Bill C28 supersedes the Criminal Code of Canada for the purpose of exempting Payday loan companies from the law, if the provinces passed legislation to govern payday loans. Payday loans in Canada are governed by the individual provinces. All provinces, except Newfoundland and Labrador, have passed legislation. For example, in Ontario loans have a maximum rate of 14.299% Effective Annual Rate ("EAR")($21 per $100, over 2 weeks). As of 2017, major payday lenders have reduced the rate to $18 per $100, over 2 weeks.
The "Financial Conduct Authority (FCA) estimates that there are more than 50,000 credit firms that come under its widened remit, of which 200 are payday lenders. Payday loans in the "United Kingdom are a rapidly growing industry, with four times as many people using such loans in 2009 compared to 2006 – in 2009 1.2 million people took out 4.1 million loans, with total lending amounting to £1.2 billion. In 2012, it is estimated that the market was worth £2.2 billion and that the average loan size was around £270. Two-thirds of borrowers have annual incomes below £25,000. There are no restrictions on the interest rates payday loan companies can charge, although they are required by law to state the effective "annual percentage rate (APR). In the early 2010s there was much "criticism in Parliament of payday lenders.
In 2014 several firms were reprimanded and required to pay compensation for illegal practices, "wonga.com for using letters untruthfully purporting to be from solicitors to demand payment—a formal police investigation for fraud was being considered in 2014—and Cash Genie, owned by multinational "EZCorp, for a string of problems with the way it had imposed charges and collected money from borrowers who were in arrears.
Changes in the UK law
On 1 April 2014 there was a major overhaul in the way payday loans are issued and repaid.
First of all the FCA will be making sure all lenders can abide by two main goals;
- "to ensure that firms only lend to borrowers who can afford it", and
- "to increase borrowers' awareness of the cost and risk of borrowing unaffordably and ways to help if they have financial difficulties".
On top of the main goals Martin Wheatley, the FCA’s chief executive officer, said:
- “For the many people that struggle to repay their payday loans every year this is a giant leap forward. From January next year, if you borrow £100 for 30 days and pay back on time, you will not pay more than £24 in fees and charges and someone taking the same loan for 14 days will pay no more than £11.20. That’s a significant saving.
- "For those who struggle with their repayments, we are ensuring that someone borrowing £100 will never pay back more than £200 in any circumstance.
- "There have been many strong and competing views to take into account, but I am confident we have found the right balance.
- "Alongside our other new rules for payday firms – affordability tests and limits on rollovers and continuous payment authorities - the cap will help drive up standards in a sector that badly needs to improve how it treats its customers.”
In order to achieve these goals the FCA has proposed the following:
- Initial cost cap of 0.8% per day,
- Fixed default fees capped at £15, and
- Total cost cap of 100%.
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. The annual percentage rate ("APR) is also limited in some jurisdictions to prevent usury. And in some states, there are laws limiting the number of loans a borrower can take at a single time.
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.
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. The CFPB also operates a website to answer questions about payday lending. In addition, some states have aggressively pursued lenders they felt violate their state laws.
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. However, the Federal Trade Commission has begun the aggressively monitor these lenders as well. While some tribal lenders are operated by Native Americans, 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.
Variations and alternatives
Alternatives to payday loans
Other options are available to most payday loan customers. These include "pawnbrokers, "credit union loans with lower interest and more stringent terms which take longer to gain approval, employee access to earned but unpaid wages, credit payment plans, paycheck cash advances from employers ("advance on salary"), auto pawn loans, bank overdraft protection, cash advances from credit cards, emergency community assistance plans, small consumer loans, installment loans and direct loans from family or friends. The Pew Charitable Trusts found in 2013 their study on the ways in which users pay off payday loans that borrowers often took a payday loan to avoid one of these alternatives, only to turn to one of them to pay off the payday loan.
If the consumer owns their own vehicle, an auto title loan would be an alternative for a payday loan, as auto title loans use the equity of the vehicle as the credit instead of payment history and employment history.
Other alternatives include the Pentagon Federal Credit Union Foundation (PenFed Foundation) Asset Recovery Kit (ARK) program.
Basic banking services are also often provided through their postal systems.
Comparisons payday lenders make
Payday lenders do not compare their "interest rates to those of mainstream lenders. Instead, they compare their fees to the "overdraft, late payment, penalty fees and other fees that will be incurred if the customer is unable to secure any credit whatsoever.
