Payday Loans: Federal Regulatory Initiatives (CRS Report for Congress)
| Release Date |
Revised June 7, 2006 |
| Report Number |
RS21728 |
| Report Type |
Report |
| Authors |
Pauline H. Smale, Government and Finance Division |
| Source Agency |
Congressional Research Service |
| Older Revisions |
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Summary:
A payday loan arrangement permits an individual to use a personal check to get a small,
short-term,
cash advance. The loans are typically for $100-$500. The borrower writes a postdated check for the
loan amount and a fee. The lender holds the check until the borrower's next payday, usually two
weeks. This source of short-term credit can be expensive. The fee charged on a 14-day payday loan
is typically $15 to $17 per $100 advanced, amounts equivalent to an APR (annual percentage rate)
of between 391% and 443%. A loan can become even more expensive if it is rolled over or
extended.
State laws have generally governed payday lending; some are silent while others have
prohibited or restricted payday lenders. Payday loans are subject to the disclosure provisions of the
federal Truth-In-Lending Act. When payday lenders attempted to partner with banks and thrifts to
circumvent restrictive state laws, however, federal regulators issued supervisory guidance relating
to payday loans. Depository institutions were cautioned that these arrangements introduced
financial, compliance, and reputation risks. Consumer advocates are concerned that these guidelines
may not provide sufficient consumer protection. They have called on Congress to examine the
activities of payday lenders to see if reforms are needed to protect consumers. In the 109th Congress,
several bills ( S. 1878 , H.R. 1643 , H.R. 1660 ,
H.R. 4866 , and H.R. 5350 ) have been introduced with provisions
addressing the regulation of payday lending. This report provides information on the practice of
payday lending and an overview of federal regulation and legislation. This report will be updated
as events and legislation warrant.
