Fifteen others, including Delaware, Idaho and Utah, have no cap. Others in the same group, including Missouri, Arizona, and Tennessee, might as well have no caps since they charge annual rates on payday loans of 1955%, 460%, and 313%, respectively.
Then there are the internet payday lenders, who circumvent state laws, and the Native American payday lenders, who, thanks to sovereign immunity, charge whatever they want. (Related: Mo Judge Will Consider Payday Loan Measure)
“It’s a widespread problem,” says Leah Plunkett, lecturer at Harvard Law School, who has authored numerous reports and studies on predatory lending. “Some states don’t have good statutes or regulations.”
And in states that do, World says in its 10-K that it “estimates that virtually all participants in the small-loan consumer credit industry charge maximum rates or close to the maximum rates allowed by state laws. applicable in states with interest rate limits. ”
Lenders say they have to charge high rates to cover the risk of lending in a high risk market and the cost of doing business. Payday lender Advance America, which has 2,600 locations in 29 states, has gone so far as to say in regulatory records that if it were forced to charge 36% – as has been repeatedly proposed in national law – lower rates “would likely eliminate our ability to continue operating.” (Advance America has since been acquired by Mexican group Grupo Elektra.)
The good news: Plunkett believes states are gradually moving towards stricter regulation of payday lenders.
The bad: Regulators and lawmakers trying to crack down on predatory lending face an industry that she says “is well-funded, creative, and persistent, frequently coming up with new product variations that take advantage of (anything but inevitable) regulatory gaps that remain after an existing product has been corrected.
It sounds a lot like a game of Whack-a-Mole, except those who can afford to lose the least continue to lose the most. And then some.
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