The lenders may list a different set of alternatives (with costs expressed as APRs for two-week terms, even though these alternatives do not compound their interest or have longer terms):["citation needed]
- $100 payday advance with a $15 fee = 391% APR
- $100 bounced check with $54 NSF/merchant fees = 1,409% APR
- $100 credit card balance with a $37 late fee = 965% APR
- $100 utility bill with $46 late/reconnect fees = 1,203% APR
Variations on payday lending
A minority of mainstream banks and TxtLoan companies lending short-term credit over mobile phone text messaging offer virtual credit advances for customers whose paychecks or other funds are deposited electronically into their accounts. The terms are similar to those of a payday loan; a customer receives a predetermined cash credit available for immediate withdrawal. The amount is deducted, along with a fee, usually about 10 percent of the amount borrowed, when the next direct deposit is posted to the customer's account. After the programs attracted regulatory attention, Wells Fargo called its fee "voluntary" and offered to waive it for any reason. It later scaled back the program in several states. Wells Fargo currently offers its version of a payday loan, called "Direct Deposit Advance," which charges 120% APR. Similarly, the "BBC reported in 2010 that controversial TxtLoan charges 10% for 7-days advance which is available for approved customers instantly over a text message.
Income tax "refund anticipation loans are not technically payday loans (because they are repayable upon receipt of the borrower's income tax refund, not at his next payday), but they have similar credit and cost characteristics. A car "title loan is secured by the borrower's car, but are available only to borrowers who hold clear title (i.e., no other loans) to a vehicle. The maximum amount of the loan is some fraction of the resale value of the car. A similar credit facility seen in the UK is a "logbook loan secured against a car's "logbook, which the lender retains. These loans may be available on slightly better terms than an unsecured payday loan, since they are less risky to the lender. If the borrower defaults, then the lender can attempt to recover costs by "repossessing and reselling the car.
Many countries offer basic banking services through their postal systems. The "United States Post Office Department offered such as service in the past. Called the "United States Postal Savings System it was discontinued in 1967. In January 2014 the Office of the Inspector General of the United States Postal Service issued a white paper suggesting that the USPS could offer banking services, to include small dollar loans for under 30% APR. Support and criticism quickly followed, however the major criticism isn't that the service would not help the consumer but that the payday lenders themselves would be forced out of business due to competition and the plan is nothing more than a scheme to support postal employees.
- "Alternative financial services
- "Community Financial Services Association of America, a trade association representing the payday loan industry
- "Debt bondage
- "Loan shark
- "Logbook loan
- "Merchant cash advance
- "Predatory lending
- "Refund anticipation loan
- "Title loan
- Insley, Jill (2012-07-12). "GE Money refuses mortgages to payday loan borrowers". The Guardian. London.
- Michelle Hodson, "fdic.gov, 18 November 2009, How Payday Loans Work
- Ebony. FDIC. Retrieved 7 October 2014.
- Mayer, Robert (2012). "Loan Sharks, Interest-Rate Caps, and Deregulation". Retrieved 27 August 2014.
- Carruthers, Bruce (2007). "The Passage of the Uniform Small Loan Law" (PDF). Retrieved 27 August 2014.
- $15 on $100 over 14 days is ratio of 15/100 = 0.15, so this is a 14-day rate. Over a year (365.25 days) this 14-day rate can aggregate to either 391% (assuming you carry the $100 loan for a year, and pay $15 every 14 days: 0.15 x (365.25/14) = 3.91, which converts to a percentage increase (interest rate) of: 3.91 x 100 = 391%) or 3733% (assuming you take out a new loan every 14 days that will cover your principal and "charge", and every new loan is taken at same 15% "charge" of the amount borrowed: (1 + 0.15)365.25/14 − 1 = 37.33, which converts to a percentage increase (interest rate) of: 37.33 x 100 = 3733%).
- Megan McArdle,"The Atlantic, 18 November 2009, On Poverty, Interest Rates, and Payday Loans
- Paige Skiba and Jeremy Tobacman, 10 December 2007, : The Profitability of Payday Loans.
- Gold, Aaron. "Grounding the Policy Debate Through Economic Analysis" (PDF).
- "Payday Lending: Do Outrageous Prices Necessarily Mean Outrageous Profits".
- "CFPB Data Point: Payday Lending" (PDF).
- "10-K Filing: ADVANCE AMERICA, CASH ADVANCE CENTERS, INC.".
- Bachelor, Lisa (2008-05-29). "You can settle the loan on payday – but the APR could be more than 2,000 per cent". The Guardian. London.
- "Payday Lending in America: Who Borrows, Where They Borrow, and Why" Pew Charitable Trusts, July 18, 2012
- "2011 FDIC National Survey of Unbanked and Underbanked Households" (PDF). Federal Deposit Insurance Corp. Retrieved 26 August 2014.
