Fifteen others, including Delaware, Idaho and Utah, have no caps. Others in the same group, including Missouri, Arizona and Tennessee, might as well have no cap considering that they charge annual rates on payday loans of 1,955 percent, 460 percent and 313 percent, respectively.
Then there are Internet payday lenders, which skirt state laws, and Native American payday lenders, which thanks to sovereign immunity charge whatever they want. (Related:Mo. judge to consider payday lending measure)
“It’s a widespread problem,” says Harvard Law School lecturer Leah Plunkett, who has authored numerous report and studies on predatory lending. “Some states don’t have good statutes or regulations.”
And in states that do, World says in its 10-K that it “believes that virtually all participants in the small-loan consumer finance industry charge at or close to the maximum rates permitted under applicable state laws in those states with interest rate limitations.”
Lenders say they need to charge the high rates to cover the risk of lending to a high-risk market and the cost of doing business. Payday lender Advance America, which has 2,600 locations in 29 states, has gone so far as to say in regulatory filings that if it was forced to charge 36 percent — as has been proposed several times in national legislation — lower rates would likely “eliminate our ability to continue our operations.” (Advance America has since been acquired by Mexico’s Grupo Elektra .)
The good news: Plunkett believes states are incrementally moving toward more regulation of payday lenders.
The bad: Regulators and legislators trying to crack down on predatory lending face an industry that she says “is well-funded, creative, and persistent, frequently coming up with new twists on products that take advantage of the (all but inevitable) legal and regulatory loopholes that remain once an existing product has been addressed.”
Sounds a lot like a game of Whack-a-Mole, except those who can afford to lose the least continue lose the most. And then some.
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