Payday Loan Caps Spotlight On-Demand Wages
Amid the pandemic, a ceiling on payday loans extends – state by state.
To that end, in Nebraska now, voters approved a measure that will cap the rates levied on so-called pay day loans at 36 percent through the state. The vote in favor of the cap, associated with Measure 428, was overwhelming, at 83 percent of the tally. Rates on those loans can reach as high as 400 percent, based on the Journal Star.
In the wake from the vote, Nebraska becomes the 17th state within the U.S., along with Washington, D.C., to impose such caps on pay day loans, per data from the ACLU. In recent actions at the state level, Colorado put caps in place in 2022; South dakota approved a 36 percent cap in 2022. When it comes to how widespread the loans are, as estimated through the National Conference of State Legislatures (NCSL), 37 states permit payday lending; those loans are dissalowed the remaining 13 states.
The state-level initiatives come against a backdrop where, at a broader, national level, the Consumer Finance Protection Bureau (CFPB) in July repealed underwriting requirements that will ascertain a borrower's capability to repay before extending an online payday loan. At the federal level, bipartisan legislation that would cap rates at 36 percent for those consumers remains stalled.
The pandemic has exacerbated financial pressures on individuals and families within the U.S. As estimated by the Financial Health Network even because this summer, one out of three Americans have forfeit income as a result of the pandemic, and based on the Network's 2022 U.S. Financial Health Pulse, from 2,000 adults surveyed, of those that reported losing income, 3 % said they'd considered payday loans.
The hurdles for you to get those loans remain fairly low. Borrowers only need to have a valid ID, a bank account and evidence of income.
Though there is no strict meaning of exactly what a payday loan is, exactly – it can be any small-dollar, unsecured loan having a high interest rate – its moniker hints at the typical practice of paying it back in the next payday.
And our prime interest rates and spiraling fees give the nod to the fact that lots of people do not have enough in savings or income to juggle the debt and day-to-day expenses. As estimated by PYMNTS, as many as 60 % of consumers live payday to payday.
A number of firms within the payments space have been introducing on-demand pay solutions that disrupt the traditional two-week payroll period, and allow individuals to get paid in real time because they earn wages for work performed – a trend that stretches well past the gig economy.
In a job interview with Karen Webster, Patrick Luther, who's the industry principal of financial services at Ceridian, which offers on-demand payroll solutions, asserted “individuals be forced to pay bank and auto loans, utility and credit card payments on time or risk facing penalties. Access to your hard earned money as you earn it may mean avoiding a overtime fee, a bounced check, an interest hike or counting on … high-interest cash advances.”
Separately, a current iteration of the PYMNTS' Next-Gen Payroll Tracker found that 90 % of workers expect to be paid by pay cards, direct deposit or digital wallets within 10 years, indicating a desire for flexible payment choice that transcends the biweekly payment periods of old.