Payday loan providers on this side of the Atlantic have been a growing problem in the UK for several years now, but providers of instant cash loans in the United States have been wreaking havoc for much longer, according to recent industry reports.
Americans have been dealing with short term loans companies preying on lower income earners for even longer than Brits have. However, consumer groups in the US have voiced concerns that, as more traditional financial service providers such as banks and credit unions begin offering payday advance services as well, even more Americans will find themselves pinned under the weight of sky-high interest rates and massive charges and fees that might take years to repay completely.
There are 25 or more community and regional banks throughout the US that have begun to offer payday lending, with the majority of these programmes beginning in the wake of the worldwide economic disaster precipitated by Lehman Brothers several years ago. However, the largest increase has come from credit unions, with almost 400 of them now in the US marketplace thanks to regulatory changes that permitted payday lenders to raise their interest rates.
Unlike in the UK, where there is no interest rate cap, in the US prior to 2010, payday lenders were required to charge no more than 18 per cent – a far cry from the 1,000 per cent to 5,000 per cent APR British lenders charge. However, new laws now permit payday lenders to charge as much as 28 per cent, roughly comparable to credit card interest rates, but like many Brits, all too many Americans find that they lack the ability to repay the loans on time.
This leads lenders to roll over loans every pay period or to take out additional lending to repay the older ones. This simply adds more fees and charges that can quickly spiral out of control for many, and with many traditional banking providers moving into the payday lending industry, many American consumer groups have been prompted to alert federal regulators in Washington, DC in order to raise awareness of how inherently dangerous such a move could be for the nation’s vulnerable classes.