With the financial challenges we face almost everyday, it is inevitable that we consider getting a payday loan. When encountering emergencies such as hospital expenses, house repairs, kids’ school expenses, influx of unexpected bills, or even basic daily living expenses, we tend to seek the most practical, accessible and fastest option to acquire the needed cash.
Today, one of the most common loans in America is the payday loan or also called a payday advance, cash advance or deferred deposit. This is a short-term monetary loan based on the amount that the borrower receives in one pay-period. In exchange, the borrower writes a check to the lender which is held for future deposit. This check includes the amount of money borrowed plus the finance charge. Usually, the payment term is only for two weeks and the borrower needs to pay a specific finance charge.
Check cashing, loan stores, lending companies, pawn shops, rent-to-own companies – Americans can choose among these lenders to get their loan. There is also the online payday loan wherein the borrower only signs over electronic access to their bank accounts to receive and to pay the loan.
Many financial analysts say that payday loans are the most expensive type of cash loan. It may be fast but it includes very high interest rates. Because of the high interest rates, the borrower ends up borrowing again to pay off the previous loan. This rolling over of loans becomes a bad monetary habit and eventually, the borrower may get stuck deeper in debt.
Sadly, many Americans these days have been victimized by these predatory lending practices. A loan may be a balm to our broken wallets but sometimes because of misinformation and misguidance, this practice turns into a nightmare.
Fortunately, we have laws, laws that regulate the payday lending industry in America, laws to give the citizens both the freedom and flexibility to manage finances and choose the kind of financial help. These laws serve as a safety net that protects the borrowers from predatory lending practices.
Let us take a closer look on the laws that regulate the payday loans industry for the following states.
In California, all payday lenders must be duly licensed by the Department of Corporations. They must post their license at all times, including the fee schedule. The maximum loan amount on the borrower’s check is $300 and the lender can give a finance charge of 15% on the loan amount stated on the check. Thus, the maximum amount a borrower can actually receive is $255. The annual percentage rate or APR is 460% for a two-week loan. Also, under federal and California laws, military service members and their dependents are exempted from the payday loan fee. Lenders, on the other hand, may or may not give a payday loan to the military service members and their dependents.
Fortunately for the citizens of Delaware, Governor Jack Markell finally signed House Bill 289, also known as the Delaware Code Relating to Loans last June 27, 2012. According to this bill, a borrower can only acquire up to five payday loans in a year. The maximum loan amount is $1000. Under the bill, there should be a database wherein the number of loans of a borrower could be tracked and properly documented in order to avoid any financial or legal problems in the future.
Florida also has set its own guidelines for payday loans. Under the Florida Payday Loan Law and Legislation, the borrower can get a loan of not more than $500 at a time. The Florida Office of Financial Regulation limits the borrower from getting more than one payday loan at a time and this office prohibits availing of a loan of more than the $500. The finance charge is up to 10% only but there is an allowable verification fee that could be added which will be based on the size of loan. The APR that is legal in Florida is up to 390% only.
In Hawaii, the payday lending industry is basically monopolized by the check-cashers. Other payday loans providers are illegal under the state law of Hawaii. In addition, up to 15% finance charge is allowable and $600 is the maximum amount for one payday loan. If a borrower’s loan is $100 and it is for two weeks, the APR is only up to 459%. If borrowers encounter a problem, they can directly ask for assistance or file a complaint with the Hawaii Department of Commerce and Consumer Affairs that is tasked to regulate the payday loan industry of the state.
In Idaho, a payday loan should not exceed $1000. Under the state’s regulating body which is the Federal Truth in Lending Act (Regulation Z) and the Idaho Credit, all lenders must be duly licensed and should post a notice of fee costs. Lenders are also obliged to explain to the borrower about the payday loans being short-term and the other terms before having the contract signed. In Idaho, the lender can charge any interest rate and APR on the loan as long as it was agreed upon by both parties and was clearly indicated on the contract. Thus, the Department of Finance of Idaho urges the borrowers to read the contract thoroughly before signing and to be prudent at all times.
