Lending short-term loans to be with poor credit gives millions of hard-working Americans the help they need when they need it most. And with the economy and credit tight for even those with good credit, there has never been more opportunity for those in the payday lending industry. Minorities and those in the military seem to be particularly drawn to the easy application process and the fact that many advance loan stores are right in their neighborhoods – sometimes where traditional banks would fear to tread
Payday lenders typically operate small stores or franchises, but large financial service providers also offer variations on the payday advance. Some mainstream banks offer a “direct deposit advance” for customers whose paychecks are deposited electronically. When a consumer requests the direct deposit advance they receive a predetermined, small cash advance. On the next direct deposit into the consumer’s bank account that advance amount is removed by the bank plus a fee for the advance (usually around 10-20%). Income tax preparation firms including H&R Block partner with lenders to offer “refund anticipation loans” to filers; such loans are not technically payday loans (because they are repayable upon receipt of the borrower’s income tax refund, not at his next payday), but they have similar credit and cost characteristics.
In the United States, most states have usury laws which forbid interest rates in excess of a certain APR. Payday lenders formerly operated in those states by forming relationships with banks chartered in a different state with no usury ceiling (such as South Dakota or Delaware). Under the legal doctrine of rate exportation, established by Marquette Nat. Bank v. First of Omaha Corp. 439 U.S. 299 (1978), the loan is governed by the laws of the state the bank is chartered in. This is the same doctrine that allows credit card issuers based in South Dakota and Delaware — states that abolished their usury laws — to offer credit cards nationwide. [1] Recent actions by federal banking regulators have forced commercial banks to discontinue payday lending, with the effect that nearly all lawful payday loans in the United States are made by state-licensed lenders
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