Beruflich Dokumente
Kultur Dokumente
Loans
I. Introduction
IV. Summary
side, the opponents of the payday lending practice argue that the high
relatively small loan amount. However, you also have the payday loan
support their views that payday loans provide valuable, important services to
have argued that the practice of charging higher interest rates are a
These individuals (payday lenders) also argue that payday loans bring a
The basic premise behind the payday loans business is that they offer
are available. The individuals that usually apply for payday loans are
options available.
What terms would you be willing to agree to, if you needed to obtain
furnace, in the dead of winter, maybe 300% interest for a $500 loan?
person would say “no thank you”. Surprisingly, there are many of our
neighbors saying “yes”. The industry of payday loans (or also known
from bills or holiday shopping, for small amounts of money and these
people are willing to agree to outrageous terms. Usually, these people
have scenarios where their payday has just past, they do not maintain
any type of savings account, their credit history is less then perfect
and due to their credit history they are unable to secure a credit card
solution. The payday lender lets the borrower write them a check for a
the borrower will get an immediate sum of cash. The payday lender
withholds an amount for the fee of the loan, which is included in the
original amount of the check. The payday lender will then give the
loan for two (2) weeks or until the borrowers next payday. After two
satisfy the payday loan. The borrower can do nothing and allow the
that individual may pay, the payday lender, a cash amount equivalent
to the original check. A third option is also available and this is where
the payday loan practices start down a path that many believe is
lender, with another check and extend the loan or just pay the finance
charge to roll the loan over for another pay period. Since a majority of
issue has become the primary case for the negative views on the
payday loan industry. This allows the person to extend the loan over
and over but the initial fee for the loan is just charged each time. The
issue is that when a person extends a loan over and over the fees
initially incurred are charged again, with each extension. Over the
alone, and this doesn’t even take into account the extremely high
more. The finance charge ranges from $15 to $30 to borrow $100. For
two-week loans, these finance charges result in interest rates from 390
The main pitfall with payday loans is that they do not provide a
payday loans are only going to make the problem worse. There is a
common belief shared among many of those that opposed the payday
risk in accepting these loans and can only see the small fee for the
loan and/or the fact the company will just hold the check.
itself as a quick fix or “short-term relief for a cash crunch” but in reality
loans are normally such that the people have no way to pay back the
snared in as they are forced to immediately take out a new loan after
paying the first one back or extending the original loan (incurring
additional fees).
The payday loan industry has not shied away from justifying their
services. They have argued that their payday loan services can be less
that payday loans are the quickest and simplest manner for some
1. “Payday loan borrowers are worse off than consumers who have no
year of use.”
2
Payday Loans Put Families in the Red, Center for Responsible Lending, February 20,
2009
4. “Using payday loans causes borrowers to file for bankruptcy.”3
in our armed forces. We are all aware that serving in the military is not
long period of time it was unnoticed that these families were becoming
through the Military Lending Act, since then States have also began
looking into the legal status of these practices and the negative
Since the basic function of law is to provide rules that govern our
live in a safe and pleasant environment, and to have their lives and
3
Research Findings Illustrate the High Risk of High-Cost Short-Term Loans for
Consumers, Compiled by Jean Ann Fox, Consumer Federation of America, February
18, 2009
society. Then we would expect that an industry such as that of the
payday loan would be drawing the attention of both federal and state
Across the country debates and argument play back and forth between
the payday loan industry and growing number of citizen groups, who
legal reforms across the country, which has allowed some big national
banks to get into the short term loan business with lending products
locations across the country (i.e.; Cash American, Payday Loans, etc).
curb the use of the tactics employee by the payday lending industry,
4
Business Law, The Ethical, Global, and E-Commerce Environment- Mallor, Barnes,
Bowers & Langvardt, 4th Edition
5
Military Lending Act to take effect October 1 , September 27, 2007,
http://www.consumerfed.org
several states have enacted usury laws to limit the maximum amount
(Ohio and Arizona) held ballot measures this past fall/winter on the
interest rate cap which took effect as of July 2010. Many of the
changes made on the state level have made an effort to limit the risk
associated with the payday loan practices but in all there are thirty-
Reviewing the current payday lending states statues you can see the
commonality, the maximum loan amount range from $100 – 1000 with
that were written in very vague language. These lenders are now
required to provide agreements written in a clear, understandable
Now with the expansion of the internet into practically every aspect of
our lives and business, a new door has been opened up to the payday
So, even though states either have or are working to enacted laws to
curtail the actions of the payday loan industry and protect the
out or lately we see the cost of everything from food to fuel on the rise.
The average working person’s pay has not risen like the price of gas,
sales tax, or even milk and many have lost their job all together. So
people do what they feel they must do in order to keep up. Society
shows them that they can have it, but fails to show them what the cost
of having it entails. Peoples demand for things can out weigh any risks
mentality is what has helped to create this niche for the payday loan
industry. A demand for small short term loans was created and they
With that being said, it doesn’t mean that these organizations are not
While we can read about the many myths surrounding payday loans
and there are actual horror stories which do exist but when taken as a
whole the they are quite similar to other industries aimed at the
nation's lower wage earners (such as used car sales, high interest rate
individuals who are being swept up in the payday loan schemes then
moderation)
modification)
At the end of the day, this heated debate is unlikely to end. We have
seen more states aim to pass stricter laws to help regulate the use of
payday loans and the practices of payday lenders. Views have been
expressed as well, on both sides of the issue. For the users of payday
1.Mallor, J.P., Barnes, J.A., Bowers, T, & Langvardt A.W., Business Law,
5. Payday Loans Put Families in the Red, Center for Responsible Lending,