The State of Illinois enacted a new law last March 21, 2011 which gave stronger protection to borrowers. Under the law, there are now three types of loans, the payday loan, payday installment loan, and the small consumer loan. The payday loans are more expensive than the small consumer loans, bearing an APR up to 400% and must be paid within two to four weeks. Also, the monthly payment should not be more than 22.5% of the borrower’s gross monthly income.
Under the Indiana state law, the borrower is restricted to two outstanding loans at a time but not with the same lender. The maximum loan amount is $50-$500 and should not be more than 20% of the borrower’s monthly gross income. The finance charge may vary, for instance, for the loan amount of less than $250 – the charge is 15%, amount of $251 to $400 -13% and amounting to $401 to $500 is 10%. For a 14-day payday loan of $100, the APR is 390%. A roll-over is also not allowed in Indiana.
Generally, in Iowa, the payday loan amount is restricted to $500 and the APR for a payday loan is from 300 to 400%. Online payday loans are getting more common in Iowa as the citizens see it as more convenient. However, to avoid online scams, the state of Iowa strengthened laws for online payday lending. Payday lenders, also known as direct deposit lenders, must be licensed and before acquiring that license, the lender is required to appear in the state.
Based on the Consumer Credit Code of the state law of Kansas, the payday loan amount is restricted to $500 and the finance charge is limited to 15%. It is payable within 7 days or up to a maximum of thirty days. It is prohibited to give more than two loans to the same borrower. All licensed lenders are required to keep a journal requiring the name, address and contact number of each borrower and the date the payday loan was made and of course the due date.
The new law of Kentucky on payday loans was amended and the lenders were restricted to charge an interest of only up to 36%. The law still prohibits the lender to make two transactions with the same borrower at the same time and the maximum amount of one loan is $500.
Louisiana is also one of the six states which enacted a law on payday loan during the 2012 Legislative Session. Beginning January of this year, the Office of Financial Institutions is required to gather and pile up the data from licensed payday lenders regarding the operation and function, the location of the business, number of deferred presentment transactions and small loans including the fees collected on these transactions and loans.
The state law of Michigan has authorized the imposition of fees and charges for each payday loan transaction but this is not an interest. For instance, for one loan, 15% of $100 will be imposed, 14% for the second $100 and 13% for the third, and so on. The maximum payday loan amount is $600 and should be repaid within thirty-one days.
Just like in any state, Minnesota encourages the borrowers to transact with licensed payday loans providers at all times. Unfortunately, there are citizens who are still victimized by unlicensed online lenders who charge an APR of as much as 782%. In Minnesota, for a payday loan of $350 or less, the charge ranges only from 6% to 10% plus the basic charge of $5. For loans of $350 to $1000, the charge is restricted to 33% APR plus the basic charge of $25.
The state law of Mississippi will not tolerate illegal doings regarding payday loans. Aside from getting the license, the lender must also follow the rules stipulated in the state law. The state law of Mississippi prohibits the amount of one payday loan to exceed $500 inclusive of the fees. The finance charge, on the hand, should not exceed $20 per $100.
Excessive fees and charges on payday loans may lead the borrower to a web of debts; thus, the state of Missouri prohibits lenders to charge exorbitant fees and interest rates. Under the law, the amount that can be borrowed at one time is limited to $500. Lenders can add simple interest and fees up to 75% only of the initial loan amount. When the borrower has prepaid the loan, the fee shall be prorated and paid back to the borrower. However, when the loan is repaid at end of the lender’s next full business day, the lender should return all fees. Further, the Department of Insurance, Financial Institutions and Professional Registration are required to establish and collect data from all licensed payday lenders regarding each payday loan transaction.
Under the Delayed Deposit Services Licensing Act of Nebraska, the Director of Banking and Finance is given the power to collect fees, charges, costs and fines, and remits it to the State Treasurer. The maximum amount of payday loan is $500 and the term of payment is up to 34 days. The charge allowed by the law is $15 per $100 only, pro-rata.
