Payday advance loans are one of the fastest-growing segments of the personal loan arena. Nearly 40 states have enacted safe harbor legislation for payday lenders and allow loans solely based on checks written from the consumer’s bank account at interest rates up to triple digits. While payday loans are common and legal in more than half of the United States, the way the industry is regulated varies between each state. Two states whose policies seem very similar, yet when further examined are very different are Florida and California.
California payday loan state laws have restricted the amount of a cash advance to $300 with a loan term maximum of 31 days, meaning borrowers can only borrow up to $300 and must repay the loan in one month’s time. In contrast, Florida payday loan companies are restricted to lend up to $500 which is to be repaid in as little as seven days, or up to 31.
The maximum finance rate with fees is 15 percent of the check amount in California and only 10 percent in Florida, plus a verification fee. Both states have a finance charge based on a 14-day $100 loan. California charges $17.65 and Florida charges $15. However, the largest difference between the two states is the APR allowed for a 14-day loan. Florida payday advance lenders charge up to 390 percent and California payday advance lenders charge up to 459 percent. While both interest rates seem high, it is important to remember that these numbers are based on paying back the full amount of the loan in less than one month. APRs for mortgages, credit cards, cars, etc. are based on a much longer pay back time schedule.
Both states only allow one payday loan at a time and neither allows borrowers to rollover their loan. California has also restricted payday lenders from charging an extension fee. California does not have a cooling-off period, while Florida gives 24 hours. Both have a voluntary and varying repayment plan that depends on the agreement the borrower and lender work out, but both are limited to 31 days.
Neither state allows criminal charges to be pursued if a borrower is unable to repay the loan, which protects consumers from potential loan sharking, a practice some fear cash advance loans may become.
With state regulations such as Florida and California’s, it is easy to see why cash advances are such a viable option for some consumers. The industry is well-regulated and consumers are protected against criminal charges. Borrowers are also not allowed to roll over their loan; a practice believed to cause consumers to fall more and more into debt. Some payday loans allow consumers to roll over their loan if they are unable to pay back the full amount on the due date. They can request to instead pay a smaller fee over an extended period of time while interest continues to accrue.
There is current legislation in nearly every state regarding this industry as lawmakers attempt to regulate a booming industry that seemed to spring up overnight. This legislation has gone as far as the U.S. Supreme Court, where the Court ruled in favor of a Florida payday loan company. While the case only argued the validity of an arbitration clause, it was still a victory for the cash advance industry.
If more states would get involved in the payday loan industry, consumers would be more protected and payday loans would no longer be such a controversial subject, but instead would be a viable and important aspect of personal consumer loans the way it was intended. Consumers and lenders would be protected and those who utilize these types of loans would be able to borrow without worrying.