{"id":2355,"date":"2019-03-12T08:07:45","date_gmt":"2019-03-12T13:07:45","guid":{"rendered":"http:\/\/blogs.luc.edu\/compliance\/?p=2355"},"modified":"2019-03-12T08:07:45","modified_gmt":"2019-03-12T13:07:45","slug":"the-tumultuous-regulation-and-deregulation-of-payday-loans","status":"publish","type":"post","link":"https:\/\/blogs.luc.edu\/compliance\/?p=2355","title":{"rendered":"The Tumultuous Regulation and Deregulation of Payday Loans\u00a0\u00a0"},"content":{"rendered":"

The Tumultuous Regulation and Deregulation of Payday Loans\u00a0\u00a0 <\/strong><\/p>\n

Alexandra Piechowicz<\/em><\/p>\n

Associate Editor<\/em><\/p>\n

Loyola University Chicago School of Law, JD 2020<\/em><\/p>\n

Each year, approximately twelve million\u00a0<\/a>Americans resort to payday loans for quick money to pay off bills and cover emergency expenses. \u00a0The small, short-term unsecured loans give borrowers a quick way to get money with little consideration of their creditworthiness. Borrowers are plagued with extremely high annual percentage rates to offset the seemingly substantial risk to the lender. However, many studies have shown that payday loans carry no more long-term risk\u00a0<\/a>to the lender than other forms of credit. Lenders are able to gain from the high interest rates that burden borrowers while simultaneously benefitting from the relatively low-stakes gamble of the nature of the loan. This illuminates a harrowing truth: the real victims of exploitative and predatory \u201ccash advances\u201d are the borrowers themselves who continue taking on more and more of these high-interest loans in a vicious cycle to repay small debts.<\/p>\n

Payday Lending in the United States<\/strong><\/p>\n

Predatory lending is not a new concept<\/a> in the United States, with much of its history rooted in the Great Depression. During the Depression, loan sharks extended loans to desperate Americans, charging them absurd interest rates of up to 1000%. Banking deregulation<\/a> in the late 1980s created a void for microcredit as small banks shuttered. This created the perfect environment<\/a> for state-licensed payday lenders to prosper as states reconsidered<\/a> usury \u2013 unreasonable or excessive interest rates<\/a> \u2013 caps. The payday lending industry grew exponentially through the 1990s and into the 21st<\/sup>century. Today, payday lending is a $9 billion business.<\/p>\n

Depending on state law maximums<\/a>, payday loans can generally range from $100 to $1,000, have an average loan term of two weeks, and cost upwards of 400% annual interest (APR). Shorter term payday loans may have even higher APRs, especially in states where interest rates are not capped. In comparison, the average APRs of other forms of credit in the United States are drastically lower:<\/p>\n