Courtesy of Ron Niebrugge / Alamy Stock Photo
Payday loan is a quite young phenomenon. It appeared in the 20th century, but the industry of payday loans has developed a lot since that time. Every day thousands of people step over the sill of a lending organization to take a loan.
It is hard to say when payday loans appeared in the USA. But this phenomenon seems to have roots in 1956 when the Senate Bill was issued. This Bill allowed people in need to take small loans that had been forbidden before. Then, 30 years later, in the 1980s people could use services of pawnbroker’s shops and so-called loan sharks. Today payday loans are really popular among those who are short of money.
Who are “loan sharks”?
Loan sharks are lenders who provided short-term loans. It should be mentioned that this kind of loan was not a really good option for people who needed money as the interest rates were very high. The study conducted by the Consumer Federation of America in 2004 showed that the interest rates of loans provided by loan sharks could have come up to 1000 percent. Of course, many people could not repay their debts especially at the time of the Great depression.
First payday loans
First payday loans appeared by the end of the 20th century, but, unfortunately, they resembled shark loans in some ways: new lenders yet again provided their customers with high-interest cash loans in exchange for post-dated checks.
At this time payday loans were called “check cashing services”. But this phrase did not fit the state usury laws and it was decided to substitute it by the word “loan” to avoid breaking the law. Payday lenders usually provided additional fees for every $100. These fees ranged from 10 to 20 per cent for every $100.
Deregulation of banks that took place at the end of the 1980s affected small banks and forced them to vanish. This deregulation caused the appearance of organizations that offered payday loans. Moreover, lenders had to change loan procedure after deregulation to fit the terms of new laws.
Payday loans became more popular
At the beginning of the 1990s, Allan Jones, an American businessman, founded an organization that provided short-term loans. In 1996 these short-term loans were legalized, which contributed to the development of Allan Jones’s business. For some years this organization has grown and became the largest company of this type in the USA. At first, the company had about 500 offices, but now it has more than 20 thousand offices around the USA, and their total income equals to 45 billion dollars per year.
Payday loans Online
With the appearance of the Internet in the 1990s, many businesses started to use it to offer their services. And the sphere of payday loans is not an exception. After the rise of the Internet, the number of organizations that provide payday loans has increased as well as the number of people willing to become their customers. It can be explained by the fact that many people do not have to visit any lending office personally, because sometimes they neither have time for it nor desire to talk to an agent about their financial state.
Today the industry of payday loans involves a lot of controversies. There are supporters as well as opponents (i.e. the CFPB, an organization that argues against short-term loans), also, there are companies that offer some alternative ways of getting money. Some of them, for example, provides a possibility for a worker to get their salary at any time they need it. In addition, many companies direct possible borrowers to some special organizations that provide lower interest rates.
Payday loans appeared not long ago. The “ancestors” of modern lending organizations are “shark-loans”. They led their business unfairly and people remember it. Because of this fact, many people are biased against lending organizations and do not believe them. But the times have changed and the way lending organizations provide their services has changed, too.