Why doesn’t payday lending violate the FTC’s Credit Practices Rule (16 C.F.R. 444.2)? That’s what I’m trying to figure out.
The Credit Practices Rule prohibits taking or receiving directly or indirectly an assignment of wages in most circumstances. (None of the exceptions appear applicable to the payday lending context.) The FTC has gone after some payday lenders for taking a formal direct assignment of wages, but that's an usual term for payday loans. Rather, I'm more interested in the question of an indirect wage assignment. I think there's a pretty good case that a payday loan is an indirect assignment of wages:
- A payday loan is called a “payday loan”—it’s designed to ensure repayment from the borrower’s wages;
- the loan’s maturity is usually designed to match with pay periods;
- usually the only “underwriting” is verification of the borrower’s employment;
- the loan is “secured’ with either a post-dated check or authorization for an ACH debit with the date set for…payday.
That sure looks to me like an indirect assignment of wages—the loan is designed to enable the lender to be repaid from the borrower’s wages without having to go to court and get a judgment and a garnishment order (i.e., a judicial wage assignment).
I’m curious to hear readers thoughts on whether this sounds right or whether I’m missing something. Please limit comments to the legal interpretation issue—I’m not looking to open a discussion on the merits of payday lending, just to understand if it violates the FTC Credit Practices Rule or if not, why not.