The History of Payday Advance Loans
A fast payday advance is a small, unsecured, short-term loan used to cover unexpected expenses between paydays.
The application process for a fast payday advance is fast and simple, usually requiring only proof of income, a checking account and identification. If approved, a borrower reads and signs a disclosure agreement required by the Truth in Lending Act, and writes a personal check for the amount of the advance plus a fee. The lender advances the customer the amount of the check, and holds the check until an agreed-upon date. Fees charged are range from $15 to $30 per $100 loaned.
The fast payday advance service emerged in the early 1990s, when:
- Traditional financial institutions left the short-term loan market because costs were too high.
- The costs to consumers of bounced checks, overdraft protection fees, late bill payment penalties, etc. soared.
- State regulation of the payday advance service provided customers with important consumer protections.
The fast payday advance industry has continued to grow. Industry analysts estimate that today there are more than 22,000 locations across the United States.
Online fast payday advance loans have become popular, as well. In this process, a consumer fills out an online application form or faxes a completed application with personal information, bank account numbers, Social Security number and employer information. The fast payday advance loan is deposited into the customer's checking account and the finance charge is electronically withdrawn on the borrower's next payday.
Borrowers usually secure a loan in the range of $100 to $1,000, with fees from $10 to $30 per $100. When the Consumer Federation of America conducted a survey of 100 Internet fast payday advance loan sites, it found available fast payday advance loans from $200 to $2,500, with $500 the most frequently offered and $25 per $100 the most frequent fee.
The Community Financial Services Association of America, the industry's national organization, works with policymakers, consumer advocates and CFSA member companies to ensure that the payday advance is a safe credit option. Anyone thinking of borrowing money this way should learn more. CFSA provides tips and information about using emergency fast payday advance loans responsibly.
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