How Payday Lenders Skirt State Crack Downs

State after state has tried to ban payday and other high-cost loans

James Crosby | 8/14/2013, 2:05 p.m.

State after state that has tried to ban payday and other high-cost loans, the industry has found ways to skirt the law and stay in business:

The Ohio legislature banned high-cost loans in 2008, but via loopholes in regulation for far different companies, like mortgage lenders, the industry has continued to peddle payday loans.

New Hampshire, Georgia and Arizona have all banned triple-digit-rate payday loans but the industry has convinced legislatures to allow similarly structured auto-title loans, which are backed by the borrower's car and typically carry annual rates around 300 percent.

In Texas, lenders have gone around the state's strict limit on payday loans by defining themselves as "credit repair organizations," which, under Texas law, can charge steep fees. "Texas now has nearly 3,500 of such businesses, almost all of which are, effectively, high-cost lenders. And the industry has successfully fought off all efforts to cap their rates."

The industry's attempts to shirk the law by exploiting loopholes or, more often than not, reacting to laws targeted at one type of loan by churning out new products with the same triple-digit annual rates reflects a basic fact: "Many low-income borrowers are desperate enough to accept any terms."