Payment Loan in the United States
Single-payment and Other Short-Term Loans
At around the beginning of the twentieth century, concern arose with respect to
companies that were responding to liquidity needs by offering to “purchase” a consumer’s
paycheck in advance of it being paid. These companies charged fees that, if calculated as an
annualized interest rate, were as high as 400 percent. To address these concerns, between 1914
and 1943, 34 States enacted a form of the Uniform Small Loan Law, which was a model law
developed by the Russell Sage Foundation. That law provided for lender licensing and permitted
interest rates of between 2 and 4 percent per month, or 24 to 48 percent per year. Those rates
were substantially higher than pre-existing usury limits (which generally capped interest rates at
between 6 and 8 percent per year) but were viewed by proponents as “equitable to both borrower and lender.”
New forms of short-term small-dollar lending appeared in several States in the 1990s,16
starting with check cashing outlets that would hold a customer’s personal check for a period of
time for a fee before cashing it (“check holding” or “deferred presentment”). See, e.g., Adm’r of the Colo. Unif. Consumer Credit Code, Colo. Dep’t of Law, Administrative Interpretation No.
3.104-9201, Check Cashing Entities Which Provide Funds In Return For A Post-Dated Check Or Similar Deferred Payment Arrangement And Which Impose A Check Cashing Charge Or Fee May Be Consumer Lenders Subject To The Colorado Uniform Consumer Credit Code (June 23, 1992) (on file).
Around the same time, a number of State legislatures amended their usury laws to allow
lending by a broader group of both depository and non-depository lenders by increasing
maximum allowable State interest rates or eliminating State usury laws, while other States
created usury carve-outs or special rules for short-term loans. State legislative changes were in part a response to the ability of federally- and State-chartered banks to lend without being subject to the usury laws of the borrower’s State
The confluence of these trends has led to the development of markets offering what are commonly referred to as payday loans (also known as cash advance loans, deferred deposit, and deferred presentment loans depending on lender and State law terminology), and short-term vehicle title loans that are much shorter in duration than vehicle-secured loans that have traditionally been offered by storefront installment lenders and depository institutions. Although payday loans initially were distributed through storefront retail outlets, they are now also widely available on the internet. Vehicle title loans are typically offered exclusively at storefront retail outlets.
Level Payment Loan in the context of Real Estate
Constant Payment Loan in the context of Real Estate
Resurces
See Also
- Interest Included Note
Further Reading
- John P. Caskey, Fringe Banking and the Rise of Payday Lending, in Credit Markets for the Poor 17, 23 (Patrick Bolton & Howard Rosenthal eds., 2005).
- Elisabeth Anderson, Experts, Ideas, and Policy Change: The Russell Sage Foundation and Small Loan Reform, 1909-1941, 37 Theory & Soc’y 271, 276, 283, 285 (2008) (quoting Arthur Ham, Russell Sage Foundation, Feb. 1911, Quarterly Report, Library of Congress Russell Sage Foundation Archive, Box 55).
- A Short History of Payday Lending Law, The Pew Charitable Trusts (July 18, 2012),
- Robert D. Manning, Credit Card Nation: The Consequences of America’s Addiction to Credit (Basic Books 2000)
- Amy Traub, Demos, Debt Disparity: What Drives Credit Card Debt in America, (2014)