Facts
How Payday Loans Work
Payday loans are short-term cash loans based on the borrower's personal check held for future deposit or electronic access to the borrower's bank account. Borrowers write a personal check for the amount borrowed plus the finance charge and receive cash. In some cases, borrowers sign over electronic access to their bank accounts to receive and repay payday loans.
Lenders hold the checks until the next payday when loans and the finance charge must be paid in one lump sum. To pay a loan, borrowers can redeem the check for cash, allow the check to be deposited at the bank, or just pay the finance charge to roll the loan over for another pay period.
Payday Loan Terms
Payday loans range in size from $100 to $1,000, depending on state legal maximums. The average loan term is about two-weeks. Loans cost on average 470% annual interest (APR). The finance charge ranges from $15 to $30 to borrow $100. For two-week loans, these finance charges result in interest rates from 390 to 780% APR. Shorter term loans have even higher APRs.
Cost Compared with Other Cash Loans
Payday loans are extremely expensive compared to other cash loans. A $300 cash advance on the average credit card, repaid in one month, would cost $13.99 finance charge and an annual interest rate of almost 57%. By comparison, a payday loan costing $17.50 per $100 for the same $300 would cost $105 if renewed one time or 426% annual interest.
Requirements to Get a Payday Loan
All a consumer needs to get a payday loan is an open bank account in relatively good standing, a steady source of income, and identification. Lenders do not conduct a full credit check or ask questions to determine if a borrower can afford to repay the loan.
Payday Loan Industry
Payday loans are made by payday loan stores, check cashers, and pawn shops. Some rent-to-own companies also make payday loans. Loans are also marketed via toll-free telephone numbers and over the Internet.
At the end of 2006, CRL reported about 25,000 payday loan outlets in the United States and annual loan volume of at least $28 billion, with almost $5 billion in loan fees paid by consumers.
Legal Status for Payday Lending
Payday lending will be authorized by state laws or regulations in 36 states and the District of Columbia, since the Michigan law took effect June 1, 2006. Payday lending is permitted for licensed lenders in two additional states. Twelve states and two territories have not enacted payday loan authorizing legislation. In Maine supervised lenders can opt for a fee structure that permits limited payday lending, although Maine has not enacted industry legislation. For more information, click on Legal Status.
Tactics to Evade State Small Loan and Usury Laws
Some lenders use sham transactions, such as Internet access with a rebate schemes, to cloak loans. In Texas, most lenders now operate as unregulated "credit services organizations" to evade state small loan limits set by the Texas Finance Commission under the small loan law. The Federal Deposit Insurance Corporation has taken enforcement action to stop a dozen or so small banks from "renting" their charters to help payday lenders operate in states that do not authorize these loans or interest rates.
Debt Traps
Payday loans trap consumers in repeat borrowing cycles due to the extreme high cost to borrow, the very short repayment term, and the consequences of failing to make good on the check used to secure the loan. Consumers have an average of eight to thirteen loans per year at a single lender. In one state almost sixty percent of all loans made are either same day renewals or new loans taken out immediately after paying off the prior loan.
Risk and Cost of Checks for Loans
Every unpaid loan involves a check that is not covered by funds on deposit in the borrower's bank account. Failure to repay leads to bounced check fees from the lender and the consumer's bank. Returned checks cause negative credit ratings on specialized databases and credit reports. A consumer can lose her bank account or have difficulty opening a new bank account if she develops a record of "bouncing" checks used to get payday loans.
Coercive Collection Tactics from Check Holding
Basing loans on personal checks leads some lenders to using coercive collection tactics. Some lenders threaten criminal penalties for failing to make good on checks. Others threaten court martial if military personnel fail to cover payday loan checks. In some states lenders can sue for multiple damages under civil bad check laws.
Internet Payday Lending
Internet payday lending adds security and fraud risks to payday loans. Consumers apply online or through faxed application forms. Loans are direct deposited into the borrower's bank account and electronically withdrawn on the next payday. Many Internet payday loans are structured to automatically renew every payday, with the finance charge electronically withdrawn from the borrower's bank account.
Legal Status
Legal Status of Payday Lending by State
Payday loans are small loans subject to state regulation. Traditionally states capped small loan rates at 24 to 48% annual interest and required installment repayment schedules for small loans. Many states also have criminal usury laws to protect consumers. For example, New York 's criminal usury cap is 25% annual interest.
Payday loans are legal in states where legislatures exempted these lenders from small loan or usury caps. In states that repealed small loan rate caps or usury limits for licensed lenders, payday lenders are allowed to charge unlimited rates.
Prohibited by Small Loan Laws or Usury Caps
Currently twelve states and two territories have small loan laws or usury caps that effectively prohibit payday lending at triple-digit interest rates. In Arkansas , the state Constitution caps rates at 17% annual interest, but the legislature enacted a law that permits check cashers to make single payment loans based on check holding. The constitutionality of payday lending at triple-digit interest rates in Arkansas is being challenged in the courts.
( Arkansas 1)
Connecticut
Georgia
Maine 2 Maryland
Massachusetts
New Jersey
New York 3 North Carolina 4
Pennsylvania
Vermont
West Virginia Puerto Rico
Virgin Islands
Authorized by Specific Payday Loan Laws or Licensed Lender Laws5
These states enacted safe harbor legislation for payday lenders and permit loans based on checks written on consumers' bank accounts at triple digit interest rates. The only states that do not explicitly authorized payday loans by law are New Mexico and Wisconsin where licensed lenders are permitted to charge any rates they choose.
