The Number of Payday Loans Have Decreased – Or Have They?

payday-loan-searchRecent data from Wisconsin indicates that the number of payday loans went down significantly after a bill for limiting lending practices was signed by the governor in 2010. In that year, 1.15 million payday loans were issued, adding up to a total value of $482 million. By 2012, the number of payday loans issued in Wisconsin had fallen to around 200,000 loans with a total value of $58 million. So does that indicate that the bill successfully curbed the predatory lending practices that the consumers were facing?

Sadly, the answer to that would be in the negative. These data figures in no way indicate that the rate of predatory lending fell, but merely the fact that payday lenders found a way around the law to carry on with their business. The loopholes in the bill are now being exploited by most of these companies to their advantage to keep themselves off the radar of state authorities while they continue to charge high interest rates from consumers.

The most important loophole that resulted in these data figures was the change in the definition of payday loans. Under the definition of the bill, only loans in which a post-dated check was provided or ability to carry out electronic funds transfer was provided to a creditor were considered to be payday loans. In 2011, this definition was changed, and payday loans were defined instead as loans that can only be issued for a time period of less than 90 days.

The bill also imposed restrictions on the number of loans a customer can be offered by a single company to repay their original debt and a cap on the total amount of loans that can be provided. While the bill did not put a cap on the initial interest rate, it did provided a cap of 2.75% interest on the outstanding amount of loan that is not paid by the consumer by the time it was due.
While the bill can be regarded as a good initiative, it left too many loopholes for the payday lenders to exploit.

A number of high-interest loans were simply not counted as payday loans anymore due to the changes in the definition, but they still existed in the market the same way as before. By making a few changes to the terms of loans they were offering, the payday lenders are successfully avoiding regulations while they continue with the regular predatory lending practices.

However, that doesn’t indicate that all payday lenders are operating the same way. There are still payday lending companies that are providing payday loans as described by this bill, following all the regulations that are imposed on them. These companies work towards building a network of responsible payday lending that can actually provide consumers from low-income communities the financial backing when needed.

Consumers looking for such payday lending companies can look for them with online service providers that match consumers with payday lenders in an effort to promote responsible lending. Typically consumers will run into two types of websites that offer payday loans. The first is an actual payday lender who offers loans directly. Someone would visit the direct lenders website complete an application and deal with that lender only. The second type of are payday loan websites who act as a matching service passing data to what is know as a “ping tree” which is then distributed to payday lenders. In this example the applicant could receive a loan from any number of lenders.

While financial regulators and payday lenders continue to battle it out, loans will be funded and high interest rates will be paid.