Across America, drivers pass twice as many payday loan storefronts as Starbucks coffee shops. In twenty-nine states, there are more payday lender stores than McDonald’s restaurants. Numerous research studies warn of the dangers associated with payday loans, including significantly higher rates of bankruptcies, evictions, utility shut-offs, and involuntary bank account closures. Many states have recognized the dangers posed by payday and other types of small-dollar loans with predatory features, prompting them to adopt laws to combat the abusive nature of these loans. These laws, however, offer consumers varying degrees of protection.
Historically, states have used their police powers to protect consumers from predatory lending. This Article discusses the extent to which each state’s current laws protect consumers from lending abuses associated with four common small-dollar loans: payday loans, auto-title loans, six-month installment loans, and one-year installment loans. Specifically, this Article highlights the findings from the 2010 Small Dollar Loan Products Scorecard (Scorecard), which updated the original 2008 Scorecard. Both the 2008 and 2010 Scorecard grade state laws based on the maximum annual percentage rate (APR) they allow for the four typical small-dollar loan products listed above. Since the 2008 Scorecard, there has been significant state legislative activity across the country related to small-dollar loans. Only a handful of states, however, have enacted new measures that adequately protect consumers. This Article provides policy recommendations to guide ongoing reform efforts. . .