Payday loans can wreak havoc on a person's financial life. These loans carry sky-high APRs and the penalties for late or missed payments can be extreme. Many consumers, who turned to payday lenders in a time of need, later find themselves worse off than when they started. In this series, WalletPop takes a look at the payday lending industry and some of its players: those who dole out the loans, the regulators who try to rein them in and the people who desperately take out these loans hoping for a some relief. This is the third installment of our payday lending series. You can read the first part of this series here
Before payday lenders came onto the scene, pawn shops and mom-and-pop check-cashing services made a tidy little profit off of those who were desperately seeking access to cash. Noticing the high profits and the minimal amount of regulation surrounding these loans, larger, deep-pocketed companies began getting in on the act, gaining a significant amount of momentum in the 1990s. Making matters worse, these lenders were successful in convincing state legislatures to exempt their businesses from usury laws, which set a limit on interest rates. That meant lenders could charge rates that climbed well into the triple-digit percentages.