No Fax Payday Loans

More and more states are regulating or outright banning payday and no fax payday loans. State regulation designed to protect consumers has placed numerous restrictions on the payday loan industry, including capping interest rates and limiting the number of payday loans a borrower can receive each year. But whether these regulations in fact protect consumers is hotly contested. Some say that payday loans are the only legitimate source of credit for many consumers. This article describes both the pros and cons of no fax payday loans and looks at whether the restrictions and regulations being implemented by many states in fact protect consumers.

What is a no fax payday loan?

A no fax payday loan is a small loan (usually a few hundred dollars) that does not require a credit check. Payday loans have short terms of usually one or two weeks and must be paid back when the borrower receives his or her next paycheck. Payday loans are intended to provide cash to cover financial emergencies until the borrower’s next payday. These loans go by other names, including “cash advance”, “check cashing”, “payroll advance” and “deferred deposit.” Many payday lenders are not licensed, bonded or regulated by state governments

Payday loans are expensive, at least my one measure. For example, a typical $100 payday loan will cost the borrower $20, or 20% of the loan amount. Annualized, however, the 20% fee turns into an APR of over 500%. What is debated is whether it is appropriate to use an annualized percentage to evaluate the costliness of a short term loan. Many believe that such a comparison is unfair and misleading.

How do no fax payday loans work

There are several requirements before an individual can obtain a payday loan. First, the borrower must be 18 years old or older. Second, they must be employed and making a minimum monthly wage, typically $1,500 to $2,000 per month. Third, they must have a checking account. No credit checks are typically performed, so bad credit will not disqualify somebody from a payday loan.

When the borrower obtains the loan, he or she writes a post-dated personal check for the amount of the loan plus applicable fees. In the case of a $100 loan costing $20, the borrower would write a post-dated check for $120 made payable to the lender. Many payday loans are obtained via the Internet, which can accommodate these transactions through the use of bank wire transfers. The lender then advances the loan amount, and when the loan period has expired, the lender cashes the post-dated check and the loan is repaid. If the borrower is unable to repay the loan at the end of the loan term, they often obtain yet another payday loan to cover the cost of the first one. Called repeat borrowers, they are usually the type of consumer state legislation is designed to protect.

How do states regulate the payday loan industry?

State regulations cover many aspects of the cash advance industry, including disclosure, interest rates caps and other restrictions. The two primary restrictions relevant here are capping the interest rate and limiting the number of loans a single borrower can take out in a year. The first restriction, interest rate caps, is well intended but misguided. The second restriction, limiting the number of loans, has more promise in giving consumers real, meaningful protection.

The problem with capping the interest rate is two-fold. First, it wrongly places too much weight on the annual percentage rate (APR) of a loan. Because payday loans are very short in duration, practically any fee over a few dollars will, as a matter of simple math, result in a triple digit APR. That’s true even if the fee is just $15 dollars on a $100 payday loan. While at first glance a 400% APR appears shockingly high, such a measurement for a 7 to 30 day loan is nonsensical. And capping the interest rate without any analysis of the costs to operate a cash advance store is simply shooting at the problem blind. The result typically is that such regulations drive the payday loan industry out of the state, increase unemployment, and push borrowers to pursue black markets to obtain needed cash.

Limiting the number of payday loans a borrower can obtain in a given year is a regulation with more promise. A similar but different approach is to limit the number of times a loan can be rolled over into another cash advance. Either way, the goal is to help consumers avoid becoming chronic payday loan borrowers. While such regulations are not fool-proof, if properly crafted, they can go a long way to helping consumers while not driving the no fax payday loan industry out of business.

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Rent-A-Center, that ubiquitous rent to own store where credit-starved consumers can load up on furniture and electronics, took a bold step to fight a payday loan law in Ohio. What many folks may not know is that Rent-A-Center runs Cash AdvantEdge, a no fax payday loan operation.

In Ohio, Cash AdvantEdge charges fees for payday loans that are equivalent to an annual percentage rate of 782%, according to the Wall Street Journal. There is legislation pending in Ohio that would cap these interest rates. On Wednesday, that bill passed in the Ohio House.

What has Rent-A-Center so bent out of shape is that an Ohio food-bank association supports the legislation. According to a Wall Street Journal article, executives at Rent-A-Center made a series of telephone calls to America’s Second Harvest threatening to yank charitable contributiosn from hunger programs unless they withdrew their support for the Ohio payday loan legislation. Rent-A-Center has confirmed the phone calls, saying they didn’t want its $500,000 pledged to an organization that was supporting anti-payday loan legislation.

The legislative chairman of the Ohio Coalition for Responsible Lending was not impressed, calling Rent-A-Center’s tactic “out of bounds.” He said Rent-A-Center is just “trying to buy people off.”

Cash AdvantEdge operates no fax payday loan centers online. According to its website, a $100 payday loan costs $20 in fees.

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