A Payday Lender is a Financial Institution that Provides Emergency Cash

Payday lenders offer short-term loans to help individuals cover unexpected expenses or financial emergencies. These loans are usually due on the borrower's next payday.

The loan amount is typically a small fraction of the borrower's income, which can range from $50 to $1,000. Borrowers usually have to repay the loan, plus interest and fees, within a short period, often two weeks or a month.

Payday lenders often have flexible repayment terms, allowing borrowers to extend the loan period or make partial payments. This can help borrowers avoid defaulting on the loan.

Government Regulation plays a crucial role in controlling the payday lending industry.

In the United States, 75% of Americans are in favor of more regulation of payday loans, according to a Pew Charitable Trust study.

The Consumer Financial Protection Bureau (CFPB) has proposed a series of rules requiring lenders to verify a borrower's income, major financial obligations, and borrowing history.

A 60-day "cooling off" period between loans is also proposed, along with a limit of no more than three rollover loans in a 12-month period.

Eleven states, as well as Washington, D.C., Puerto Rico, and the Virgin Islands, either don't allow payday lending or restrict it to conform with interest rate caps.

Thirty-eight other states have specific statutes pertaining to payday lenders, with loan maximums ranging from $300 to $1,000.

Some states, like Alaska, set a loan maximum of $500 with a two-week duration and a maximum fee of $15 per $100 loaned, or 15% of the loan amount, whichever is less.

Here's a breakdown of states with specific statutes and restrictions on payday lending:

The Pew Charitable Trust recommends a stronger ability-to-repay standard and clearer guidelines to prevent unreasonable loan durations and lender abuse.

Payday loans are typically short-term, unsecured loans that are repaid at the borrower's next payday. Borrowers usually need to provide verification of employment or income, such as pay stubs and bank statements, although some lenders may not verify income or run credit checks.

The loan amount is usually small, ranging from $100 to $500, and is due when the borrower is paid next. The lender will demand a postdated check to cover the loan plus fees, which can add up quickly if the borrower needs to extend the repayment period.

Payday lenders are subject to the federal Truth in Lending Act, which requires them to disclose the cost of the loan, including the finance charge and annual interest percentage rate (APR), in writing before the borrower signs for the loan.

Payday loan costs can be shockingly high. Many state laws set a maximum amount for payday loan fees, ranging from $10 to $30 for every $100 borrowed.

A typical two-week payday loan with a $15 per $100 fee equates to an annual percentage rate (APR) of almost 400 percent. This is much higher than the APRs on credit cards, which can range from about 12 percent to about 30 percent.

Payday lenders must disclose the finance charge and the annual interest percentage rate (APR) in writing before you sign for the loan. This is a requirement of the federal Truth in Lending Act.

The cost of the loan, fees, and the maximum loan amount are often capped in states that permit payday lending.

Payday lending has evolved to offer various alternatives, each with its own set of terms and risks.

Some mainstream banks offer virtual credit advances through mobile phone text messaging, allowing customers to receive cash credit available for immediate withdrawal.

These programs are similar to payday loans, with a customer receiving a predetermined cash credit and a fee deducted when the next direct deposit is posted to their account, often around 10 percent of the amount borrowed.

Wells Fargo's version of this service, called "Direct Deposit Advance", charges an astonishing 120% APR.

Income tax refund anticipation loans are not technically payday loans, but they share similar credit and cost characteristics.

Car title loans are secured by the borrower's car, but are only available to those who hold clear title to a vehicle.

A similar credit facility seen in the UK is a logbook loan, which is secured against a car's logbook, retained by the lender.

These loans may be available on slightly better terms than an unsecured payday loan, since they are less risky to the lender.

Payday lenders are often found in storefronts, and some even operate as pawn shops. They usually offer small amounts, typically between $100 to $500, due when you're paid next.

The process of getting a payday loan can be straightforward, but beware: you'll commit to paying a fee, often around $15 for every $100 borrowed. This can add up quickly.

Payday lenders are subject to the federal Truth in Lending Act, which requires them to disclose the cost of the loan in writing. This includes the finance charge and the annual interest percentage rate (APR).

Some payday lenders have moved online, but be cautious: they might use your information for other purposes, potentially opening the door to scam artists.

