A payday loan can also be referred to as salary loan, payday advance, short-term loan, cash advance loan or a payroll loan. It is an unsecured loan which is to be serviced for a short time and it is issued regardless of whether the borrower payday is linked to the repayment of the loan. For the borrower to be issued with a Payday advance loan, the lenders massively consider the employment records and the previous payrolls of the borrower. In the United States, legislation in regard to Payday loans varies between different states.
There are however some ground regulations which has been set in the United State to prevent excessive and unreasonable interest rates. Some jurisdictions, on the other hand, have limited the annual percentage rate where any lender, Payday lenders included can charge. In some states however they have outlawed payday lending completely making it unpracticable within the boundaries of the states. The Uniform Small Loans Laws in the United States formerly restricted the rates of Payday loans where the normal rates are stated to be between 36% – 40%.
In the United States, Payday loans are legal in a total of 27 states. However, nine more states allow another short-term lending which is full of restrictions. Federal regulation, on the other hand, is against the practice since the federal government believes that there are high rates of bankruptcy associated with users of loans since the interest rates are as high a 1000%. The federal government also condemns Payday loans due to the reason that there are illegal as well as unfair practices when collecting this debt and in addition, the loans have automatic rollovers which lead to the increased debt owed by the borrowers which continue to burden them even further.
A Consumer Financial Protection Bureau is the main regulator of all Payday lenders give the authority by Dodd-Frank Wall Street Reform and Consumer Protection Act. The Military Lending Act has also imposed a 36% cap rate on all tax refund loans plus payday loans as well. Payday loans are usually limited to the number of loans of loans one can borrow at a single time in some states and those which do not have the system are in the process of effecting it. For a borrower to be accepted they have to conduct a real-time verification of their eligibility to receive the loan besides enforcement of all the state’s statutes. In states such as Virginia and Washington, they cap the number of loans a borrower can handle on an annual basis.
Payday lenders face high competition from the credit unions plus the major financial institutions those which are responsible for funding a non-profit organization responsible for fighting against the payday loans called Center for Responsible Lending.
Among the major competitors also the service are Uber and Lyft who make Instant and Express pay for all their drivers. NerdWallet also has done a significant job in ensuring Payday is out of service by trying to redirect all payday borrowers to non-profit organizations offering low-interest rates or even government organizations which offer short-term assistance.