Payday loan lenders are continuing to thrive despite economic conditions. Photo Credit: diaper/Flickr.com/CC-BY

Despite an increasingly hostile regulatory climate, payday lenders are finding ways to thrive. Payday loan legislation is constantly changing as states waffle on banning or allowing the credit product, but the largest firms are still doing well. Overseas expansion and increasingly diverse product offerings are helping publicly traded payday loan businesses to grow.

Largest payday loan companies expanding overseas

Payday loan lenders are often maligned as hyenas that pounce on the poor, but the characterization has not kept the largest payday lending outfits from expanding and posting profits in rougher economic times. Cash America, EZCORP and Dollar Financial Group all posted profitable first quarters for the year, according to Reuters, and have managed to keep growing despite gloom among American consumers and an already harsh regulatory climate. All three are among the largest alternative financial service firms and are publicly traded. Cash America posted a 13 percent increase in revenues, helped by international online short term loans that the company offers to customers in the U.K., Canada and Australia. Dollar Financial Group posted a 21 percent rise in revenues that came mostly from online lending, and EZCORP shares rose by 6 percent. All three are expanding overseas operations.

Regulation battles continue

The regulatory climate for payday lenders constantly changes. Numerous states constantly are trying to either loosen or tighten restrictions. For instance, the New Hampshire House of Representatives recently killed a bill that would have allowed lenders to start operating in New Hampshire, where the loans are currently prohibited, according to the New Hampshire Business Review. The California legislature is currently considering a bill to raise the borrowing cap on payday loans, according to the Silicon Valley Mercury News, amid a lot of controversy and accusations that politicians are being bribed by lobbyists. The state of Missouri, according to the Columbia Daily Tribune, recently killed a bill that would have tightened restrictions.

The future of subprime credit

Any form of credit carries risk for the borrower, including credit cards and mortgages. However, many people want to see payday loans legislated off the face of the earth. It isn’t likely to happen; forms of short term credit have existed since the beginning of civilization, and as long as there are unexpected expenses, there will be a need for something similar to payday loans.

Sources

Reuters on Cash America, Dollar Financial, and EZCORP

New Hampshire Business Review

Columbia Daily Tribune

Silicon Valley Mercury News

Don't get lost in the hype critics spread about payday loans and APR. (Photo Credit: CC BY-SA/Brian Robert Marshall/Geograph)

A payday loan is a simple product that fills a specific financial niche for consumers who need quick cash but find themselves unable to obtain it via a traditional bank. Payday loans typically come to term after two weeks, and payment plus convenience fee is due at that time – usually on the consumer’s next payday – in a lump sum. The federal Truth in Lending Act of 1968 (TILA) requires that loan fees be expressed in terms of an annual percentage rate (APR), so payday lenders are required to list a loan APR for customers. As Louisville, Ky., Consumer Financial Services Association chapter spokesman Kevin Borland pointed out to the Lexington Herald-Leader in a Jan. 18 letter to the editor, this has caused no small amount of confusion for critics of the payday lending industry.

What the media doesn’t understand about APR and payday loans

Responding to a Jan. 4 editorial entitled “Put interest cap on payday loans,” Borland points to the media’s rampant payday lending confusion:

“Placing an annual percentage rate (APR) cap on a financial product with a two-week term is tantamount to charging a yearly rate for a night’s stay at a hotel. APRs are designed for mortgages and auto loans — not short-term credit,” he says.

Yet TILA requires an APR to be listed for payday loans and installment loans. Regarding payday loans, more specific payday lending laws don’t even allow for interest rates, says Borland. Thus, payday loans are fee based – it’s the only way such businesses can keep their doors open, and people have proven they’re willing to pay a premium for emergency cash.

Full disclosure

While payday loan companies clearly disclose what products cost, opponents continue to distort the truth, says Borland. While a two-week payday loan would reach a triple-digit APR if a consumer took out one loan and continued to pay a fee on that loan every two weeks for a whole year, laws in Kentucky and many other states forbid such loan renewal.

Learn the truth about payday loans

The truth of how payday loans work on a statistical level has been studied at some length over the past decade. Rather than leaping to conclusions about “massive” APR numbers, critics would do well to read the evidence against high-cost theory with payday loans firsthand.

Source

Lexington Herald-Leader

APR explanations in animated form

Know where payday loans are legal in the United States with the handy reference chart in this article. (Photo: ThinkStock)

Hard-working Americans sometimes find themselves in situations where they need the extra cash payday lending can provide. Other options are sometimes available, but if the consumer is credit constrained, those options are few and far between. Thus, it pays to know where payday lending (whether it is for a payday loan, installment loan or similar consumer loan product) is practiced. If you know where payday loans are legal – in which states, specifically – then you’re that much closer to obtaining fast cash when unforeseen events strike at your budget.

