Fighting Payday Lenders State by State and at the Federal Level

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May 2, 2014; Stateline

The payday lending industry is one tough player when it comes to lobbying against state regulations. In Louisiana recently, the legislature failed to move on a bill that would have regulated the industry there. Although payday lending advocates have all kinds of reasons for justifying their service to the poor as being fundamentally about providing lower-income people with a little money between paychecks, their critics take aim at payday lenders’ annualized interest rates, which can come close to 600 percent, and the trap of payday loans for people who end up stuck in repeated loan cycles. The payday lending industry complains that annualized interest rates don’t accurately reflect what borrowers typically do with their short-term loans.

Elaine Povich of Stateline writes that 12 million people turn to payday loans every year. For a more realistic picture of payday lending, Povich turned to research from the Pew Charitable Trusts (which funds Stateline), revealing that the average payday loan is about $375, the term is about two weeks, and the average fee per pay period is $55. Pew says that the average borrower keeps that $375 loan out for five months, which results in $520 in finance charges. For the working poor, paying as much as 40 percent more in fees than a short-term loan is worth is burdensome. It isn’t hard to imagine that payday loans that are neither average nor typical might be quite onerous for a lower-income borrower.

Facing off against the payday lending industry isn’t easy. It has been an active participant in campaign finance contributions to both political parties, especially in recent election cycles, as shown in this chart prepared by the Center for Responsive Politics:

Election Cycle

Total Contributions

Contributions from Individuals

Contributions from PACs

Soft/Outside Money

Donations to Democrats

Donations to Republicans

% to Dems

% to Repubs































































































































The industry also spends on lobbying, leading to results like Louisiana’s. This picture of the payday lending industry’s lobbying at the federal level sparks one’s imagination of how the industry might be spending on lobbying with state legislatures: 



According to one source, the Community Financial Services Association—the payday lending industry’s trade association—spent more than $20 million in state-level campaign contributions over the last decade. That is a lot of financial prowess for nonprofit advocates to compete with and overcome, especially since 38 states have laws that specifically authorize payday lending and only four plus the District of Columbia prohibit payday lending. Regulations in the most states are weak, if they exist at all.

The story in Louisiana is telling. Nearly one out of every four households in Louisiana takes out a payday loan in a year. A coalition of church groups and consumer groups collaborated to promote a law, introduced by state senator Ben Nevers, to cap payday loan annual interest rates at 36 percent, far below the state average of 435 percent. As that idea failed to get sufficient support in the legislature, Nevers and his nonprofit allies came up with a different idea: to limit borrowers to no more than 10 payday loans a year. That idea also failed, against charges that Nevers and the advocates wanted to put the payday lending industry out of business in Louisiana.

The position of industry spokesperson Troy McCullen, speaking on behalf of the Louisiana Cash Advance Association, said that if payday lenders were to go out of business, borrowers would turn to the Internet for offshore sources or even go to loan sharks. In other words, if you think we’re thieves, just look at the criminals waiting for you at the end of the alley. The legislation proposed by Nevers never made it out of the legislature. Nevers contended that the payday lending industry, which he calls “nothing more than loan sharking,” spent “thousands, if not hundreds of thousands of dollars against this push to regulate this industry.”

The problem that makes reining in payday lending such a huge challenge for community coalitions like the one that came together in Louisiana behind the Nevers bill is that different states have levels of regulation that range from inadequate to nonexistent. This cacophony of state laws, combined with the campaign contributions of payday lenders, makes regulatory headway difficult. The solution may be in federal regulations that supersede state laws, particularly through the Consumer Financial Protection Bureau, a creation of the Dodd-Frank Act. That’s the position held by the nonprofit Consumer Federation of America, which supports the CFPB rules controlling payday lending. The Federation even maintains an online PayDay Loan Consumer Information resource with explanations of how payday loans work and what the states are or are not doing to put some clamps on the industry.

This is why nonprofit advocacy is so crucial. If the Consumer Federation of America and its state-level allies were not in this game, the payday lending industry would have even freer rein than it does now. –Rick Cohen


  • Michael Wyland

    Access to credit for so-called “sub-prime” (i.e., relatively high credit risk) customers is problematic for both advocates and critics of payday lending. One national sub-prime credit card lender told me that his company has to write off over 25% of loan balances (money, not accounts) annually as uncollectable. The profits are huge because the risks to lenders are huge. Not surprising that the risk-reward is high, because these are unsecured loans made to people without assets and with poor credit scores (which might be based on any combination of low income, bankruptcy, default, delinquency, etc.).

    The interest rates Rick Cohen mentions are low. Annual Percentage Rate (APR) equivalents in some US states exceed 1100%. If you think that’s outrageous, there is at least one payday lender in the UK whose rates – advertised on their web site – exceed 4000%.

    In the US, several years ago, almost 20% of Walmart customers have zero banking relationships. This is one key reason why Walmart has worked with American Express to develop a series of financial products specific to Walmart and based on debit cards and similar “paycheck to paycheck” instruments.

    Barbara Eherenrich’s book “Nickel and Dimed” speaks to the deceptively skilled money management of poor people. Convenience store food prices are high, but better than taking a bus or an unreliable car to a distant supermarket. Similarly, payday loans are exorbitant, but cheaper than late fees for missed rent or utility payments, or bounced check fees for people with checking accounts. Pawn shops are an option – if you have assets you can surrender the use of while the loan is outstanding.

    Capping the reward potential by capping fees and interest rates on loans has the effect of forcing lenders to tighten lending standards, leaving more people without any access to legal credit. There are already payday lenders who have set up operations offshore or on Native American Indian reservations in the US. In both cases, the applicability of US banking laws – and consumer protections for borrowers – is unsettled at best.

    As bad as US-based payday lenders may be, there are worse alternatives for borrowers: no access to credit or access to credit from even less desirable domestic and international venues. The solutions for borrowers are more complex, and many paths to improvement touch on very uncomfortable social and philosophical conversations.

  • tom master

    Our problem is that we now live in a world devoid of personal responsibility. Yes payday lenders have been lending to people unable to act on their own behalf (the mentally ill, drunk etc.) but most of the people borrowing from payday lenders are adults who should know better.

    We need to return to a world where we treat adults as adults, and if they are stupid enough to borrow money at high interest rates then roll those debts onto another loan then they deserve all they get.

    Perhaps what we need is an exam at the end of school days, and if you fail it you get a “stupid” rating put on your credit file and get banned from ever being able to borrow money? Only those who show themselves able to understand what the hell is happening in their world should be allowed to have things like a full bank account, mortgage, credit card, overdraft, loan etc.

  • Angus Long

    When are any of the opponents of these loans going to step up and offer something better? That’s what needs to be done first and foremost. Too often, when they crack down on these loans, that’s all that happens and access to credit is diminished, not improved. Walk the walk instead of imposing what you think a loan should look like. Otherwise, you’re only hurting the people that need these small loans.