balance. Using the above example, if you pay a renewal or rollover fee of $45 you would still owe the original $300 loan and another $45 fee when the extension is over. That's a $90 charge for borrowing $300 for just four weeks.
  • Repayment Plans. Some state laws require payday lenders to offer extended repayment plans to borrowers who experience difficulty in repaying payday loans. These laws vary by state, and may or may not permit or require a fee for using a repayment plan. If your state requires a lender to offer an extended repayment plan, you may be able to get additional time to repay your loan without any additional costs or fees. This means that you can pay off your loan rather than borrowing again, incurring more fees, and getting further behind in debt.
  • Late fees. In addition, if you don't repay the loan on time, the lender might charge a late or returned check fee, depending on state law. Your bank or credit union may also impose an "NSF" or non-sufficient funds charge if your check or electronic authorization is not paid due to a lack of funds in your account.
  • Prepaid debit card. If your loan funds are loaded onto one of these cards, there might be other fees. There could be fees to add the money to the card, fees for checking your balance or calling customer service, fees each time you use the card and/or regular monthly fees.


Power Map[edit]

[Cross-ownership, Political Connections, Investors, Etc.]

  • Lobbying Overview: [138]