Payday lending – the American tale

Current as of May 27, 2010, Fox Business has compiled a list of the legal status of payday lending. Some of the information has changed based upon current payday loan legislation, and a general summary of those changes are noted below for the Arizona, Colorado and Wisconsin state entries. For your convenience, Personal Money Market includes a summary of the Fox list for your payday loan needs, including the maximum amount allowed by each state for a payday loan:

Alabama: Legal, $500 maximum
Alaska: Legal, $500 maximum
Arizona: Legal until June 30, due to Operation Sunset; $500 maximum
Arkansas: Legal for check cashers only, $400 maximum
California: Legal, $300 maximum
Colorado: Essentially prohibited, as Colorado House Bill 1351 caps APR at 45 percent and requires six-month payment term; $500 maximum
Connecticut: Prohibited
Delaware: Legal under small loan act/licensing law; $500 maximum
Florida: Legal, $500 maximum
Georgia: Prohibited
Hawaii: Legal for check cashers only, $600 maximum
Idaho: Legal, $1,000 maximum
Illinois: Legal, the lesser of either $1,000 or 25 percent of applicant’s gross monthly income, maximum
Indiana: Legal, $550 maximum
Iowa: Legal, $500 maximum
Kansas: Legal, $500 maximum
Kentucky:  Legal for check cashers only), $500 maximum
Louisiana: Legal, $350 maximum
Maine: Prohibited, except from selected supervised lenders
Maryland: Prohibited
Massachusetts: Prohibited
Michigan: Legal, $600 maximum
Minnesota: Legal, $350 maximum
Mississippi: Legal for check cashers only, $400 maximum
Missouri: Legal, $500 maximum
Montana: Legal, $300 maximum
Nebraska:  Legal, $500 maximum
Nevada: Legal, 25 percent of gross monthly income maximum
New Hampshire:  Legal, $500 maximum
New Jersey:  Prohibited
New Mexico: Legal, $2,500 maximum
New York: Prohibited
North Carolina: Prohibited
North Dakota: Legal, $500 maximum
Ohio: Legal for 31-day minimum term, $500 maximum amount
Oklahoma: Legal, $500 maximum
Oregon: Legal, unspecified maximum
Pennsylvania: Prohibited
Rhode Island: Legal for check cashers only), $500 maximum
South Carolina: Legal, $300 maximum
South Dakota: Legal under small loan act/licensing law; $500 maximum
Tennessee: Legal, $500 maximum
Texas: Legal, unspecified maximum
Utah: Legal for check cashers only, Unlimited maximum
Vermont: Prohibited
Virginia: Legal, $500 maximum
Washington: Legal, $700 maximum
West Virginia: Prohibited
Wisconsin: Legal, $1,500 or 35 percent of gross monthly income maximum. See other recent law changes regarding payday lending in Wisconsin
Wyoming: Legal, unspecified maximum

Sources:

Fox Business

Payday Loan Consumer Information

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It's all well and good when you're a baby, but Ontario wants to nanny its payday loan customers so they don't have to be responsible. (Photo: flickr.com)

When it comes to short-term consumer lending, few products are as quick and convenient as a payday loan. The bulk of payday loan companies in Canada operate within the bounds of established governmental guidelines into order to provide consumers with a safe, affordable product while businesses collect profits that offset operating costs. Yet there are an unfortunate few who attempt to operate “beneath the radar,” charging overly inflated rates and enforcing abusive loan terms. Section 347 of the Canadian criminal code attempts to regulate this with a limit of 60 percent interest that can be charged per annum, but further intervention has been necessary in order to protect consumers.

The Payday Loans Act of 2008

Here’s a prime example of an attempt to make things right. In June of 2008, the Ontario Legislature devised the Payday Loans Act in order to require that all payday lenders and pawnbrokers:

• Become licensed
• Clearly spell out all costs of borrowing
• Prohibit loan rollover by instituting a database
• Allow borrowers to cancel their payday loan contract during an initial cooling-off period (within the first two days)

Furthermore, the Payday Loans Act was to make it easier for offending payday loan companies to have their licenses suspended and establish the Ontario Payday Lending Education Fund to promote consumer understanding of and confidence in the product.

Capping the Numbers

By the time additional provisions were in place by April 1, 2009, the Payday Loan Act was also altered by Ontario’s Maximum Total Cost of Borrowing Advisory Board so the most money that could be charged per $100 borrowed is $21. For a standard two-week payday loan, that’s 21 percent, which is not out of the realm of feasibility.

However, there was little or no penalty in place for consumers who defaulted on their loans. It seems unconscionable for there not to be consequences when a consumer makes a promise to repay a debt and doesn’t follow through. Such a lack of safeguarding damages payday lenders severely, just as it would any business that exposed itself to financial risk but didn’t have the tools to protect itself in the event of default. This is definitely an example of the nanny state at work, absolving others of taking responsibility for themselves.

Now Ontario has an Order Dealing with “Criminal Interest Rates”

Specifically, “Order Designating Ontario for the Purposes of the Criminal Interest Rate Provisions of the Criminal Code P.C. 2009-1628 October 1, 2009” has taken a big step toward expunging out-of-control interest rates. Payday loan companies that fail to toe the line will no longer be able to escape notice. This is an order “DESIGNATING ONTARIO FOR THE PURPOSES OF THE CRIMINAL INTEREST RATE PROVISIONS OF THE CRIMINAL CODE.” It appears in large, capital letters because Ontario wants it known that from this point forward, all payday loan stores in the province are required by section 347.1 of the Criminal Code. Once the following two provisions are in effect:

1. The Payday Loans Act, 2008, S.O. 2008, c. 9, except for sections 52 and 66 to 74; and
2. Ontario Regulation 98/09, except for sections 37 and 38.

The $21 per $100 loaned will definitely be in effect, without exemption. But what will happen to the lack of protection afforded payday loan companies for customers who don’t pay? What does Nanny Ontario plan to do about that? This isn’t a game of jacks among five-year-olds; these are adults who should have learned to take responsibility for their actions a decade or more before. It would be in the best interests of its citizens if Ontario (and Canada as a whole) reconsidered this ridiculous lack of penalty for default.

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