Payday loan

Are Payday Loans a Good or Bad Idea? Bernie Sanders on Financial Services, Debt (2004)

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• published: 01 May 2016
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A payday loan (also called a payday advance, salary loan, payroll loan, small dollar loan, short term, or cash advance loan) is a small, short-term unsecured loan, "regardless of whether repayment of loans is linked to a borrower's payday." The loans are also sometimes referred to as "cash advances," though that term can also refer to cash provided against a prearranged line of credit such as a credit card. Payday advance loans rely on the consumer having previous payroll and employment records. Legislation regarding payday loans varies widely between different countries, and in federal systems, between different states or provinces. To prevent usury (unreasonable and excessive rates of interest), some jurisdictions limit the annual percentage rate (APR) that any lender, including payday lenders, can charge. Some jurisdictions outlaw payday lending entirely, and some have very few restrictions on payday lenders. In the United States, the rates of these loans used to be restricted in most states by the Uniform Small Loan Laws (USLL), with 36%-40% APR generally the norm. There are many different ways to calculate annual percentage rate of a loan. Depending on which method is used, the rate calculated may differ dramatically, e.g., for a $15 charge on a $100 14-day payday loan, it could be (from the borrower's perspective) anywhere from 391% to 3733%. Although some have noted that these loans appear to carry substantial risk to the lender, it has been shown that these loans carry no more long term risk for the lender than other forms of credit. These studies seem to be confirmed by the United States Securities and Exchange Commission filings of at least one lender, who notes a charge-off rate of 3.2%. Payday loans are legal in 27 states, and 9 others allows some form of short term storefront lending with restrictions. The remaining 14 and the District of Columbia forbid the practice.[57] As for federal regulation, the Dodd–Frank Wall Street Reform and Consumer Protection Act gave the Consumer Financial Protection Bureau (CFPB) specific authority to regulate all payday lenders, regardless of size. Also, the Military Lending Act imposes a 36% rate cap on tax refund loans and certain payday and auto title loans made to active duty armed forces members and their covered dependents, and prohibits certain terms in such loans.[58] 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.[59][60] The CFPB also operates a website to answer questions about payday lending.[61] In addition, some states have aggressively pursued lenders they felt violate their state laws.[62][63] 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.[64] However, the Federal Trade Commission has begun the aggressively monitor these lenders as well.[65] While some tribal lenders are operated by Native Americans,[66] there is also evidence many are simply a creation of so-called "rent-a-tribe" schemes, where a non-Native company sets up operations on tribal land. https://en.wikipedia.org/wiki/Payday_loan