The regulation of payday loans in the USA as opposed to the UK

It is often interesting to compare how different countries manage the payday industry. There are articles to be found in the archives that examine the payday loan industry in The United Kingdom, South Africa, Australia, and the United States. In light of the new regulations that the UK government has imposed on the industry there, it will be interesting to reexamine the laws that that the American government imposes on them. Payday loans in the USA differ slightly in that legislation changes from state to state. The loans are called different names like small dollar loan, cash advance or short-term unsecured loan, so they are not necessarily linked to a persons pay day. A phenomenon that you will find in the United States is what is known as an auto title loan which allows lending against the title of a person’s vehicle.

America is quite clued up when it comes to interest rates or APRs. Most states prevent usury, which is unreasonable and excessive rates of interest, by restricting the APR that any lender can charge. This pertains to lenders outside of the payday lending industry as well.

Payday operations are legal in 27 states in the USA. A further 9 states allows the lenders to operate but imposes restrictions on the industry. In the remaining 14 states the practice of short-term credit is illegal. This includes the District of Columbia.

Federal Regulation of Payday loans in the USA

Federal regulation of payday loans in the USA basically restricts the industry for 3 main reasons. Firstly there is a marked increase in bankruptcy and this can be attributed to those people who take out these types of loans. Secondly, the debt collection of payday loans in the USA is done illegally and unfairly. Finally, in the USA payday lenders were rolling the debt over automatically. The body that has the authority of federal regulation in the United States is the Consumer Financial Protection Bureau (CFPB). The CFPB provides a website containing all the information as well as answers to questions about the payday lenders. The Bureau also has the power to prosecute those lenders that violate federal legislation, and there are several legal actions that the CFPB can take against them. Unfortunately as usual, there are always those lenders that do not feel that they need to operate under the same rules as everyone else and exploit a loophole in the system. These lenders set up shop in Native American territory where Federal Regulation has no jurisdiction. Most of the time they form partnerships with the local Indians and set up payday loan companies online effectively circumventing Federal Law. The Native Americans themselves also take advantage of the sovereignty of their lands to operate loan businesses.

The regulation of payday loans in the USA – red, white and blue

America seems to be on the ball when it comes to regulating the payday industry, but it is still difficult to tell whether there are the kind of concrete regulations in place that the UK has experienced this year. Because the country is broken up into so many pieces and each state governs itself, it really depends where you live. You could be free to borrow your way up to your eyeballs in debt, or you could not be able to borrow anything at all.