A payday advance loan, otherwise known as a pay day loan, is a small dollar loan offered for a short term with little or no collateral. The practice of linking the term of the loan to the borrower’s next paycheck popularized the expression pay day loan throughout the industry and the media. A pay day loan almost always relies on the borrower having pay stubs or other evidence of employment for the period immediately preceding the loan.
The pay day loan industry began in the United States, but it has since spread to many other countries. It is very popular in the UK, and has many users in Canada and Australia as well. Legislation regarding the pay day loan industry varies a good deal between US states, and different countries approach regulation differently:
Pay Day Loan Rates In The United States
Pay day loans are legal and have regulations on the books for them in thirty-seven states. Not all of the other states ban them, but the industry does not choose to offer their products everywhere. The fees that pay day loans charge sometimes exceed yearly APR rates set by some states which have interest rate caps that do not take into account the difference between fees and interest.
Federally, The Consumer Financial Protection Bureau was given authority by the Dodd-Frank Act to regulate all pay day loan outlets. This oversight has not produced any regulation that other lenders do not have to abide by. There is an exception for pay day loan products for members of the US military which sets a rate cap of 36 percent on tax refunds and other loans to active duty service members and their families.
Pay Day Loan Rates In The United Kingdom
Pay day loan businesses are becoming very popular in the UK, with the rate of persons using the service increasing fourfold in just three years. The size of the average loan is approximately £300. The United Kingdom does not currently have any restrictions on the amount of interest that can be charged on a pay day loan, and it’s common for the amount to be expressed as a one-time fee in any case.
Pay Day Loan Rates In Australia
Queensland and New South Wales limit the maximum APR on a pay day loan to 48 percent, which must include any fees.
Pay Day Loan Rates in Canada
Like the United States, pay day loan regulation vary in Canada depending on the province. Ontario, Saskatchewan, and British Columbia impose regulations on the amount of interest a pay day loan can include.