In this post, we profile the payday lending industry. We discuss how payday lenders make money and the regulatory landscapes that have evolved in Canada, the United States and Australia. This discussion is meant to be read in conjunction with our posts on CSF and AUC. Payday Lending Payday loans are small-value short-term, unsecured personal loans to borrowers requiring short-term funds until their next payday. Neither assets nor credit ratings are taken into account when determining a borrower's creditworthiness. The borrower must have a job, a bank account, picture identification, a permanent address, and several references. A recent bank statement, pay stub, and proof of address (such as a current utility bill) are required as verification. Normally, upwards of 33-50% of the person's paycheck is loaned for up to 15 days. The borrower writes a post-dated check for the repayment of the loan. The lender / broker will charge a fee, or several fees, for making the loan, as well as interest that the loan will accrue. Annualized interest rates can exceed 500%, but because much of that “interest rate” comes in the form of a $20 or so fee for each $100 borrowed (keep in mind that these are typically 2-week loans), many borrowers don't view that they're paying 500% interest rates on their loans…
