How Payday Loan Regulations Differ Between Countries

Certain things are universal — popular and widely used not only in the UK, but around the world.

Payday loans are one of them. Since the 2008 financial crisis, payday loan usage has risen both in the UK and in the United States, with US-based lending outlets outnumbering Starbucks and McDonald’s in the wake of the economic downturn.

In the UK, an estimated 40% of young people have used either payday loans or pawn shops as a source of credit, part of a rising trend in borrowing.

Despite the growth in payday loans on both sides of the Atlantic, there are several differences in regulation between payday lenders in the USA and UK. Below, we’ve listed some of the biggest differences in lending culture, regulations and payday loan usage.

In the USA, loan regulations occur primarily at the state level

Not surprisingly, many payday loan-related regulations in the USA occur at a state level, rather than at a federal level. This means that lenders are often subject to local rules — a lender based in Florida, for example, may face different regulations from one based in California.

In many parts of the USA, lenders and borrowers face significant restrictions designed to limit problematic borrowing.

For example, in California, the law states that lenders can provide a maximum of $300 (approx. £225) to borrowers per loan, and that fees are capped at a maximum of 15% of the value of the loan. There are even more restrictive fee rules for loans made to members of the military.

In Florida, the limit for a payday loan is $500, with borrowers able to take out one loan at a time for a period not exceeding 31 days. Loans and borrowers in Florida are tracked via a statewide database, allowing the state government to monitor borrowers’ usage of payday loans.

In some states, payday lending isn’t allowed at all. For example, New York does not allow any form of payday lending, and advises consumers in need of credit to consider alternatives such as credit cards or a salary advance.

In the UK, loan regulations are implemented at a national level

In the UK, payday lending regulation is very different. Instead of state laws regulating payday loans, loans governing payday lending are made at the national level by the government.

This means that payday lending regulations are consistent across the UK, with lenders in all regions held to the same  standards. Payday lending in the UK is regulated by the Financial Conduct Authority (FCA)

Prior to the  FCA  , payday loans in the UK were regulated by the Office of Fair Trading (OFT).

Regulations from the FCA require UK payday loan interest rates to be capped at 0.8% per day, with a maximum default fee of £15. There is also a 100% cap on total costs, meaning a loan of £200 cannot cost more than £400 in total repayments.

If you’re based in the UK, you can view interest rates and apply for payday loans online using a lender such as Mr Lender.

In closing, while payday loans are widely used in both the USA and in the UK, each country has very different regulations. In the UK, payday loans are regulated nationally, while state-specific regulations mean the industry is managed on the state level in the United States.