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Independent: State Interest-Rate Caps over Payday Loan System Do Not Help Borrowers

The recent analysis conducted by the Independent journalists did not prove the interest-rate caps applied in some US states to be very effective. According to the head of the Online Lenders Alliance, Andrew Duke, borrowers still cannot leave the lending loop. The investigation of the Consumer Financial Protection Bureau showed that 80% of all payday loans are taken to repay the previous loans. How does it happen, and why do the interest caps not help?


What Are Interest-Rate Caps?

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In some US states, the activity of land-based and Internet companies that provide people with small payday loans online no credit check services is strictly regulated. One of the most prominent restrictions concerns the maximal limit of the interest rate. In Montana, South Dakota, Colorado, California, Illinois, and Nebraska the maximal interest cap for the money loans cannot exceed 36%. The corresponding Act was accepted in 2010, and its main task was believed to protect the Americans from harsh debts

Negative Outcomes For Both Citizens and Businesses

However, the situation has got some unexpected after-effects. The limitation, of course, harms the lending companies. They prefer leaving the state market instead of adjusting to the new regulators. The state is deprived of some valuable taxpayers, while the average loan borrowers are deprived of the choice. Only big local and payday loan online companies can stay in the problem states. Their interest limits will not exceed the cap, but the other aspects of money-lending become stricter. For instance, the companies are more likely to request full financial background, profs of official incomes, and limit the customers in time of loans to get their income guarantees. 

Borrowers, on the other hand, are in the same situation. They are deprived of the majority of choice. They have to face new requirements from the loan companies or look for other income sources. The situation leads to rising in the mortgaging property share and more risks for the small businesses or average people to stay in debt. 

Is There a Way Out?

Two ideas of the situation improvement come to mind. The first one is the total ban of the interest-rate caps. It will return the minor companies to the markets and set a high level of competition between them. Consequently, an average borrower will get a wider choice and more loyal loan mandates. 

The other way is turning to the global online companies that provide full-fledged payday loan online services

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For instance, the company called HartLoan has a convenient system of loan approval, with some interesting perks:

  • The only documents that are needed are the ID and the employment certificate. 
  • Everything must be uploaded to the company via email (no personal contacts).
  • The documents are checked by the financial expert, and the approval will be given within an hour of real-time. 
  • The whole process is controlled by the support manager, who consult a client and gives them recommendations. 

Online companies are characterized by a more flexible approach to the client’s needs. For instance, in our example, you can take money for everything, without providing a company with proves. The other advantage of online companies is stability. You will not face constantly changing interest rates and payout times. All the essentials are discussed with a client before the final approval is given.

Internet companies like can become the second breath for the US citizens affected by the interest rate caps. To be honest, they remain the only way out for people not willing to deal with banks.