If you’ve spent any time searching for an online payday loan, you have undoubtedly come across the term “faxless” or “no fax.” The term seems kind of odd, at least to me, but it actually has a very specific meaning within the payday loan industry. To understand these types of short term cash advances, it’s important to see how the Internet has impacted the business of consumer loans.
Payday Loans before the Internet
Payday lenders began as check cashing stores. These stores would cash checks for a fee, which usually represented a significant portion of the stated amount of the check. Beginning in the early 1990s, checking cash stores began making short term loans to their customers. In the early 1990s, there were about 200 checking cashing stores that also offered payday loans.
Since then, the industry has mushroomed. By the early part of this decade, there were 10,000 payday loan stores, with approximately 4,400 of them owned and operated by national chains. By one estimate, the annual amount of payday loans reached as high as $14 billion in 2000.
Before the Internet was widely available, payday loan centers were all run out of storefronts. If you needed a payday loan, you went to your local check cashing store and filled out an application. The lender required each borrower to post date a check to repay the loan, plus a fee, that would be deposited by the lender on the borrower’s next payday. It was from this that these short term cash advances derived their name–payday loans.
How the Internet changed the payday loan industry
With the Internet, payday lenders went online. At first, they used the Internet simply to advertise there stores, not to actually process loans. As the technology improved and became less expensive, particularly the security of online transactions, payday lenders began setting up sites that allowed borrowers to submit information over the Internet. Initially, however, even these online applications still required borrowers to submit information like pay stubs and bank account information either in the check cashing store or via fax.
As the technology developed further, and more and more individuals were banking online, the industry developed a completely online process. Applications could be submitted online without the need to submit any information in person or via fax. And it was from this that the term “faxless payday loan” was derived.
Are all payday loans faxless?
No. The laws governing the payday loan industry vary from state to state. In some states, interest rate caps have been set so low that you won’t find any lenders doing business there. In other states, while payday lending is permitted, it is subject to a number of limitations and restrictions. Some of these restrictions render faxless loans impossible.
For example, in Montana, the lender must have a copy of the borrower’s paystub on file. If you have an electronic copy of your paystub, which many employers provide, you can typically email it to the lender. Otherwise, you would need to fax the paystub in before obtaining a loan.
Why do Montana and certain other states require the lender to have your paystub on file? States have enacted a variety of restrictions on payday lenders in an effort to protect consumers. There is significant academic debate over the effectiveness of these restrictions, but the fact is the restrictions exist and vary from state to state. In some states, like Montana, the law requires certain documentation to be held by the lender so that they can confirm a borrower’s income level and ability to repay the loan. In these states, faxless payday loans simply do not exist.
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