History of payday loans | Economic news
At this point, almost everyone working in the world of work and finance (like most adults) should have at least heard of payday loans at some point before. But while most people probably know what they are, or at least have heard of them, the history of payday loans isn’t widely known.
In this article, we will explain the history of payday loans. We’ll look at how they started and why, and other interesting parts of their history. Read on now to learn everything you need to know about the history of payday loans.
How did they start?
The start of payday loans emerged a little over a hundred years ago, when consumer credit was not as widespread a market as it is today. Some illegal moneylenders offered “payday loans” to workers who needed money immediately, charging them high annual interest rates until they were repaid. And like modern payday loans, which also typically have high APRs, borrowers were required to repay these loans when they received their next paycheck.
Often these loans remained unpaid and the borrowers received harsh treatment from these illegal lenders. This treatment included things like wage garnishment, public harassment or embarrassment, extortion, and the threat of job loss. In response, state policymakers worked to suppress payday loans and illegal lending.
In 1916, the first Uniform Small Loans Act was passed, imposing a monthly APR of up to 3.5% on all small loans under £300. This spurred the need for licensed lenders to provide small amount loans like these to the masses, and so the first payday loans became legal.
Later, in the mid-1900s, the credit market grew too large for state policymakers to manage effectively, especially as some lenders began to operate nationwide. For this reason, a series of federal laws have been passed to regulate various aspects of loans and lending, including small loans like payday loans.
All of these regulations have allowed licensed payday loan stores to grow and expand, offering their services to even more consumers than ever before. Over the rest of the century, the payday loan market grew rapidly until it reached the point where it is today.
Payday loans today
Today, payday loans have been heavily influenced by everything that led to their creation and institution at the state and federal levels. Payday loans have become so widespread that several federally chartered banks and other major financial institutions have also begun offering them. It is no longer limited to small payday loan vendors, as more and more large banks are offering them as well.
Besides this area of advancement, a number of lenders offer online payday loans. This makes them more accessible than ever, which has led more and more consumers to take out personal loans in recent years.
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