Depending upon which state you live in the US dictates whether you have access to short term loans, or not – in some states, they’re banned outright.
Other states that have not gone the whole hog allow online lenders to finance short term loans but then limit the interest that the lender can charge. Other than those two qualifiers, federal law has left the payday lenders pretty much to their own devices but there’s a change blowin’ in the wind, predominantly to weed out cash advance lenders who are blatantly flouting the law.
When you consider that US$7bn is a little over £4.5bn, and the size of the UK instant cash loan culture is already £2bn, you would have to say that our US cousins are a lot better off per capita than we are here this side of the pond. We have seen, only very recently, instances where the Office of Fair Trading and Consumer Finance Association have stepped in when instant cash loan firms have stepped outside of advertising guidelines, but its only charities like shelter that are crying out for something to be done about the culture itself. The government have their hands tied with another escalating issue, personal injury claims, and are, so it would seem to the casual observer, content to let the population continue spiralling into accumulating cash-advance debt, as long as they’re doing it within the law and, one would assume, seeing the dividends of the high interest rates swelling back into banks to shore up the weak financial sector.
Following a hearing in Birmingham last week – Alabama, not the UK’s second city – the Consumer Financial Protection Bureau have decided to tackle the instant cash loan problem in the US before it gets out of hand. For some, it is already too late and they are already victims of the ‘roll-over’ system, where any unpaid amount is added to the next payday-due sum without notice (in the t’s & c’s beforehand).
It is fitting that the deep south, with its rich black heritage, was chosen as the setting. The majority of instant cash loan customers in the US are “disproportionately people of color” and Steve Stetson (you couldn’t make it up, could you?) of anti-poverty group Alabama Arise gave accounts of payday clients falling into the roll-over loop getting “churned through the system” as much as ten times a year.
There is a need for emergency cash in America, as there is in the UK and the short term loans industry does have support. But it is predominantly from people who’ve used it for its purpose and paid it back when due. For those who are unable to make those payments, for whatever reason, it’s a merry-go-round that’s hard to get off once you’ve bought your ticket, but missed your stop.