Payday loans can be deceptively easy to get, requiring only a pay stub, ID, and a blank check from your checkbook.

The loan amount is usually small, between $100 to $500, and is due when you're paid next. You'll commit to paying a fee, often $15 for every $100 borrowed.

Payday lenders are subject to the federal Truth in Lending Act, which requires them to disclose the cost of the loan in writing before you sign.

The finance charge and annual interest percentage rate (APR) must be clearly stated by the lender. This information is crucial to understanding the true cost of the loan.

Payday lenders often demand a postdated check to cover the loan plus fee, which will be cashed at the end of the loan period, usually two weeks.

Some online lenders use information brokers, which gather your financial data and sell it to lenders. This can be a risk, as you can't be sure if they will use your information for other purposes.

The history of the payday loan industry is a fascinating story. Prior to the 1990s, payday loan firms were extremely rare.

As an economist, Michael A. Stegman's 2007 study sheds light on the industry's rapid growth. The study found that payday loan firms were virtually nonexistent before the 1990s.

Their numbers have skyrocketed since then, making them a ubiquitous presence in many communities.

The payday lending industry has a relatively low profit margin compared to other traditional lending institutions. The average profit margin from seven publicly traded payday lending companies in the U.S. was 7.63%.

This is significantly lower than the profit margins of mainstream companies like Capital One, GE Capital, HSBC, Moneytree, and American Express Credit, which averaged 13.04% during the same time period.

In the United States, payday lenders are often compared to traditional banks in terms of interest rates. Payday lenders charge an average of 390% APR, while traditional banks charge around 18% APR.

Payday lenders are more prevalent in areas with lower median incomes, such as the South and Midwest regions.

In the United States, payday loans are a complex issue with varying laws from state to state. The Uniform Small Loan Laws (USLL) used to restrict these loans, with a 36-40% APR norm in most states.

27 states currently allow payday loans, while 9 others permit some form of short-term storefront lending with restrictions. This leaves 14 states and the District of Columbia that prohibit the practice altogether.

The annual percentage rate (APR) is limited in some jurisdictions to prevent usury. For example, the Military Lending Act imposes a 36% rate cap on tax refund loans and certain payday and auto title loans made to active duty armed forces members and their covered dependents.

Some states have taken aggressive action against lenders they believe violate their state laws. The Consumer Financial Protection Bureau (CFPB) has also taken enforcement actions against payday lenders for violating federal regulations.

Tribal lenders have formed partnerships with Native American reservations to offer loans over the Internet, often evading state law. However, the Federal Trade Commission has begun to monitor these lenders more closely.

In Australia, consumer credit regulation was previously handled by states and territories, with some states like New South Wales and Queensland setting annual interest rate caps of 48%.

Prior to 2009, the regulation of consumer credit in Australia was primarily conducted by the states and territories.

In 2008, the states and territories referred powers of consumer credit to the Commonwealth.

The National Consumer Credit Protection Act 2009 was introduced in 2009, initially treating payday lenders the same as all other lenders.

Payday lenders who provide a loan falling within the definition of a small amount credit contract (SACC) are allowed to charge a 20% establishment fee in addition to a monthly (or part thereof) fee of 4%.

Payday lenders who provide a loan falling within the definition of a medium amount credit contract (MACC) may charge a $400 establishment fee in addition to the statutory interest rate cap of 48%.

Payday lenders in Australia are still required to comply with Responsible lending obligations applying to all creditors.

Unlike other jurisdictions, Australian payday lenders providing SACC or MACC products are not required to display their fees as an effective annual interest rate percentage.

Comparisons are often misleading, and payday lenders know it. They compare their fees to the overdraft, late payment, penalty fees and other fees that will be incurred if the customer is unable to secure any credit whatsoever.

Payday lenders may list a different set of alternatives with costs expressed as APRs for two-week terms, but these alternatives don't compound their interest or have longer terms.

Here are some examples of the fees and APRs compared by payday lenders:

The APRs for these alternatives are often much higher than the interest rates charged by mainstream lenders, making it seem like payday lenders are offering a better deal. However, the reality is that these fees are often just a way to make up for the high interest rates charged by payday lenders.