- "Let consumers make their own credit choices". Philadelphia Inquirer. Retrieved 7 October 2014.
- Elliehausen, Gregory. (2009) "An Analysis of Consumers' Use of Payday Loans" Financial Services Research Program. p27.
- HaworthPress.com: Howard Jacob Karger, "Scamming the Poor: The Modern Fringe Economy", The Social Policy Journal, pp. 39–54, 2004.
- Lohrentz, Tim. "The Net Economic Impact of Payday Lending in the U.S." (PDF). http://www.insightcced.org/. Insight Center. Retrieved 26 August 2014. External link in
- : Donald P. Morgan, "Defining and Detecting Predatory Lending", Staff Report no. 273. January 2007
- "Texas's New Payday Lending Regulations: Effective Debiasing Entails More Than the Right Message".
- "Facebook users warned about ads". BBC News. 2008-05-12. Retrieved 2008-06-10.
- Credit Action Campaigns on Facebook Debt Ads. Retrieved 2012-11-21.
- Hauser, Christine (2016-05-11). "Google to Ban All Payday Loan Ads". The New York Times. "ISSN 0362-4331. Retrieved 2016-05-16.
- Graff, David (2016-05-11). "An Update to Our AdWords Policy on Lending Products". Google Public Policy Blog. Retrieved 2016-05-16.
- "Payday Loans Now (clone)". Financial Conduct Authority. 2015-08-25. Retrieved 2016-04-03.
- "Cloned firms and individuals". Financial Conduct Authority. 2014-10-15. Retrieved 2016-04-03.
- "Debt Collection". Federal Trade Commission.
- Wilder, Forrest (Jul 16, 2013). "Fast Cash: How Taking Out a Payday Loan Could Land You in Jail". The Texas Observer. Texas Democracy Foundation. Retrieved May 31, 2016.
- "Fast Cash Loans Charged by State Regulator" (PDF). Retrieved 2012-02-22.
- Federal Reserve Bank of Kansas City, Payday Loan Pricing, February 2009
- Mark Flannery; Katherine Samolyk (1 June 2010). "Payday Lending: Do the Costs Justify the Price?" (PDF). Retrieved 2010-10-03.
- "Payday Loans and Deposit Advance Products" (PDF).
- "A Bayesian Analysis of Payday Loans and Their Regulation" (PDF).
- Lehman, Tom (September 2003). "In Defense of Payday Lending". The Free Market (The Mises Institute monthly). "Ludwig von Mises Institute. Retrieved 2014-03-24.
- "Loan Sharks, Interest-Rate Caps, and Deregulation".
- "A Complex Portrait: An Examination of Small-Dollar Credit Consumers" (PDF).
- Stango, Victor (2012). "Are Payday Lending Markets Competitive?" (PDF). Cato Institute.
- Werth, Christopher (2016-04-16). "Tracking the Payday-Loan Industry's Ties to Academic Research". "Freakonomics. Retrieved 2016-05-16.
- ""Defining and Detecting Predatory Lending", Federal Reserve Bank of New York Staff Reports, Number 273, January 2007". Newyorkfed.org. 2011-09-23. Retrieved 2012-02-22.
- "The Real Costs of Credit Access: Evidence from the Payday Lending Market" (PDF).
- "Payday Loans and Deposit Advance Products" (PDF).
- Stoianovici, Petru Stelian; Maloney, Michael T. (28 October 2008). "Restrictions on Credit: A Public Policy Analysis of Payday Lending". SSRN. "SSRN .
- Sciba, Paige. "Do Payday Loans Cause Bankruptcy" (PDF).
- Bhutta, Neil. "Payday Loans and Consumer Financial Health" (PDF).
- "Payday Loan Choices and Consequences" (PDF).
- Morse, Adair (19 February 2009). "Payday Lenders: Heroes or Villains?". SSRN. "SSRN .
- "Interest rate cap, QLD". Fairtrading.qld.gov.au. 2011-11-18. Retrieved 2012-02-22.
- "What is a Short Term Credit Contract (SACC) loan?". 2016-02-02. Retrieved 2 February 2016.
- "National Consumer Credit Protection Act 2009 (Cth) s 5". 2015-07-10. Retrieved 3 August 2015.
- "National Consumer Credit Code contained in sch 3 of the National Consumer Credit Protection Act 2009 (Cth) s 31A". Commonwealth of Australia. 2015-07-10. Retrieved 2015-07-10.
- "Bill C-26: An Act to amend the Criminal Code (criminal interest rate)". Retrieved 7 October 2014.
- "FCA rules could force quarter of payday lenders out of business". Financial Times. Retrieved 7 October 2014.
