In a majority of U.S. states, payday cash advance loans – borrowing from the next paycheck, to cover an important financial obligation in the 5-30 days before that check arrives – are approved within those states’ banking regulations. This has come through much debate, prompted in part by a proliferation of payday loans becoming available online.
Why do these paycheck cash advance loans continue to be allowed? In most states, the size of the loan is $500 or less: California allows only $255, Oregon is $300 or 25% of net monthly income (whichever is less) and Missouri is $500. However, several states allow borrowing larger amounts: Texas ($1800), Michigan ($600), Utah ($1500) and New Mexico ($2250) are among them. So clearly, different states have different interpretations on the degree of limits to place on these loans.
At the same time, the majority of U.S. states permitting payday loan use are tacitly endorsing them. There are several arguments provided by the legislative supporters of payday personal loans:
• Option of last resort (escape the loan shark) – Individuals who access personal loans with a paycheck as collateral are doing so out of a paucity of options. In many communities, the only other option is a loan shark.
• Necessary, due to loss of credit cards and other lines of credit – The recession has pulled down the credit scores of millions of people, including many who are fully employed. Another option might be a car title, for those who have full ownership of their vehicles. But larger loans (as with car title loans) can also create a debt burden that is far more problematic than a portion of just one paycheck.
• Helps pay utility, food and rent expenses – There is a ripple effect on local economies when people can’t pay for essentials. Landlords have their own bills to pay, after all. With a payday personal loan, creditors are saved from being the “lender.”
The individual who takes out cash advances loans, within reason and only when absolutely necessary, is giving it his or her best shot at being responsible. Just because they are trying to cover unexpected expenses such as a healthcare deductible or car repair shouldn’t mean their fragile financial circumstances should collapse.