Nevada is more permissive than other states when it comes to payday loans. There is no restriction on the loan amount and the borrower can even acquire as many loans at any time. However, the loan amount should be 25% of the borrower’s gross monthly income. The payday loan industry of the state is also regulated by the John Warner National Defense Authorization Act for FY 2007 and Public Law 109-364.
Over the years, the state of Mexico has amended and strengthened its laws regarding payday loans. It started with the New Mexico Small Loan Act of 1955 and New Mexico Ban Installment Loan Act of 1959. Until now, new provisions are being lobbied to continuously seek better ways on protecting the borrowers from loan sharks. Basically, the loan should not go over 25% of the consumer’s gross monthly income. The administrative fee that may be included on the loan should not be more than $15.50 per $100. Lastly, the loan must not have a stated maturity of more than 35 days unless agreed upon by both parties.
The state law of North Dakota is regulating the payday loan business of the state. The licensed lender must give a payday loan to a borrower once at a time with a maximum amount of $500. If the borrower has an outstanding balance with another lender for more than $600, the lender must not pursue the transaction. The lender may charge on the loan but should not be more than 20%.
Unlike other states, the state law of Oklahoma excludes the finance charge of $15 per $100 on the maximum amount of $500 on the payday loan amount. On June 23, 2012, the Governor of Oklahoma signed the bill relating it to the Deferred Deposit Lending Act. However, specific information on the amended provisions were kept confidential and were not disclosed to the public for specific reasons.
Under the state law of Rhode Island, the Department of Business Regulation is required to advance and implement the statewide compliance system for licensed payday lenders. The term of payment for payday loans is not less than 13 days and the amount should not exceed $500. In addition, the licensing requirements for check cashers are different from the payday lenders in Rhode Island.
In South Carolina though, the payday loan amount is up to $550, finance charge not included. On the face amount of the check, a maximum of 15% may be imposed. The APR on one loan should not go over 400%. The law of South Carolina restricts citizens from getting more than one payday loan at a time. A database is also administered which contains the updated list of all borrowers.
Just like Nevada, the state law of South Dakota is not that rigid when it comes to payday loans. There are no restrictions for the loan terms, but a maximum loan amount should not exceed $500. Also, the lender may charge any percentage of financial charge as long as it was disclosed on the contract clearly and agreed by both parties. The payday lending companies must acquire a license from the Division of Banking. Upon application of the lender, there is a surety bond proof to establish the credibility of the lender while at the same time serve as protection to the borrowers.
The payday lenders of Tennessee are required to acquire their license through the multi-state licensing system of the Commissioner of Financial Institutions. The lenders are also allowed to include a charge on the payday loan but this must not be more than 15% of the face value of the check. Further, for each payday loan, the amount on the check must not exceed $500. The borrower has thirty-one calendar days to repay the payday loan.
Texas is one of the most lenient states in America when it comes to payday loans. Nowadays, the lenders add charges of up to $23 for every $100 on the payday loan. Studies show that the APR for one loan may be as high as 391%.
In Utah, the check Cashing and Deferred Deposit ending Registration had some changes to address some issues such as putting up local forums to resolve payday loan conflicts and disputes. There is really no maximum amount stated on the law which means that the lender may give any kind o amount as long as it is properly stated on the contract.
In Virginia, a simple annual rate of not more than 36% may be charged by the lender. The amount of $500 is also the maximum amount for payday loans that can be received by the borrower. To be able to disseminate the right information to the citizens, the Virginia State Corporation Commission’s Bureaus of Financial Institution came up with the Consumer Guide to Payday Lending.
Under the law of Washington, the payday loan amount must not be more than $700 or 30% of the gross monthly income of the borrower. If the borrower got payday loans of $500 or less, the charge is 15% but if the amount is from $501 to $700, the charge will be 10%. The borrower can also take up to 8 payday loans within twelve months and cannot take another loan if he still has an unpaid loan.
