They say there is nothing new under the sun, but in the bigger picture, that simply isn’t true at all. Example? Payday loans.
Although there have been independent lenders for as long as there has been money, what we call payday loans or cash advances actually began very recently. The first payday loan stores opened in Kansas City in the early 1980s, after Congress deregulated the lending industry and opened the door for private lenders to set their own interest rates.
This new kind of lender did well at first, and within a decade there were 200 different payday lenders in the US.
Since then, the industry has grown and expanded to an amazing degree: by 2006 there were over 20,000 payday loan stores, and a rising number of online lenders. The total loan volume was over $28 billion.
Payday loans exploded in America, and quickly started reaching out into other countries. From the handful of small lenders in Kansas City, the payday loans business has gone global, and generates hundreds of billions of dollars worth of loans.
The newest country to adopt the practice of payday lending is Australia. The industry is new enough to the country that the government is still figuring out a way to regulate it. Currently, “fringe lending” as it is called Down Under is overseen by the UCCC (Uniform Consumer Credit Code), but many lenders still use pre-existing legal loopholes and avoid any kind of regulation.
In 2008, fringe lending in Australia was estimated to have made about $1 billion in loans, however that figure is probably much lower than the actual amount.
America’s Neighbor to the North did not actually pick up the payday loan trend from the USA, but instead from the United Kingdom.
Much like the US, the federal government of Canada does not regulate these loans, but allows for each province to enact and enforce their own laws and regulations. Since 2006, each province has put legislation into place regarding payday loans, with the exceptions of Quebec and Newfoundland.
The United Kingdom
It’s a new era for payday lending in the UK. Over the last few years there has been a remarkable growth in the industry, to such an extent that the government has recently established a new authority the FCA (Financial Conduct Authority) just to reign in an industry considered out of control.
Between 2004 and 2009, lending increased fourfold in the UK. In 2009, the loan volume was roughly 1.2 billion pounds. But the growth only increased from there, and by 2012 the loan volume was 2.2 billion pounds, and still growing!
The FCA is not seeking to put payday lenders out of business, simply to weed out the unethical lenders among them. The Consumer Finance Association, which represents lenders, says the new regulations will only help the legal lenders expand their scope of lending.
The United States
Although payday lenders are constantly the target of critics, the industry is thriving in the country of its birth. 27 states allow payday lending in all its forms, while 14 states (plus Washington DC) have banned them. The remaining 9 states have placed some restrictions on the practice, but allow for storefront lending.