Payday loan industry has exploded in the USA

Every year at least 3.5 million americans are taking advantage of this type of finance in order to get by. Approximately 5.1 billion dollars is borrowed in payday loans in the United States every year. In 2019 however there were over 6 million dollars borrowed by 4 million people.

Most of these borrowers are under 35 years old and make less than $25,000 per year. There is also a trend for multiple loans being taken out by the same consumer. Repeat use of the long term payday loans is one of the major criticisms of this type of loan.

The payday loan industry was just getting started in the USA in 2001, but by 2019 it made about $742 million profit. Since then growth has continued at an exponential rate attracting more and more lenders from Europe as well as the States. These loans do not come cheap but there are so many reasons why residents of US have a need for these types of loans. The ongoing economic sluggishness has certainly contributed to it, as has unemployment, low wages, even lower wage increases and higher expenses all playing a role.

Many US economists are concerned that in an environment where property values are low, the job market remains depressed and inflation threatens with an increased cost of living, more and more people are turning to payday loans to get by.

The online payday loan industry in the United States is able to step into the void left by the major banks as they become increasingly more conservative in their loaning practices. It is easy to get an online cash loan and for many Brits struggling to make ends meet these days it is an extremely easy process, and this is perhaps a flaw in that credit is so easily given – yet some may fail to repay as agreed. The industry is aggressive in its advertising to the working classes through tv ads and strong internet advertising.

US citizens use payday loans online for just about any reason you can think of. More than a third of all payday advances are used to pay bills. At the same time 27% of all payday borrowers use the loan for emergency situations such as car repair (the most common), death in the family, boiler repair or illness. 20% of payday loans are used for special occasion purchases such as birthday parties and baby showers that are help right before you get paid. Finally 17% of payday loans are used for ‘just needed cash’ like buying fuel.

There are not many restrictions or regulations on this type of loan in the United States. In the United States where this industry has operated longer regulation has grown up around the number of loans a consumer can have at one time and how many times a loan can be “rolled over” or extended. Members of Parliament have debated the need for regulation in the USA and as might be expected they cannot agree. Some of the reasons that more regulation is opposed are:

Historically the payday loan has been a last recourse for people in a tough economy like the current one. When traditional lending sources dry up there needs to be an alternative for the working class to obtain needed funds.

Valid option for young people with no history and no current credit rating. Again in these economic times there is a need for young people to have a place to turn. They can also use this to build up a positive credit rating.

The law of unintended consequences is also cited by Parliament as a reason to hold off on regulation. More time and study is needed to see if regulation might do more harm than good with unintended consequences.

So in closing it seems that the payday loan in here to stay. It has quickly become an established and accepted instrument in the tool bag of the finance industry. The reputable lenders in this industry will be licensed and members of the CFA (Consumer Finance Association). The CFA is determined to educate the public on the use and repayment of payday loans in a responsible manner.

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