Under the Wisconsin Act 405, the payday lender must be duly licensed by the Wisconsin Department of financial Institution’s Division of Banking. The act does not allow the lender to charge any penalty or fee for prepayment or default on payday loans. However, if the check was denied due to insufficient funds, the lender may charge a service fee of $15 for a personal check or funds transfer. Lenders are prohibited to give a new payday loan if the borrower has an outstanding balance of more than $1500 or 35% of the gross monthly income.
In Wyoming, the law does not provide a maximum amount of payday loan, but instead, the law puts a restriction on the period of payment which is one month. The lender may charge any fee on the loan and some even charge up to 780%. However, roll-overs, or loans intended to pay other loans, are illegal in Wyoming.
There are indeed laws in America that regulate the payday loan industry and for each state, it may vary, but whatever the differences may be, it still shares the common goals of teaching borrowers better monetary habits and at the same time protecting them from predatory lending practices.
The legality of payday loans and their regulations and limits vary, depending on each state’s individual acts and laws. The situation can be very different from state-to-state, and whilst some have completely prohibited payday loans, others have just set minimum lengths of time that the loans can be borrowed for, whilst others still have set regulations on everything from the maximum value of the loans to the cooling-off periods between them and the maximum interest rates that can be applied to the loans. Listed are the situations pertaining to payday loans in 19 US states and the District of Columbia.
The Alabama Banking Department permits the lending and borrowing of payday loans, up to a maximum value of $500. The loans can be taken out for a period of between 10 and 31 days, and can have an interest rate of up to 17.5%, or if the loan has been defaulted, an interest rate of 3% per month can be applied. Whilst laws in Alabama don’t set a maximum limit on the number of outstanding loans a borrower can have at any one time, there is a maximum limit of $500 that a person can owe in a single period. One rollover is allowed, per loan, and borrowers are subject to a cooling-off period of one business day if they’ve already repaid two consecutive payday loans. Law prohibits payday loan lenders from pressing criminal charges against borrowers if they default on the loan repayment. The regulatory body for payday loans in Alabama is the Alabama Banking Department.
As with Alabama, payday loans are legal in Alaska, and they face the same maximum value limit of $500. However, in Alaska, the loans have to be taken out for a minimum of 14 days. The maximum fees and rates that can be added onto a payday loan in the state are a $5 fee, plus either $15 per $100 of loan or 15%, whichever is the lesser amount. Under Alaskan law there is no specified limit on the number of outstanding loans a person can have taken out at any one moment, but loan renewals are limited to two. Unless the loan was not paid back due to a closed bank account, no criminal charges can be pressed against a borrower by the loan lenders, although court proceedings can be used to settle a repayment plan. For late repayments, a borrower can face up to $30 in non-sufficient funds fees and may have to pay for the court costs (up to the value of $700 more than the original loan cost). The regulatory body for payday loans in Alaska is the Alaska Division of Banking and Securities.
Arizona’s Consumer Lenders Act prohibits payday loans from being provided by lenders. However, small loans are still permitted, but with a 36% annual interest rate cap (plus an additional 5% fee). This has been put in place by the regulatory body for small loans and payday loans in Arizona State, the Arizona Department of Financial Institutions.
The Usury Cap in the Arkansas Constitution prohibits payday loans in the state. Prior to this, the Check Casher Act made them illegal, but this act was repealed in 2011. Small loans can still be provided, but face a 17% annual interest rate cap in order to protect the consumer. Arkansas’ regulatory body for small loans is the Arkansas Attorney General, and any updates on the laws pertaining to payday loans will be decided by the Attorney General’s office.
Payday loans are still permitted in the state of Colorado, and, like the payday loans in Alabama and Alaska, they face a limit on the maximum amount that can be borrowed of $500. The minimum length of term that a payday loan can be taken out for in Colorado is set at six months, which is considerably higher than most minimum term limits. Monthly maintenance fees are limited to $7.50 per $100 borrowed, up to a total of $30. The state has set no limit on the number of outstanding payday loans a person can have at any one time, just as long as the total owed by the borrower is no more than $500, and as long as there is a period of 30 days between loans borrowed. Again, unless the loan was not repaid due to a closed bank account, criminal charges cannot be pressed by the loan lenders. A borrower can still be taken to court in order to settle the repayment plan and may be expected to pay for the court costs, fees for an attorney (that does not exceed the loan amount), in addition to one $25 non-sufficient funds charge. The regulatory body for payday loans in Colorado is the Colorado Office of the Attorney General.
