The Industry

Payday advances are short-term loans made against a borrower's next paycheck. The business was legalized in California only a few years ago. There are currently more than 3,100 locations licensed to offer payday advances in California . Only convicted felons are prohibited from getting into the business. The only charge to license a payday loan company in California is the cost of the fingerprinting. The payday loan industry argues that it is offering a service to customers who have no other options and could possibly face stiff bank fees and penalties if they bounced checks.

The payday loan industry's future is in the hands of state legislators. Bankers say people getting payday advance loans at high rates could probably qualify for mainstream sources of credit. Bankers, consumers' groups, and senior citizens have been known to lobby legislatures to regulate payday loans and limit the fees that can be charged to borrowers. Payday advance companies have often aimed their marketing campaigns at banks.

Companies point out high bank fees as the new industry's reason for existence. One may claim that the prudent use of a payday advance could help a borrower avoid bank fees such as bank overdraft charges. One may use a payday loan company to avoid an overextended checking account and avoid a bounced check fee. Banks argue that people who borrow on their next paycheck tend to run out of money by the following paycheck. Some states are fighting to regulate on the payday loan industry, limiting the size of loans and interest rates. Illinois house bill limits l oans to one thousand dollars or twenty five percent of the customer’s monthly gross income. The bill also caps interest rates at fifteen dollars and fifty cents for every one hundred dollars borrowed. The goal is to stop interest rates that can go as high as five hundred percent.