A survey taken by the Pew Charitable Trusts indicated that a typical payday loan recipient was mostly white, female and between the ages of 25 and 44. Other characteristics include being without a 4-year college degree, a home renter, below a $40,000 annual income (under £25,000 for the UK), and separated or divorced.
Because several governments of the world perceive an unfair burden placed on lower-income residents through payday loans, laws have been implemented to regulate them. The following is a brief synopsis of some of the payday loan laws by country:
The Uniform Consumer Credit Code (UCCC) regulates payroll loans, or small loans, in Australia. With a history of not being too regulated, several payroll lending entities in Australia use loopholes to avoid UCCC regulations. The eastern Australian states of New South Wales and Queensland have imposed a maximum loan APR of 48 percent on payroll loans. This APR includes all fees and brokerage amounts.
Usury (the practice of making unethical or immoral loans) laws in Canada make interest rates above 60 percent charged on payroll loans considered criminal, according to the Criminal Code of Canada. In addition to the national law, the provinces of British Columbia (BC), Saskatchewan and Ontario have legislated payday loan restrictions.
On Nov. 1, 2009, BC enacted the Payday Loans Regulations under the Business Practices and Consumer Protection Act, which placed a maximum of 23 percent on payday loan APR. Furthermore, the borrowing limit for payday loans is not to exceed 50 percent of the net amount of the next paycheck and a payday loan borrower can cancel the loan within one day without penalty.
Only one payday loan can be made at a time. Lenders have limited access to a borrower’s bank account and must register under the Business Practices and Consumer Protection Authority, which is also called Consumer Protection BC.
The Saskatchewan provincial government enacted payday loan laws similar to those of BC effective Jan. 1, 2012. Besides the 23 percent APR cap on loan principal, there is a 30 percent cap on a defaulted payday loan. Payday loan businesses in Saskatchewan are charged a $2,000 license fee per store location.
The Payday Loans Act of 2008 limits fees to be charged by payday loans in Ontario. In February of 2013, the Ontario provincial government attempted to revoke the license of an Edmonton, Alberta-based payday loan company known as The Cash Store, due to a violation of the Ontario Payday Loans Act of 2008.
There are no restrictions in the UK on the interest rates charged by payday loan companies, or the rollover of loans. Lenders are required to state the effective APR of payday loans in advertisements. They are also required to have a license from the Office of Fair Trading (OFT) as stipulated by the Consumer Act 1974.
OFT published an update on the payday loan industry in the UK in March 2013 that was very critical of the payday loan industry and gave 50 of the leading payday lenders 60 days to address issues raised by OFT, or lose their licenses.
OFT’s report said there was a failure by the payday loaners in UK to determine whether borrowers could afford loans that payday loaners were making. OFT also blamed the payday loan industry for aggressive debt collection, a failure to explain how repayments are collected and a lack of patience by payday loaners for borrowers who cannot afford to make repayments.
Finally, OFT referred the payday loan industry to UK’s Competition Commission, a public body that investigates mergers, markets and other issues relating to competition law. The OFT report concludes that there are deep-rooted problems with competition among payday loan companies.
A newly created UK agency, the Financial Conduct Authority, will take over regulation of the payday loan industry in 2014. With that, greater controls are expected on UK’s payroll loaners.
One of the largest payday lenders in the UK is Wonga.com. Some loans through Wonga’s automated online websites include a huge 4,214 percent APR. Wonga’s growth has been fast-paced, with one million Britons receiving payday loans through the UK online payday loan company. A BBC piece in the “Daily Mail” program detailed how identity thieves targeted Wonga, resulting in hundreds of cases where the company sought out UK residents for the repayment of loans that were not applied for.
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