The Case for Banning Payday Lending: Snapshots from Four Key States
For years, community groups and advocates around the country have waged pitched battles to eliminate payday lending in their respective states. Notwithstanding extensive documentation of the payday lending debt trap and the billions of dollars payday lenders have systematically stripped from low-income families and communities, especially those of color, the payday lending industry has cannily built and exerted its political power in state capitols throughout the U.S. As a result, many states permit usurious payday lending, with often dire consequences for millions of payday loan borrowers already struggling to make ends meet.
This report presents snapshots of payday loan regulation in four key states – California, Illinois, New York, and North Carolina. The four organizations that prepared the snapshots – California Reinvestment Coalition, New Economy Project, Reinvestment Partners, and Woodstock Institute – offer their perspective as financial justice advocates that have been in the thick of payday lending battles in their home states. Their direct experience with a range of regulatory frameworks has shown that strong usury caps have proven the single most effective means of banning payday lending.
The report comes at an exciting time. Advocates have spent years refuting and defending against the payday lending industry’s shameless and aggressive lobbying, and there is now a clear turning of the tide. Recently, the Consumer Financial Protection Bureau published a comprehensive study that showed how payday loans trap many borrowers in a long-term cycle of indebtedness. The Federal Deposit Insurance Corporation and Office of the Comptroller of the Currency issued strong proposed guidance that would effectively rein in predatory payday lending by banks.
There is an emerging chorus at local, state, and federal levels calling for an end to payday lending – whether by banks, storefront payday lenders, or over the internet – and the squeeze is now squarely on the industry. The changing dynamic will likely increase pressure in battleground states, such as California and Illinois, and we hope soon to see strong federal action that ends payday lending once and for all.