I have made a decision to write a few articles about the payday loan industry. In these series of articles, I intend to write about the legal aspects of loaning money against future paychecks. I also plan on writing about the following:
- Direct lenders
- Payday loan brokers
- Online payday loan companies
- Storefront Companies
- The 24 hour guarantee
- Payday loan rates
In order to discuss this topic with some intelligence (I don’t have much) I did some research on the industry. I am taking an unbiased perspective and will provide the pros and cons of the industry. It is important to first understand what a pay loan is. A payday loan also referred to as a cash advance is a short-term loan (typically 1 or 2 weeks) that is borrowed against an applicant’s next paycheck.
Payday loans are very expensive and should only be intended as a short-term borrowing tool and not a long-term solution. There are some people that say that payday loans were first introduced in the early 1900’s under different names, however the term “payday loan” was introduced sometime in the 90’s. Today there are over 20,000 storefronts throughout the United States that offer cash advances.
The underlying legal issues with payday loan advances are usury laws. Usury laws are in place to regulate the industry from charging excessive rates for borrowed money. There are interpretations on both sides as to what is excessive. These laws are typically set by each state. A state may determine that payday loan and cash advance transactions are illegal in the state. There are some states that make pay day lending illegal however there is an abundance of information on the internet that states some companies will still loan in that state because of loopholes.
The industry as a whole believes if a transaction occurs in a state in which cash advances are legal, than it shouldn’t matter where the borrower is located. The industry is regulated by each state and regulators range from state Banking Departments, Departments of Financial Institutions, State Boards of Collection Agencies to Departments of Corporations and so on. The regulators oversee the industry and are available for consumer complaints on any company providing pay day lender.
If you do a search on the internet for payday loan companies you will find the majority of the websites listed on the top pages of the search engines are brokers. Payday loan brokers are typically lead aggregators that have an automated process of getting leads out to the direct lenders. Because the payday loan industry is so competitive, most companies pay top dollar for these leads.
Most cash advance brokers have a disclaimer at the bottom of their websites that state the company is not the direct lender. This relieves most brokerage firms from potential legal issues that may arise from a transaction in a state which makes it illegal to perform payday loan advances.
While a simple cash advance may seem easy to grasp there are a lot of gray areas in the industry. As the industry matures I believe there will be stricter guidelines for the lender.
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Pay day loan companies charge crazy rates and should be avoided at all costs. I heard these companies are in court more then they are out of court. Payday lending breaks all usury laws all the time. They can charge almost 500% on any given loan. And I don’t buy the fact that its a short term fix to anything. If you borrow for a short term fix, it will turn into a long term problem. And we should forget the clientele that is getting the advance. Why do you think they are getting a cash advance in the first place? Because they have no money. What makes you think that they will be in a better position next pay period? I respect your unbiased opinion but you should call it what it is. A total scheme to rip off hard working people like me.
Strepe – I will be very transparent. I work in the cash advance business and looked into providing payday lending solutions as another alternative. While your opinion is respected you are wrong. There is not one state that allows a lending company to charge 500%. The second thing you left out is the total amount of these loans that fall through the cracks. A company can lose a lot of money because the person getting the loan defaults. When I DID MY RESEARCH I found out that some companies lose up to 20%-30% of what they lend out on a yearly basis. Who is going to make up for these loses? Rates are high? Yes but considering a persons situation when borrowing the money and the risk to the lender, its no wonder they are high.
What?!! Companies like yours are the problem. Transparency I think not. I too have seen what these companies charge and they are near 500%. Take a look for yourself: http://www.debtconsolidationcare.com/paydayloan/explain-pdls-laws.html I also seriously doubt these companies lose up to 30% of anything. Do you think for one second these companies approve just anyone? They approve the people that they are confident will pay back teh money. They look at work history, bank accounts and everything in between. And if you think for one second that someones situation will be better when they get one of these loans you are crazy. The only risk to any of these payday lending companies is litigation from the state. Get real and get a clue.
[...] you know that most of the payday loan companies on the internet (or those that you can find doing searches) are not direct lenders? Based upon the [...]