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Payday lenders, often housed with check-cashing and money transfer stores, are fast becoming the primary financial services providers in many low- and moderate-income communities.
When taking out payday loans, a cash-strapped person is forced to strike a devil's bargain. In return for two-week advance on an anticipated paycheck, the borrower is charged with astronomical fees -- if calculated as annual interest rates, the fees would be in the triple digits. When payday comes, the borrower has two options: allow the lender to subtract the loan and fee (often $20 for every $100 borrowed) from their paycheck, or roll the loan over to the next payday. It costs much more, but 75% of all payday customers renew their loans at least once.
In this way, what may seem like a quick solution to a cash shortage can easily initiate a cycle of insurmountable debt for borrowers living paycheck to paycheck.
Regulating payday loans has proven challenging in the current climate of financial services deregulation. Advocates and policymakers have created coalitions in a number of states to combat the wealth-stripping effects payday loans have on targeted populations, which include military personnel and Social Security beneficiaries.
As a result, many state laws have been enacted or expanded, but the rapidly-growing payday loan industry continues to find ways around regulation, including "renting" state and federal charters from out-of-state banks.
This section provides links to reports, state and national organizations, and other resources tracking the rise of payday lending and its impact on economic security.
> Publications: Reports, Articles and Books
> Regulatory Context and Legislative Action
> Targeted Communities
> Alternatives to Payday Loans
> Organizational Links
Do you have something to add? We welcome it... please email us.
"Instant Loans a Dangerous Temptation for Servicemembers in the Pacific" (Stars and Stripes: May 2005)
Article describes how the cycle of payday lending can spiral out of control for America's service men and women.
Quantifying the Economic Costs of Payday Lending
(Keith Ernst, John Farris, and Uriah King, CRL: 2003)
Study conclusively finds that payday lenders collect the vast majority of their fees from borrowers who repeatedly revolve their loans.
"Payday Loans: A Primer"
(Woodstock Institute & Egan Campaign)
A useful introduction to payday loans and the serious problems associated with them. Prepared as a joint effort by the Woodstock Institute, a nationally recognized resource on the credit and capital needs of low-income and minority communities, and the Egan Campaign, a group dedicated to reforming payday lending policy in Illinois.
News Coverage of Anti-Payday Lending Efforts
(Center for Responsible Lending: Updating)
A news resource for predatory lending opponents, this site is routinely updated with press stories related to this issue.
"Payday Lending: A Business Model that Encourages Chronic Borrowing"
(Center for Community Capitalism, University of North Carolina: 2003)
A look at payday lending in North Carolina, determines that not only is it a burgeoning industry, but the nature of the lending leads to a harmful and cyclical pattern of borrowing among indebted consumers.
"Too Much Month at the End of the Paycheck"
(Community Reinvestment Association of NC:2003)
Photography and testimonials from North Carolinans involved in payday lending -- as borrowers, advocates, or industry workers and executives. Prefaced with a history of usury and consumer lending.
"Financial Services in Distressed Communities: Framing the Issue, Finding Solutions"
(Fannie Mae Foundation: 2001)
An extensive study of indebted communities and the current financial conditions that serve to keep them that way. Researchers here conclude that an improved financial services environment for low- to moderate-income households is necessary to enable these groups to benefit from wealth building opportunties that are available to higher-income communities.
PBS segment on payday loans
(Newshour with Jim Lehrer: 2001)
A full transcript and streaming video link to the recent NewsHour piece on the issues surrounding payday lending. Creditors, borrowers, government officials, and legal counsel are included in the segment.
"Unregulated Payday Lending Pulls Vulnerable Consumers Into Spiraling Debt"
(Woodstock Institute: March 2000)
Using data from the Illinois Department of Financial Institutions and other sources, this report finds major faults in the key defenses that the payday lending industry has used against stronger consumer regulation.
"The Growth of Legal Loan Sharking: A Report on the Payday Loan Industry"
(Consumer Federation of America: November 1998)
Includes points about the harms of payday lending and policy recommendations for state and federal governments to curb the essentially unregulated practices of the lending industry.
Books:
 Taming the Sharks: Towards a Cure for the High-Cost Credit Market
(Christopher L. Peterson, Univ. of Akron Press: 2004)
Fringe Banking: Check-Cashing Outlets, Pawnshops and the Poor
(John P. Caskey, Russell Sage Foundation: 1997)
Merchants of Misery: How Corporate America Profits from Poverty
(Michael Hudson, Editor, Common Courage: 1996)
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Banking on the Fringe
(Federal Reserve Bank of Minneapolis: July 2004)
Article describing the nature and growth of the payday industry and efforts by consumer activists and regulators in some states to establish tighter controls.