In the state of Connecticut, both the Usury Act and the Small Loan Act prohibit the lending and borrowing of payday loans. Small loans, whilst still being permitted, have interest rate caps of 30.03% APR (annual percentage rate), or if the lender charges fees instead of interest rates, the fees are limited to $17 per $100, for loan amounts of up to $600, $11 per $100 for loan amounts between $600 and $1800, and can be subject to add-on interest as well as the fees. The regulatory body that decides on the legality of payday loans in the state of Connecticut is the Connecticut Department of Banking.
District of Columbia
The District of Columbia’s regulatory body for small loans and payday loans, the D.C. Department of Insurance, Securities and Banking, has made payday loans illegal to borrow or lend in the district. Small loans are still permitted, but face a small loan rate cap of 24% interest rate per year, in order to limit risks to consumers.
In Georgia, the Industrial Loan Act currently prohibits payday loans from being borrowed or loaned out. However, small loans are still legal, and are subject to a small loan rate cap of 16% a year (which is actually 10% a year discounted interest rate, with additional fees included on top of the interest), and a 60% per year criminal usury cap. Georgia’s regulatory body for laws and acts pertaining to payday loans and small loans is the Georgia Office of the Commissioner of Insurance.
At present, Maine’s UCCC (Uniform Consumer Credit Code) prohibits the lending and borrowing of payday loans, but supervised lenders are exempt from this, and can still provide payday loans. The UCCC makes it illegal for check cashing licensees to cash or advance any sum on a postdated check, unless they are a supervised lender. Small loans of up to $2000 are still permitted, but have a loan rate cap of 30% annual interest. Fees can be charged on the loans of $5 for loans of up to $75, $15 for loans between $75.01 and $249.99, and $25 on loans of $250 and above. Maine’s regulatory body for small and payday loans is the Maine Office of Consumer Credit Regulation, and the office will make any amendments to the UCCC regarding payday loans, should they deem it necessary.
The state of Maryland’s Consumer Loan Act has made the sale and borrowing of payday loans illegal. Small loans can still be provided but Maryland’s small loan rate cap limits interest rates on the loans to a maximum of 2.75% a month or 33% a year. The regulatory body for small loans and payday loans in Maryland is the Maryland Commissioner of Financial Regulation.
In the state of Massachusetts, payday loans have been prohibited by the Small Loan Act. This law states that unless a lender is licensed under the Small Loan Act, check cashers may not under any circumstances grant loans of any kind (in this instance, payday loans). A small loan rate cap applies to all small loans in the state, and sets a maximum interest rate of 23%, with an additional $20 administrative fee being allowed. Massachusetts’ regulatory body for payday loans and small loans is the Massachusetts Division of Banks.
Currently, the state of Montana permits the lending and borrowing of payday loans, as long as they’re low-cost. The maximum amount a payday loan can be in the state is $300, significantly smaller than many of the other states allowing payday loans, and the maximum loan term is set at a reasonable 31 days. The highest interest rate that can be charged on the loans is 36% APR (annual percentage rate). The maximum administrative or finance charge that can be applied to a payday loan of $100 for 14 days in Montana is $1.39. If a borrower fails to repay the loan at the end of the term, they can face up to one $30 non-sufficient funds fee. The regulatory body for payday loans in Montana is the Division of Banking and Financial Institutions.
As in Montana, New Hampshire state laws permit payday loans to be loaned and borrowed, as long as they are low-cost. Payday loans in New Hampshire can have a maximum amount of $500, and must be borrowed for a length of time between 7 and 30 days. The APR (annual percentage rate) maximum is set to 36%, and a 14-day $100 loan can have a finance charge of $1.38, maximum. Borrowers may have only one outstanding payday loan at any one time, and whilst they cannot rollover their loans, they can renew one in order to pay off a previous loan (plus its interest and charges), in full, using the funds from the renewal. Criminal charges are not allowed to be pressed by the loan lenders, although court settlements can be carried out in order to sort out a repayment plan. Borrowers must wait at least 60 days between taking out payday loans. The regulatory body for payday loans in New Hampshire State is the New Hampshire State Banking Department.
