Online Cash Advance Lenders Make a Mockery of Bans by States
A recent Washingtontimes.com1 article explored online lending and state bans of cash advance companies operating within their jurisdictions. The article mentioned that many of these lenders get around bans by ignoring state caps on interest rates and other regulations. Without storefront options, online cash advance lenders can still advertise extensively to deliver quick cash directly to borrowers’ bank accounts even these kinds of loans are banned in the state. However, Google’s decision to ban payday lending ads could affect how these companies reach customers. Google recently decided to ban loan advertising for loans with APRs higher than 36 percent according to a report from Theguardian.com2.
Despite state bans and fewer advertising opportunities to reach consumers, most people can still search for these types of loans in browser-based organic searches, and all evidence suggests that they will continue doing so. Banned lenders simply find other ways to promote their products and market loans directly to consumers in areas where their storefront operations are banned. Millennials especially respond well to alternative financial services such as payday loans and pawnshop borrowing according to research reported by Nationalpawnbrokers.org3. Native American tribes often partner with online lenders to offer loans to consumers in states where the industry is banned. The Washingtontimes.com article specifically mentioned online lender Plain Green, which is owned by the Chippewa Cree Tribe, as a company offering loans in states where high-interest loans are banned.
Plain Green spokesperson Shelby DeMars commented on the tribe’s lending practices, “Our tribe is a sovereign entity–just like states are–as enshrined in the Constitution, codified by federal law, and supported by long-standing Supreme Court precedents.We are incredibly proud of the installment loan products we offer, which both fill a critical need for underbanked consumers, as well as provide essential funding for social services offered by our tribal government.”
Online Lenders Find Ways Around State Bans of Their Loan Products
Banning payday loans might actually help some cash advance lenders by cutting their overhead costs without substantially decreasing their income from loans in the states where such lending is banned. Florida Commissioner of the Office of Financial Regulation Drew Breakspear suggested that licensed payday lenders weren’t the problem but that unlicensed online vendors resulted in most of the abuses. “If the CFPB wants to be helpful in regulating the industry, they should go after these guys–this is where we need the help–not after the state-licensed lenders.”
Online cash advance lenders can simply copy the methods of unlicensed vendors. Some lenders partner with foreign lenders, Native American casinos and other parties who are exempt from U.S. regulations. Some states have passed laws that borrowers don’t have to repay loans that violate state laws, but many borrowers continue to try to repay them because they haven’t heard the news or want to protect their borrowing options.
State Laws that Ban Certain Loans Vary by State
Payday, online cash advance, installment and auto title loans are legal in states where legislatures deregulated financial regulations according to Paydayloaninfo.org4. In states where interest caps or usury laws prohibit higher interest rates, these short term loans are illegal. Currently as of September of 2016, 18 states and the District of Columbia limit lending either partially or fully. In Georgia, the laws are strictest because the states not only bans the industry but also subjects violators to possible racketeering charges.
Other states where all these online cash advance loans are banned or not authorized include West Virginia, Arizona, Connecticut, Maryland, Massachusetts, Vermont and Pennsylvania. North Carolina, Arizona and the District of Columbia actually repealed their authorization laws to return to their status before deregulation.
Creative Workarounds Make State Bans ineffective
Washingtonpost.com5 reports that the short-term lending industry is just too lucrative and popular to ban, and neither lenders nor their customers are willing to give up the loans without fighting for them. Comedian John Oliver characterized banning these loans as “legislative whack-a-mole.” Regardless of what states do, the industry finds ways around the bans and regulations by changing definitions, partnering with native American tribal authorities, licensing loan products to foreign jurisdictions and other strategies.
There’s two sides to every story, and online cash advance supporters–including both parties in Florida where the loans are extremely popular–suggest that it’s unfair to target a specific industry when other stakeholders, such as Native American casinos, tribal lenders and foreign-based loan companies–are allowed to operate carte blanche when offering loans online at higher interest rates that many of the states have banned within their jurisdictions. The conflicting state laws and industry efforts to get around them have been partly responsible for the Dodd-Frank Act that created the Consumer Financial Protection Bureau to regulate short-term loans and online lending at the federal level. Find out how online cash advance lenders continually adjust to new regulations at the PersonalMoneyStore.com.