Alabama
Colorado
Idaho
Kansas
Minnesota
Nebraska
Ohio
South Carolina
Utah
District of Columbia Alaska
Delaware
Illinois
Kentucky
Mississippi
Nevada
Oklahoma
South Dakota
Virginia Arizona
Florida
Indiana
Louisiana
Missouri
New Hampshire
Oregon
Tennessee
Washington California
Hawaii
Iowa
Michigan
Montana
North Dakota
Rhode Island
Texas
Wyoming
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1Arkansas (Ark. Code. Ann. § 23-52-101 et seq, Ark. Const. art. 19, § 13.
2Limited payday lending using the minimum finance charge exception to the general interest rate cap. 9-A MRSA § 2-401.
3New York Bank Superintendent issued an All Institutions letter June 13, 2000 confirming enforcement of New York's 25% APR criminal usury cap (§ 190.40 New York State Penal Code).
4North Carolina payday loan law expired August 31, 2001 when legislature did not reauthorize payday loan law. Small loan cap is 36% APR.
5Alabama (Ala. Code § 5-18°-1 et seq.; Alaska (Alaska Stat. § 06.50); Arizona (Ariz. Rev. Stat. Ann. § 6-1251 et seq.); California (Cal. Fin. Code §§ 23000 to 23106 ); Colorado (Colo. Rev. Stats. § 5-3.1-101 et seq.); Delaware (Del. Code Ann. tit. 5. § 2227 et seq.; Del.Code. Ann. Tit. 5 § 2227 et seq.; Del. Code Ann. Tit. 5 § 2744); the District of Columbia (D.C. Code § 26-301 et seq.); Florida (Fl. Stat. Ann. §560.401, et seq.; Rule 69V-560.901-912); Hawaii (26 Haw. Rev. Stat. Ann. § 480F-1 et seq.); Idaho (Idaho Code Ann. § 28-46-401 et seq.); Illinois (815 Ill. Comp. Stat. Ann. Ill. § 122/1-1); Indiana (Ind. Code Ann. § 24-4.5-7-101 et seq.); Iowa (2 Iowa Code Ann. § 533D et seq.); Kansas (Kan. Stat. Ann. § 16a-2-404); Kentucky (Ky. Rev. Stat. Ann. § 368.010 et seq.); Louisiana (La. Stat. Ann. § 3578.1 et seq.); Michigan (Mich. Comp. Laws 487.2121 et seq.), Minnesota (Minn. Stat. Ann. § 47.60); Mississippi (Miss. Code Ann. § 75-67-501 et seq.); Missouri (Mo. Stat. Ann. § 408.500 et seq.; Mo. Code Regs. Ann. Tit. 4, § 140-11.010 et seq.); Montana (Mont. Code Ann. § 31-7-703.); Nebraska (Neb. Rev. Stat. § 45-904.); Nevada (2005 Nev. Stat. 414, A.B. 384); New Hampshire (36 N. H. Rev. Stat. Ann. § 399-A:1 et seq.); North Dakota (N. D. Cent. Code § 13-08-01 et seq.); Ohio (Ohio Rev. Code Ann. §§ 1315.35 et seq.); Oklahoma (Okla. Stat. Ann. Tit. 59 § 3101 et seq.); Oregon (54 Or. Rev. Stat. Ann. § 725.600 et seq.); Rhode Island (R.I. Stat. Ann. §§ 19-14.4-1 and 19-14.4-4 et seq.); South Carolina (S.C. Stat. Ann. § 34-39-110 et seq.); South Dakota (S. D. Codified Laws § 54-4-36 et seq.); Tennessee (Tenn. Code Ann. § 45-17-101 et seq. and Tenn. Comp. R. & Regs. § 0180-28-.01); Texas (7 Tex. Admin. Code § 1.605; Tex. Fin. Code Ann. §§ 342.251 et seq. and 342.601 et seq.); Utah (Utah Code Ann. § 7-23-01 et seq.); Virginia (Va. Code Ann. § 6.1-444 et seq.; 10 Va. Admin. Code §§ 5-200-10 to 5-200-80); Washington (Wash. Rev. Code § 31.45.010 et seq.; Wash. Admin. Code - 208-120 et seq.); Wyoming (Wyo. Stat. § 40-14-362 et seq.).
How Much Can I Borrow?
Your payday loan can be between £80 and £1000 (subject to status). Once you have completed the online application form, you will receive an instant decision on the amount that we can lend to you. My Payday Loan do not ask you to fax documents!
When Can I Have My Payday Loan?
Our Payday Loans are normally paid to into your account on the day you apply and the repayment is taken from your current account using your debit card on your payday.
Why Use A Payday Loan?
Payday Loans are often cheaper, more transparent and more convenient than other products which allow you to borrow money in the short term.
Important Information
My Payday Loan uses a flat payday loan fee on all cash advances. When applying for a payday loan with us, your APR will be calculated for you based on the number of days your loan will be outstanding and presented to you prior to approval. To make it easy to understand, we provide clear details of our payday loan amounts and total repayments.
My Payday Loan provides short term cash advances repayable on your next payday. At My Payday Loan, you can apply online for a Payday Loan to be paid into your account SAME DAY! Our payday loans are normally paid to into your account on the day you apply and the repayment is taken from your current account using your debit card on your payday.
Same day transfer does not apply to customers with accounts in all UK banks. In some cases transfers can take between 24 to 48 hours to show as cleared funds.
Contact My Payday Loan
You can contact our Customer Service Team by telephone on 0871 550 0075 or email us at customer.services@mypaydayloan.co.uk.
