Payday loans in the United States
The CFPB has issued several enforcement actions against payday lenders for reasons such as violating the prohibition on lending to military members and aggressive collection tactics.
[10] Payday lenders have made effective use of the sovereign status of Native American reservations, often forming partnerships with members of a tribe to offer loans over the internet which evade state law.
[17][18] Some states have laws limiting the number of loans a borrower can take at a single time according to LATimes report.
These systems are required in Florida, Michigan, Illinois, Indiana, North Dakota, New Mexico, Oklahoma, South Carolina, and Virginia States Statues.
[citation needed] Borrowers can circumvent these laws by taking loans from more than one lender if there is not an enforcement mechanism in place by the state.
[21] Currently, the states with the most payday lenders per capita are Alabama, Mississippi, Louisiana, South Carolina and Oklahoma.
A borrower who is unable to repay a loan is automatically offered a 130-day payment plan, with no fees or interest.
The law allows the term of a loan to run from 14 to 35 days, with the fees capped at $15.50 for each $100 borrowed[27] 58-15-33 NMSA 1978.
This is accomplished by verifying in real time against the approved lender compliance database administered by the New Mexico regulator.
A borrower's cumulative payday loans cannot exceed 25 percent of the individual's gross monthly income.
[31] Arizona usury law prohibits lending institutions to charge greater than 36% annual interest on a loan.
[32] State Attorney General Terry Goddard initiated Operation Sunset, which aggressively pursues lenders who violate the lending cap.
The expiration of the law caused many payday loan companies to shut down their Arizona operations, notably Advance America.
These salary purchases were early payday loans structured to avoid state usury laws.
In the early 1990s, check cashers began offering payday loans in states that were unregulated or had loose regulations.
The payday loan industry sprang up in order to fill this void and to supply microcredit to the working class at expensive rates.
[43] This business model was made possible after Jones donated to the campaigns of legislators in multiple states, convincing them to legalize loans with such high interest rates.
By 2008 payday loan stores nationwide outnumbered Starbucks shops and McDonald's fast food restaurants.
[47] The Consumer Financial Protection Bureau, in a June 2016 report on payday lending, found that loan volume decreased 13% in Texas after the January 2012 disclosure reforms.
[48] The Consumer Financial Protection Bureau has proposed rulemaking in June 2016, which would require payday lenders to verify the financial situation of their customers, provide borrowers with disclosure statements prior to each transaction, and limit the number of debt rollovers allowed, decreasing the industry by 55 percent.
[53] An empirical study published in The Journal of Consumer Affairs found that low income individuals who reside in states that permit three or more rollovers were more likely to utilize payday lenders and pawnshops for loans.
The study also found that higher income individuals are more likely to use payday lenders in areas that permit rollovers.
Tim Lohrentz, the program manager of the Insight Center for Community Economic Development, suggested that it might be best to borrow from people you know to save a lot of money instead of trying to avoid embarrassment.
The study found payday lenders to target the young and the poor, especially those populations and low-income communities near military bases.
[60] Payday loan rates are high relative to those of traditional banks and do not encourage savings or asset accumulation.
A 2012 study by Pew Charitable research found that the majority of payday loans were taken out to bridge the gap of everyday expenses rather than for unexpected emergencies.
[63] Taking out payday loans increases the difficulty of paying the mortgage, rent, and utility bills.
The possibility of increased economic difficulties leads to homelessness and delays in medical care, sometimes causing dire health consequences that could have been prevented otherwise.
The borrowers will continue to pay high percentages to float the loan across longer time periods, effectively placing them in a debt trap.
Texas courts and prosecutors become de facto collections agencies that warn borrowers that they could face arrest, criminal charges, jail time, and fines.