- Marie Burton, "Consumer Focus, Keeping the plates spinning: Perceptions of payday loans in Great Britain
- "Payday Lending Compliance Review Final Report" (PDF). Office of Fair Trading. p. 9. Archived from the original (PDF) on 2014-04-02.
- "Wonga attracts high interest from City of London police". The Guardian. Retrieved 7 October 2014.
- "The Guardian newspaper, Payday lender Cash Genie may have to pay compensation to customers, 23 July 2014". the Guardian. Retrieved 7 October 2014.
- Wheatley, Martin. "FCA's chief executive officer". FCA.org.uk. Retrieved 22 November 2014.
- "State Payday Loan Regulation and Usage Rates". 2014. Retrieved 27 August 2014.
- Carruthers, Bruce (2007). "The Passage of the Uniform Small Loan Law" (PDF). Retrieved August 27, 2014.
- "Payday Loans". Retrieved 15 May 2016.
- "What are my rights under the Military Lending Act?". consumerfinance.gov. Consumer Financial Protection Bureau. Retrieved 30 December 2015.
- "CFPB Takes Action Against ACE Cash Express for Pushing Payday Borrowers Into Cycle of Debt". 2014. Retrieved 27 August 2014.
- "Our first enforcement action against a payday lender". 2013. Retrieved 27 August 2014.
- "Payday loans". Consumer Financial Protection Bureau. Retrieved 7 October 2014.
- "NY Payday Lender Crackdown May Be Tough Act To Follow". 2014. Retrieved 27 August 2014.
- "Online lender settles New York lawsuit amid crackdown on massive 'payday' loans". 2012. Retrieved 27 August 2014.
- "Circumventing State Consumer Protection Laws: Tribal Immunity and Internet Payday Lending". 2012. Retrieved 27 August 2014.
- "Payday Lenders That Used Tribal Affiliation to Illegally Garnish Wages Settle with FTC". 2014. Retrieved 27 August 2014.
- "ribes' Online Lending Faces Federal Squeeze". 2014. Retrieved 27 August 2014.
- "Alleged 'rent-a-tribe' lender temporarily barred from new business in Minnesota". 2013. Retrieved 27 August 2014.
- "The Tribe That Said No". 2014. Retrieved 27 August 2014.
- "Ways to get quick cash besides a payday loan", The Columbus Dispatch, November 23, 2014
- "Breaking the cycle of payday loan 'trap'", "USA Today, September 19, 2006
- "Making Payday Flexible", New Jersey Business, December 2011
- "Persuading Small Employers to Advance Wages", Bloomberg Businessweek, July 19, 2011
- "With Payday Loans under Scrutiny, Startup FlexWage Offers Alternatives", American Banker, June 1, 2012
- "Testimony of Dr. Kimberly R. Manturuk, Center for Community Capital, University of North Carolina at Chapel Hill, Before the Subcommittee on Financial Institutions and Credit for Consumers, United States House of Representatives, Hearing on 'An Examination of the Availability of Credit for Consumers,'" Page 5, September 22, 2011
- "Hearing entitled 'An Examination of the Availability of Credit for Consumers'", The Committee on Financial Services, September 22, 2011
- "Cash from the Boss to Replace Payday Loans", Bloomberg Businessweek, October 20, 2011
- "How Borrowers Choose and Repay Payday Loans" (PDF). Retrieved 26 August 2014.
- "Asset Recovery Kit (ARK) program". Pentagonfoundation.org. Retrieved 2012-02-22.
- "Providing Non-Bank Financial Services for the Underserved" (PDF). 2014. Retrieved August 27, 2014.
- "New FDIC guidelines allow payday lenders to ignore state laws" (PDF). Retrieved 2012-02-22.
- "Wells Fargo puts hold on direct deposit advance", bizjournal.com, June 2, 1997
- "The cost of convenience". BBC News. 2009-12-11.
- "Decision of the Trade Mark Registry over "Log Book Loans"" (PDF). UK "Intellectual Property Office. 2003-11-26. p. 2.
- "Providing Non-Bank Financial Services for the Underserved" (PDF). 2014. Retrieved 27 August 2014.
- "http://www.nationalreview.com/article/371777/postal-service-banking-john-berlau". National Review. 2014. Retrieved 27 August 2014. External link in
- "It's Time for Postal Banking". Harvard Law Review. 2014. Retrieved 27 August 2014.
- Baradaran, Mehrsa (2015). How the Other Half Banks: Exclusion, Exploitation, and the Threat to Democracy. "Harvard University Press. "ISBN 9780674286061
"" Media related to Payday loans at Wikimedia Commons) )