Payday Lending and Technology

Banners at payday lending site. Photo by author. In 2010, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act to create the Consumer Finance Protection Bureau (CFPB). This agency serves as a consolidated federal consumer watchdog over financial products. Its authority covers almost every consumer financial product or service in the market excluding insurance and securities.

CFPB has an active and laudable program to use technology in its efforts, building open source tools to protect Americans from unethical banking practices. The source codes for a variety of uses are available at

Through its Technology and Innovation Fellowship, CFPB hopes to find talented people in software product development, cybersecurity, and data, whose ability to leverage technology will help make financial products and services work for consumers. Applications are due July 31, 2014 for the second round of fellowships, see

Logo for Business and Commerce CommitteeThe Texas Senate Committee on Business and Commerce (Senator John Carona, Chair) also had an initiative to use technology to inform consumers. One aspect of that was a payday loan calculator, provided as a courtesy by Hugh Chou, well known on the Internet for his mortgage and finance calculators. Chou’s calculator requires three of four variables — loan amount, loan fees, duration of loan, and annual interest rate — and calculates the fourth variable.

Chou describes it as “I took my old “Find the Missing Value” calculator, and modified it a little so that now it is adapted more for the common payday or auto title loans where you pay a flat fee to receive an advance on your paycheck for a certain number of days.

Note that there is disagreement about whether or not the annual interest rate/annual percentage rate (APR) is a reasonable measure. The industry believes APR is misleading because it is an annual measure where the term of a typical loan is two weeks, so it is not the actual loan interest rate. Consumer organizations dispute this interpretation.

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