Payday Loans
A payday loan (also called payday advance, payday loan, payday loan, small dollar loan, short-term loan or cash advance) is a small, unsecured, short-term loan, no matter whether the loan repayment is tied to a borrower. Loans are also sometimes referred to as \cash advances,\ though this term may also refer to money provided on a pre-arranged credit line. e such as a credit card. Payday advances depend on the fact that the consumer has a history of pay and employment. The legislation regarding payday loans varies considerably between different countries, and in federal systems, between different states or provinces. To avoid usury (disproportionate and excessive interest rates), some jurisdictions limit the annual percentage rate (APR) that any lender, including payday lenders, may require. Some jurisdictions totally prohibit payday loans, and some have very limited restrictions on payday lenders. In the United States, the rates of these loans were limited in most states by Uniform Lending Laws (USLL), 4 5 with 36 - 40% APR generally Standard. Although some have noted that these loans appear to carry a significant risk for the lender, 7 8 it has been shown that these loans do not carry more long-term risk for the lender than other forms. of credit. 9 11 These studies appear to be confirmed by the US Securities and Exchange Commission's filings with at least one lender, who notes an imputation rate of 3.2%.
12 The basic lending process involves a lender providing a short-term unsecured loan to repay to the borrower's next loan. Usually, some job or income verification is done (through pay stubs and bank statements), although, according to one source, some payday lenders do not check income or verify credit. 13 Sole proprietorships and franchises have their own underwriting criteria. In the traditional retail model, borrowers visit a payday loan store and get a small cash loan, the payment being entirely due to the next paycheque of the borrower. The borrower writes a post-dated check to the lender in the total amount of the loan plus the fees. On the date of maturity, the borrower must return to the store to repay the loan in person. If the borrower does not repay the loan in person, the lender may redeem the check. If the account runs out of funds to cover the check, the borrower can now face an NSF check in addition to the loan costs, and the loan may result in a fee additional or increased interest rate (or both) a result of the failure to pay. In the more recent online payday loan innovation, consumers complete the online loan application (or, in some cases, by fax, especially when documentation is required).
The funds are then transferred by direct debit to the borrower's account, and the loan repayment and / or finance charges are withdrawn electronically at the next disbursement. of the borrower. This reinforces the findings of the 2011 Federal Deposit Insurance Corporation (FDIC) study, which revealed only black and Hispanic families, recent immigrants and kin-parents. were more likely to use payday loans. In addition, their reasons for using these products were not those suggested by the debarking industry for one-off expenses, but to meet normal recurring obligations. 15 Research for the Department of Financial and Professional Regulation of Illinois found that the majority of Illinois payday loan borrowers earn $ 30,000 or less per year. 16 TexasThe Office of the Consumer Credit Commissioner collected data on the use of payday loans in 2012 and found that refinancing accounted for $ 2.01 billion in loan volume, compared with 1 , $ 08 billion in initial loan volume.
The report did not include information on annual indebtedness. 17 A letter to the editor of an industry expert argued that other studies have shown that consumers are doing better when payday loans are available to them. 18 Pew's reports have focused on how payday loans can be improved, but have not been evaluated if consumers are better off with or without access. s to loans at high interest rate. Pew's demographic analysis was based on a Random Numbering (RDD) survey of 33,576 people, including 1,855 payday borrowers. 19 In another study, by Gregory Elliehausen, Division of
