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Payday loan borrowers have many short-term credit options. A payday loan is often the most economical and convenient choice. |
| Payday lenders are required by federal truth in lending laws to convert and disclose their fee as an annual rate of interest (or APR). An APR, just as its name implies, is a measure of the cost of borrowing over a hypothetical term of one year. While useful in some contexts, an APR calculation can be misleading for loans taken out for periods of time that are significantly longer or shorter than one year. In those cases, an APR calculation has the odd effect of making small fees for loans with short terms appear large, and large fees for loans with long terms appear small. For example, the APR on a $100 payday loan with a term of 17 days is approx. 390%. But the actual amount paid is $15 (or a nominal rate of 15% of $100). Conversely, the APR on a $100,000 simple home mortgage with a 30 year term might be 6%, although the actual amount the homeowner would end up paying is approximately $216,000 (or a nominal rate of 216% of $100,000). An APR in both contexts has virtually nothing to do with the actual dollar amount paid for the cost of credit.
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Customers who choose bounced checks and overdraft protection for short-term credit use those credit products more often on average than payday loan customers apply for payday loans. |
| Payday loan customers are just like you and me. Every payday loan customer has a steady source of income and a bank or credit union account. In general, they are educated and responsible with credit cards, home mortgages and retirement accounts. |
| Payday loans are simple transactions that are disclosed in compliance with Truth in Lending laws and are readily understood by the borrower. |
| In Washington, it is impossible for the cost of a payday loan to ever exceed $15 per $100 borrowed. State law specifically prohibits charging additional interest or fees to extend the term of a loan. |
| The payday lending industry is highly regulated at the federal, state and local levels to ensure access to credit with strong consumer protection. |
Washington payday loan customers enjoy many consumer protections:
- 24-hour right to rescind
- Right to enter into a payment plan after 4 successive loans
- Minimal one-time charge of $25 for default
- Prohibitions on criminal prosecution and treble damages when collecting on a defaulted loan
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| Legislatures in 38 states have expanded consumer choice and protection by authorizing payday loans. In the minority of states without payday loan legislation, consumers have fewer choices and are not protected from illegal and unscrupulous lenders, including out-of-state Internet lenders. |
| The payday lending industry has been at the forefront of developing innovative consumer protections that give special consideration to our men and women serving in the Armed Forces. |
| Payday lenders contribute to the health of the Washington economy by employing and providing benefits to thousands of residents and by generously donating to community, civic and charitable causes. |
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¹Here, the APR is calculated on what is a typical payday loan term of 15 days.
Financial Service Centers of Washington. All rights reserved.
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