Payday in America – an overview of how payday works in the USA compared with the UK

Payday in America is much the same in the United States as it is in the UK, with one exception. The country is made up of autonomous states that govern themselves and have different laws for different things. With the advent of regulation in the UK in January this year, it is interesting to look around at the rest of the world and see how they are regulation this controversial industry. With 51 states and each having a different approach to regulation the small loans, short-term credit, it is interesting to examine how many states have regulated their payday lenders with the same rules that the Financial Conduct Authority finally settled on after a 20 month inquiry.

Payday in America – Different strokes for different folks

Upon researching payday in America there are many states that match some of the regulations in the UK. In Britain, payday lenders must now check those applying for a loan against a country-wide database to ascertain the credit rating as well as the number of loans that the person has taken out. There are several states that do the same thing and have implemented state-wide databases to ascertain if a person has more than one loan. The states that require this credit checking system are Illinois, Florida, Michigan, Indiana, North Dakota, Oklahoma, New Mexico, South Carolina and Virginia. What’s more Virginia and Washington limit the number of loans that customers may take out in one year which is something that has not been implemented in the UK. However, what both some states and Britain have in common is a cap on the rollover of the loan.

Most of these states also require that a lender extend the loan as well as lowering the interest rate on the loan as soon as it becomes apparent that the client is having trouble paying the loan off. This gives the client a better chance to get back on their feet and out of debt.

Since 2008, the District of Columbia capped the interest rate on payday loans at 24%. This interest rate is the same as banks and credit union and lenders must obtain a licence to operate.

In Georgia, payday lending was made a felony and could be hauled in on charges of racketeering.

New Mexico allows payday lenders but only under complicated circumstances. Rollovers are not permitted, fees and interest are removed from those that cannot pay back their debt, fees are capped, there is an enforced period of time between taking out a loan, a person’s total loans must be less than 25 of that person’s income.

North Carolina is busy with the process of weaning its population off of the credit system and then prohibiting it.

Finally, Arizona has capped the interest rate at 36% APR.

It is noticeable that many states put a lot of thought into regulating their payday lenders, which like the advent of the new laws in the UK can only be a healthy thing for an industry desperately searching to rub the tarnish off of its reputation.

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