Georgia Anti-Payday Loan Bill Summary
(Center for Responsible Lending: May 2004)
In April, Georgia passed one of the toughtest anti-payday lending laws in the nation. The law reaffrimed and strengthened a 1995 bill, the Georgia Industrial Loan Act, which prohibited payday loans. The new law is notable mostly for toughening the penalties for those who make payday loans in the state, charging offenders with a "misdemeanor of high and aggravated nature" and making a third or subsequent conviction a felony. The law also declares payday loan offices to be "public nuisances" and has a provision specifically protecting people in the military. The law is intended to clamp down on operators who have used the charter of out-of-state banks to make payday loans in violation of the states' usury laws. Supporters of the new law argue that finance companies already make small, short-term laws but at lower cost. Four lawsuits challenging the law, which was set to take effect May 1st, were immediately filed; a U.S. District Court judge in Atlanta enjoined implementation of the law while the challenges are being heard. (David Blatt, CAPTC)
New Terms for Payday Loans: High Cost Lenders Change Loan Terms to Evade Illinois Consumer Protections (Woodstock Institute: April 2004)
Despite the 2001 adoption of administrative rules to limit the industry's most abusive practices, payday lenders continue to thrive in Illinois. The Woodstock Institute describes new products designed to evade state regulations, profiles Illinois' lenders and borrowers, and offers policy recommendations.
"Unsafe and Unsound: Payday Lenders Hide Behind FDIC Bank Charters to Peddle Usury"
(Consumer Federation of America: February 2004)
Report chronicling newest developments in payday loan industry's spread and state usury law evasion. The Federal Deposit Insurance Corporation is the last bank regulator to issue payday loan enforcement guidelines for banks that partner with payday lenders. Industry analysts in early 2003 reported a 50 percent increase in the number of payday loan outlets as of since year-end 2000 and double the fee revenue.
National Conference of State Legislatures Report on Payday Lending
(NCSL: February 2004)
A state-by-state breakdown of payday lending laws, including the maximum allowable loan amounts and finance charges.
Supreme Court brief on payday lending
(USPIRG, CFA, NCLC, NACA, AARP: April 4, 2003)
Brief submitted by consumer advocacy groups in the case of Beneficial National Bank v. Marie Anderson. Argues that individuals who need to resort to an Alternative Financial Sector should be able to rely on government oversight to ensure that they are not exploited.
FDIC guidelines for payday lending
Details the guidelines that state bank supervisors and other examiners should use in monitoring financial institutions that practice payday lending. While the FDIC acknowledges that payday loans are high-cost, often result in repeat borrowing, and come under frequent criticsm from consumer advocates, it does not take up the advocates' most pointed concerns. (See below.)
Consumer Federation Draft Payday Lending Guidelines
(Letter to FDIC: March 2003)
A letter submitted to the FDIC by the CFA, which urges the FDIC to prohibit their insured non-member banks from renting charters to third-party payday lenders.
Federal Trade Commission warning on payday loans
A consumer alert from the FTC highlighting the risks and high costs of payday lending.
Title and Payday Loans: A Need for More Regulation?
(Michael A. Day, University of Oregon Law Journal: 2003)
Calls for stiffer regulations to curb the unbridled practices of title and payday lenders, namely an overarching federal interest rate cap. It also advocates systemic changes to bring payday lenders within standards traditionally acceptable for all creditors.
"Payday, Mayday! Payday and Title Lender Compliance to Signage and Brochure Regulations"
(NM PIRG Education Fund: 2002)
A report by the New Mexico PIRG finds that two-thirds of the payday and auto title lenders in the state are in violation of signage and brochure regulations.
"Rent-A-Bank Payday Lending: How Banks Help Payday Lenders Evade State Consumer Protections"
(Consumer Federation of America & US PIRG: 2001)
Provides a detailed summary of the legal and legislative status of the payday lending industry. Places particular emphasis on analyzing the most important and controversial trend in payday lending: lenders' growing use of chartered banks to evade state usury laws, small loan rate caps, and even state payday loan laws.
"Arkansas Payday Loan Company Agrees to Stop Company's Illegal Lending Practices in Settlement of Case"
(AARP Foundation Litigation: 2001)
Press release concerning a settlement in which an Arkansas company agreed to change its lending practices and refund the fees charges to borrowers.