New Jersey’s Consumer Loan Act makes the borrowing and lending of payday loans illegal, but still allows small loans to be provided. Unlike many states, New Jersey has not set a small loan rate cap, but instead states that the interest rates charged on a loan are to be agreed to by contract. However, it does set out a usury interest rate cap of 30%. The regulatory body for small loans and payday loans in the state of New Jersey is the New Jersey Department of Banking and Insurance.
In New York State, payday loans are prohibited under the Licensed Lender law. The law makes it illegal for check cashing licensees to make loans or advance cash or any funds on a postdated check, unless said check is a payroll check. Small loans are still legal, but face a small loan rate cap of 25% APR (annual percentage rate), and the interest rate applied to a small loan is agreed to by contract. In the state of New York, the regulatory body that makes decisions regarding payday and small loans is the New York State Banking Department.
In the state of North Carolina, the Consumer Finance Act prohibits the loaning and borrowing of payday loans. Small loans, which are still legal under the act, are limited to having a 36% APR (annual percentage rate) interest rate charged on them, under North Carolina’s small loan rate cap. The North Carolina Attorney General’s Office is the regulatory body that makes decisions about whether payday loans are permitted in the state or not.
Oregon Department of Consumer & Business Services has made the borrowing and lending of payday loans legal in the state. The state has not set any limits on the maximum loan amount, and has only set a minimum limit on the loan term of 31 days. The maximum interest rate that can be applied to a payday loan in Oregon is 36% APR (annual percentage rate), and fees can also be applied of up to $10 per $100 of loan, rising to a maximum of $30 in total. There is currently no limit on the number of outstanding loans a borrower can have in the state, and two renewals are permitted on each loan. A borrower must adhere to a cooling-off period of at least seven days between the end of one loan and the start of another. Failure to pay back the loan plus charges and interest, in full, can result in one $20 non-sufficient funds fee, plus whatever additional fees the bank charges. Payday loan lenders are not permitted to press criminal charges on a borrower, only civil penalties, which can be decided on in court. The regulatory body for payday loans in Oregon is the Oregon Department of Consumer & Business Services.
Pennsylvania State has made it illegal specifically for check cashing licensees to provide payday loans, so the loans are currently prohibited. Small loans are still legal, although the state’s Consumer Discount Company Act applies a small loan interest rate cap of $9.50 per $100 of loan APR (annual percentage rate), and sets a maximum limit of $1.50 per $100 of loan, per year, on all small loan service charges. The regulatory body for small loans and payday loans in the state of Pennsylvania is the Pennsylvania Department of Banking.
In the state of Vermont, the Small Loan Act has prohibited the borrowing or lending of payday loans. Small loans are still available in the state, although in order to protect borrowers, a small loan interest rate cap has been applied, which limits the interest rate on the loans to 18% per year. Vermont State’s regulatory body for all small loans (including payday loans) is the Vermont Banking Division, at the Department of Banking, Insurance, Securities & Health Care Administration.
West Virginia State’s Small Loan Act has made it illegal for payday loans to be provided or borrowed. Small loans can, however, still be used in the market and have had a small loan rate cap applied to them, limiting the yearly interest rate on a loan of $2000 or less to no more than 31%. In West Virginia State, the Office of West Virginia Attorney General and also the Consumer Protection Division are the regulatory bodies, which, together, make the decisions regarding the legality of payday loans in the state.
Laws in each state are very often subject to changes, so it’s a good idea to keep up-to-date on the situation in your state if you have any business or personal affairs tied to payday loans or the payday loan lending and borrowing market. This is why the regulatory bodies in each of the states listed have been supplied, so that consumers and lenders know who to contact should they need to complain or to find out more information.