Payday loans are small cash loans based on borrowers’ personal checks held for future deposit or on electronic access to borrowers’ bank accounts. Check-based loans of $100 to $500 or more cost triple-digit interest rates, typically 390% to 780% annual interest rates for two-week loans with $15 to $30 finance charges per $100 loaned.  These single-payment loans are due in full on the borrower’s next payday, typically in two weeks. Borrowers must have a bank account in relatively good standing and a source of income or benefits to qualify for loans. 

Lenders do not determine the borrower’s ability to repay through conventional credit checks or application information. Payday lenders entice cash-strapped consumers to write checks without funds on deposit and then use those checks to coerce repeat transactions or collections. The combination of relatively large loan size, expensive finance charges, short repayment terms, and check holding results in loan flipping that traps many vulnerable consumers in debt.

According to industry sources, there are about 22,000 storefront payday loan outlets, making $40 billion a year in loans and collecting $6 billion in finance charges from borrowers. We know of no industry-wide or government studies that measure the size of the Internet payday loan market, or the number of actual lenders (versus the proliferation of referral sites).  The Yahoo Shopping directory listed almost 140 payday lenders in late August.

One marketer claims that over seventy million Americans relied on the Internet for online payday loan sites last year. PDL Marketing LLC claims that its affiliate web sites generate over 10,000 fresh, exclusive payday loan applications every single week. A Google search for “payday loan” and “application” resulted in 252,000 hits on October 27, 2004. While some Internet lenders are licensed in their home states, none of those states publish annual report data on the number, dollar value, or price of licensee lending, either online or at storefront locations.

One of the few sources of payday loan industry data, Stephens Inc., a Little Rock investment bank, reported in late 2003 that over 50 separate websites offered payday loans, not counting sites for store-based lenders. Stephens found that fees range from 15% to 35% with a median rate of 25% of the loan, that most sites offered loans of up to $500 while a few sites loaned up to $1,000, and that many online payday lenders were based in California, Delaware or offshore locations such as Costa Rica.

An early survey of Internet payday lending by the Massachusetts Division of Banks on Internet payday lending in 2000, noted how little information was provided by some companies about themselves and how much information was required from their customers. Of the sixteen web sites surveyed, Massachusetts regulators found that only seven disclosed any information about fees or interest rates.

The New York Banking Department also surveyed Internet payday lenders in 2000 and found thirty-two listings, some with multiple outlet locations.  CFA resurveyed the New York list of sites in mid-2004 and found that about a dozen were still actively making loans four years later and that some domain names were now owned by others or were up for sale.