When Did American Payday Lending Become Popular?

A man is shown signing a financial agreement to be able to take out a loan
America’s Debt Culture And The Financial Crisis
Part 1 How Much Is The US In Debt?
Part 2 The Effect Of The Federal Reserve On Debt
Part 3 The 2008 Financial Crisis And Its Effects
Part 4 When Did American Payday Lending Become Popular?

Out of this financial crisis came another type of lender. The payday loans sector grew rapidly when credit became in short supply and in some cases this was the only kind of borrowing available to low income families. Charging very high rates of interest, payday lenders filled the gap that had arisen when normal lines of credit dried up. In this article we take a look at:

  • Emergence of payday lending
  • Payday lending after the financial crisis
  • The future of lending in the US
  • Assessing your financial situation

As stories about payday lending with interest rates reaching over 1,000% started to emerge, government decided that something must be done to prevent predatory lenders preying on the vulnerable. Each state in the US that has legal payday lenders has put into place different regulations that relate to payday loans with some capping interest rates and others putting a limit on the amount that can be borrowed. Some states have cracked down hard on payday lenders whilst others are more benign and have few limits.

After the financial crisis

The economic crisis that erupted in 2007/2008 officially ended in the Fall of 2011. The stock market bottomed out and since then has risen steadily with homebuilding stocks being a part of the rise.

Payday loan interest rates reached over  1,000% before government stepped in

Figures also show that hourly earnings also bottomed out at the same time but they have not kept pace with the cost of living. This has resulted in many families still continuing to suffer from the effects of that disastrous period.

What lies ahead

In spite of the lessons of the last financial crisis there are worries that another crash could happen. And, it may not be too much in the distant future. A financial crash like the last one could easily result in 25% of people losing their job and a downturn in economic output would only add to the huge debt that the Fed currently owes. Deflation would cause a drop in prices and this would also affect the country’s earnings from International trade.

An elderly man is shown making changes to his financial situation in order to protect himself from a possible recession

In spite of the Fed starting to raise interest rates albeit slowly, many people are worried that another crash is just around the corner. Millions are stuck in part time jobs that do not pay a living wage and this is one of the reasons behind the success of payday lending companies.

The stock market is still volatile and in 2016 it took a dive downwards. Another area of volatility is oil prices which have been continually pushed down due to a strong dollar and an increase in production. While there are no immediate signs of another crash the US economy has been slow to grow and continues to live on borrowed money.

Assessing your financial situation

As the uncertainty in the economy continues, this may be a good time to look at your own financial situation and make some changes that will help protect you from another possible recession. Once again credit has become easy to obtain and if interest rates start to rise, this could be the step that creates problems for anyone who is not earning enough to cope with higher repayments.

Each state in the US that has legal payday lenders has put into place different regulations that relate to payday loans.

All it would take is for one bank to become unstable and there could be a house of cards situation. Or, the crisis could come from another country like China which is having its own problem with large levels of internal debt. Just one decade after the biggest financial crisis the world has ever seen, the prospects of a stable financial future for US citizens are starting to look as bleak as ever.

America’s Debt Culture And The Financial Crisis
Part 1 How Much Is The US In Debt?
Part 2 The Effect Of The Federal Reserve On Debt
Part 3 The 2008 Financial Crisis And Its Effects
Part 4 When Did American Payday Lending Become Popular?

About the author

Mark Larsen

Mark Larsen has worked in the finance industry for over 20 years. Over the course of his career, Mark has amassed experience in personal finance and especially short-term lending. He shares his valuable insights on onlinecreditusa.com