Not Your Average Shark

This week, the Discovery Channel hosts “shark week.” As the channel educates viewers on the feeding habits of Great Whites and Hammerheads, anti-payday lending advocates will be using this opportunity to highlight the concept of loan sharking. You can follow or join the conversation using the hashtag #sharkweek and #stopthedebttrap onTwitter.

Loan sharking is the practice of lending money at exorbitant rates of interest. “Exorbitant” is defined in the eye of the beholder, but commonly, policymakers have set interest rate caps at 36 percent. However, small loans statutes like the one in Indiana, or other loopholes, allow lenders to charge much higher interest rates — typically well over 300 percent — on short-term or “payday” loans. While industry professionals argue that these interest rates are justified by the short-term nature of the loan, we now know that the average payday borrower is in debt for five months, spending an average of $520 in fees to repeatedly borrow only $375.      

Federal policy offers some protections. Through the Military Lending Act, active duty military personnel cannot receive loans above 36 percent. The Consumer Financial Protection Bureau is also working to ensure that some guardrails are put up around payday lending. While they cannot regulate the interest rates, they can – and hopefully will  –  ensure that lenders assess a borrower’s ability to repay the loan before making one and set limits on a borrower’s number of back-to-back loans. However, the CFPB’s proposed rule on payday and car title lending has yet to be formalized and Congress is actively working to prevent the agency from having any rulemaking or regulatory authority over payday and car title lenders.  

On the state level, policymakers and citizens are recognizing the harms of payday and car title lending and voting to rein it in. Most recently, South Dakota citizens voted by a 3-to-1 margin last November to cap all loans at 36 percent, effectively ending payday lending in the state. Before that, Colorado enacted a series of reforms bringing rates down to 129 percent and extending repayment periods. And data from other states that had payday lending and moved to a 36 percent cap show that borrowers employ healthier strategies to address budget shortfalls and many feel that they are better off financially without payday storefronts.  

Whether or not you feel that payday lenders are more dangerous than actual sharks , we encourage you to take a few moments this week to engage. Tweet at or write your lawmaker to #stopthedebttrap with sensible payday reforms, or share your story about your experience or your clients’ experiences with payday loans. Ready to dive deeper? Join our coalition of state-level advocates or consider offering a payday loan alternative product.