Payday Lending Research Paper

1. What is payday lending?
A type of short-term borrowing where an individual borrows a small amount at a very high rate of interest. The borrower typically writes a post-dated personal check in the amount they wish to borrow plus a fee in exchange for cash. The lender holds onto the check and cashes it on the agreed upon date, usually the borrower's next payday. These loans are also called cash advance loans or check advance loans.
2. Do you think it fills a gap?
I believe payday lending fills a gap for those people who need small amounts of borrowing where banks would not deal with. Typically, these traditional financial institutions will not provide a small loan to consumers with questionable credit histories and lacking adequate collateral.
Without credit cards, these consumers may find themselves with nowhere else to turn except to payday lenders. Payday lending industry provides a viable alternative to writing bad checks or paying late fees and penalties. Instead of paying $25 and up for returned check fees and even higher amounts for late fees on credit cards and penalties on utilities, rent and other bills, borrowers can take out payday loans for just $15 for each $100 borrowed. Although this contention may have some merit, it fails to highlight the risks associated with refinancing the payday loans if borrowers do not have the funds to pay off the loans when they come due.
3.
How is payday lending regulated – state or Federal?
High cost payday lending is authorized by state laws or regulations in thirty-two states. Eighteen states and the District of Columbia protect their borrowers with reasonable small loan rate caps. The Arkansas Supreme Court ruled that the Arkansas payday loan law was unconstitutional. In recent years, Oregon, Ohio, New Hampshire, Arizona, Montana and the District of Columbia have reimposed rate caps. For more information, click on Legal Status of Payday Loans by State.
Federal protections for service members and their families took effect October 1, 2007. The Department of Defense regulations apply to payday loans, car title loans and tax refund loans. Lenders are prohibited from charging more than 36 percent annual interest including fees; taking a check, debit authorization or car title to secure loans; and using mandatory arbitration clauses in contracts for covered loans. For more information, click on Research and
Reports.
4. Has payday lending moved beyond “brick and mortar” branches? Who oversees these operations?
Traditionally, payday lenders operated out of storefronts, but increasingly, the loans are moving to the Internet; about a third of payday loans are now originated online.
Online borrowers tend to be younger, more educated and have higher incomes than storefront borrowers. States generally oversee payday lenders, but Pew found that about 70 percent of online payday lenders were not licensed in all the states where they operated, which made it difficult to rein in abuses. The report urges broader federal regulation of the industry to protect borrowers. The Consumer Financial Protection Bureau has been scrutinizing the industry and is said to be considering new rules for payday lenders.
5. Watch
John Oliver - http://www.youtube.com/watch?v=PDylgzybWAw and formulate an opinion of whether we should allow payday lending.
Payday loans are a nuisance according to this video. These companies are intentionally aiming at the people who can afford the debt cycle the least. As this video points out, their own training materials lay out in no uncertain terms that the whole idea is to get desperate people trapped in a continuous spiral of debt. It's much the same as people on heroin - should they be doing heroin in the first place? I would say no, it's really really bad, don't do it, but there's a fair amount of blame to be placed on the dealers who knowingly get people hooked. And that's what payday loan vendors are – “drug dealers”, looking to get unsuspecting, desperate people
hooked.