"Sale-Leaseback Lenders Defy Regulation"
(Consumers Union: February 2001)
Payday lenders in Texas use a loophole to avoid adhering to state regulations of short-term loan interest rates. This report contends that the state legislature must explicity clarify that these companies are bound by the regulations set forth.
"Show Me the Money!: A Survey of Payday Lenders and Review of Payday Lender Lobbying in State Legislatures"
(US PIRG & Consumer Fed: 2000)
Detailed examination of the rapidly growing industry and its intensive lobbying effort to escape regulation. Policy recommedations are provided as well.
"Wolf in Sheep's Clothing: Payday Loans Disguise Illegal Lending"
(Consumers Union Southwest Regional Office: February 1999)
Payday lenders in Texas escape the radar of usury laws by carefully manipulating the language that defines their business practices. This report highlights this trend and calls for legislative corrective action.
Payday Loans -- A Form of Loansharking: The Problem, Legislative Strategies, A Model Act
(National Consumer Law Center)
Explanation of payday loans, along with a legal analysis and suggestions for how legislators can more effectively regulate them. Also includes a detailed description of model legislation: the Deferred Desposit Loan Act, which would reduce some of the most egregious abuses by payday lenders.
Legislative Activity by the National Association of Consumer Advocates
Updating list of letters, comments, and other legislative activity by this national consumer group, often in response to federal regulatory action that it deems would harm consumers.
AARP Payday Loans: A Model State Statute
A short breakdown of state lending laws and a brief description of the Deferred Deposit Loan Act.
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"Oklahoma Coalition of Consumer Advocates' Payday and B Loan Issue Brief"
(Oklahoma Coalition of Consumer Advocates: September 2004)
One-page issue brief on payday and "B" Loans in the state of Oklahoma.
"In Harm's Way at Home: Consumer Scams and the Direct Targeting of America's Military and Veterans"
(National Consumer Law Center: 2003)
Study finds that military bases are prime targets for predatory lenders and financial scammers.
"Payday Lenders Gouging African-American Communities"
(Woodstock Institute: March 2003)
Reveals that residents of predominantly African-American communities are twice as likely to be targeted by payday and auto title lenders as those in predominantly white neighborhoods.
"Payday Lenders Burden Working Families and the U.S. Armed Forces"
(Consumers Union: 2003)
A critique of payday lenders, citing specific companies and offering policy recommedations.
"Payday, Heyday! Measuring Growth in New Mexico's Small Loan Industry"
(NM PIRG Education Fund: 2002)
Documents the rapid growth of payday lending institutions in the New Mexico and challenges the defense tactics used by lenders to justify their business practices.
"Small Loans, Big Bucks: An Analysis of the Payday Lending Industry in N.C."
(Community Reinvestment Association of NC: 2002)
Argues that North Carolina payday lenders profit by circumventing state law. Also accuses lenders of adopting a business model that depends on borrowers paying more in fees than they borrow in principal.
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"Innovations in Personal Finance for the Unbanked: Emerging Practices from the Field"
(Fannie Mae Foundation: 2003)
A detailed update on how financial services providers and community development groups are helping consumers around the country make connections to mainstream financial services.
"Banking the Poor"
(Michael Barr, The Brookings Institute: 2003)
Study finds that there are overarching economic disadvantages to keeping low-income households outside of the mainstream financial markets. It is argued here that factors, such as advances in banking technology, have made it feasible to create mechanisms for low-income households to have access to legitimate banking, and that government should help to create and oversee these mechanisms.
"Taking the Poor Into Account: What Banks Can Do to Better Serve Low-Income Markets"
(Anne Kim, Progressive Policy Institute: 2001)
Argues that in response to the trend of many households living without a bank account, financial institutions need to develop nontraditional methods or patner with those who do. Also speaks to the importance of government oversight and suggests the creation of financial incentives for institutions that effectively develop systems of low-income banking.
"Affordable Alternatives to Payday Loans: Examples from Community Development Credit Unions"
(Woodstock Institute: 2001)
Profiles two Community Development Credit Unions that offer more reasonable alternative to payday lenders. They demonstrate how other CDCU's, mainstream credit unions, savings and loans, and banks can establish similar consumer loan products.
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National Research and Advocacy Organizations:
State and Local Advocacy Organizations:
To submit your state or local group, email us!
(Demos provides these links to facilitate grassroots mobilization on issues of economic security, debt, and assets.)
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ACORN (Association of Community Organizations for Reform Now)
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