Washington Places a Creative Restriction on Payday Loans
There are currently 13 states in America that ban the use of payday loans in an effort to protect consumers from extraordinarily high interest rates. Consumers are sometimes able to get around these laws, albeit illegally, by getting these loans online from other states.
The state of Washington had a different idea for protecting its citizens though, and so far, it has worked proved somewhat successful.
In Washington, each borrower is now limited to eight payday loans per year. According to data from 2009, one out of every three payday loan borrowers in the state takes out more than eight each year.
In fact, two-thirds of the profit for payday loan companies is coming from these people who constantly borrow, almost every paycheck. So, one-third of the population drives two-thirds of the profit.
So the officials in Washington thought they could get control of the situation by hindering the smaller group with the bigger impact.
The Consumer Financial Protection Bureau found similar results in a study from earlier this year. The CFPB reported that three-quarters of payday loan profits come from borrowers who take out 10 or more loans each year.
While regulations in Washington are still in their infancy, this state may have developed an idea that works well for other states in the future.