“Triple-digit interest lending is predatory and makes financial difficulties worse for families who are struggling to get by, especially in the difficult times in which we find ourselves,” said (opens in new tab) Kiran Sidhu, Center for Responsible Lending Policy Counsel. “Not only that, but payday lending was draining nearly $30 million per year from Nebraska’s economy, money that will now go toward living expenses and financially fair products that will help get things buzzing again.”
Why is a payday loan cap important?
The main accusation leveled at payday loans is that the extremely high interest rates that are charged can quickly trap borrowers in a long-term cycle of debt. According to the Center for Responsible Lending, the average payday loan borrower ends up taking 10 loans per year, with lenders deriving 75% of their fees from those who take out this amount or more. With household incomes across the US being disrupted by the coronavirus pandemic and associated economic fallout, many Americans have had to rely on the best personal loans online (opens in new tab) and credit cards to help bridge the financial gaps that have appeared. Among the most vulnerable, however, and in particular those who have a poor credit rating, payday loans are often the only option. “The financial harms caused by predatory payday lending fall disproportionately on communities of color and other marginalized communities, where payday lending stores are located in higher numbers and disproportionately market to members of those communities,” said (opens in new tab) Ronald Newman, national political director at the American Civil Liberties Union (ACLU). “Voters and lawmakers across the country should take note. We need to protect all consumers from these predatory loans to help close the wealth gap that exists in this country.”
The states where payday loans are illegal or restricted
The vote has seen Nebraska become the 17th state in the US, in addition to Washington, D.C., move to protect consumers by limiting payday lenders from charging excessive fees and interest. According to the Consumer Federation of America information resource (opens in new tab), the states where extremely high cost payday lending is already prohibited, and to which Nebraska can now be added, are:
Arizona ArkansasColorado Georgia Montana New Hampshire New Jersey New York North CarolinaSouth Dakota
And the states which have never authorized payday loans are:
ConnecticutMarylandMassachusettsPennsylvaniaVermontWest Virginia
Where to look instead of a payday loan
If you’re considering a payday loan, it’s likely you’re in financial difficulty already. In most cases, such loans should therefore only become a potential option once you’ve explored all other alternatives (opens in new tab), such as personal loans and the best credit cards (opens in new tab), that are inherently less risky to borrowers. A payday loan may be a viable option in a handful of instances where the charges that you’ll incur work out less than what you might have to pay if you fail to pay a bill or might lose your home. However, personal responsibility here is key, and having a definite plan to quickly pay back what you borrow a must. If you’re already in debt, and struggling to pay back what you owe, a payday loan will almost certainly not be the answer to your problems. Instead, talk to a debt counselor, the best debt consolidation companies (opens in new tab), or debt settlement companies (opens in new tab) for guidance on how to better manage your financial situation. Importantly, you should not keep your financial woes to yourself, and remember that without decisive action, your debt is unlikely to disappear by itself.
