Skip to main content
Payday Loans

Are Us Payday Loans Regulated | Payday Lending Regulation

By June 20, 2022June 24th, 2022No Comments
Are Us Payday Loans Regulated | Payday Lending Regulation

Laws and Regulations Relating to Payday Loans in the United States

Payday loans, often known as short-term cash advances, are small-dollar loans that must be returned within two to four weeks. The government attempts to control this financial field since it is characterized by exorbitant interest rates of 400 percent to 1200 percent and a short payback time. Some laws are federal, while others are state-specific.

Payday lending is permitted in 27 states in the US, with nine more allowing short-term loans with extra limitations.

Payday lending is illegal in the District of Columbia and the other 14 states. Payday loans are regulated in certain conditions for the following reasons:

  • Those who take out loans are more likely to file for bankruptcy.
  • Automatically renewing loans might result in excessive debt owing to the payday lender.
  • Some debt collecting techniques are considered unethical and, in some situations, illegal.

What Are Payday Loans and How Do They Work?

Paycheck loans are short-term loans intended to cover a person’s expenses until their next payday. They are high-interest loans expected to be repaid when the person’s monthly income arrives.

Payday loans are intended to cover unexpected expenses such as paying medical bills or repairing a vehicle that has broken down. They aren’t meant to be used for frivolous spending or to get out of a debt cycle.

Is There Any Federal Regulation?

Yes, all payday lenders are subject to federal regulation. The Dodd-Frank Wall Street Reform and Consumer Protection Act has granted the Consumer Financial Protection Bureau (CFPB) complete power over payday lenders operating in the United States.

The Military Lending Act regulates all tax return loans and specialized payday and title loans, with a ceiling of 36 percent. This means that no armed forces member will be required to repay more than 36 percent of these loans.

The Consumer Financial Protection Bureau has the authority to act against payday lenders that break this guideline or use aggressive collection practices.

States that believe their payday lenders are employing unfair or aggressive collection tactics can pursue them and impose regulations on them.

There are collection constraints in place in the states where payday lending is authorized in the United States. Collection limitations limit the number of fees that may be levied to borrowers who fail to return their loans within the agreed-upon term. These restrictions also determine whether payday lenders may threaten criminal action if the loans are not paid back on time.

What Differences Exist Between States in Terms of Regulations?

Payday loan laws vary by state, with certain parts of the United States outright prohibiting payday lending. In places including Florida, Michigan, New Mexico, Oklahoma, South Carolina, Illinois, Indiana, North Dakota, and Virginia, rules restrict the number of payday loans a person may get.

All payday lenders who are legally regulated must examine an applicant’s eligibility before supplying them with cash, according to the present systems in place in these states.

In addition, Virginia and Washington impose limits on how many payday loans a person may take out in a year. These constraints also imply that if a person has renewed their loan an excessive number of times, their interest rate will be reduced, and they will be given more time to make payments to get out of debt.

Payday lending is illegal in a few jurisdictions, and those areas have fewer complaints about debt collection practices and lower bankruptcy rates.

Which States Permit Payday Loans?

Alabama, Alaska, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, North Dakota, Ohio, Oklahoma, Rhode Island, California, Delaware, Florida, Kentucky, Louisiana, Michigan, Minnesota, Mississippi, Missouri, Nebraska, Nevada, South Carolina, Tennessee, Texas, Utah, Virginia, Washington, Wisconsin, and Wyoming are among the states that allow high-cost payday lending.

Other states allow for different sorts of loans. New Mexico has set a restriction on high-cost loans at 175 percent with a 120-day repayment period.

Payday Lending Is Legal In Which States?

Payday loan interest rates have been capped in four states. Colorado, Montana, New Hampshire, and South Dakota have a 36 percent annual interest rate cap and no extra costs.

Fees for payday loans for all military members are similarly regulated at 36 percent under federal law.

As of the 2020 legislative session, twenty-one states have pending legislation related to payday lending and payday lending alternatives. New payday lending legislation is also being considered in Puerto Rico. Nebraskans voted to impose a new limit on payday loan fees. Registration, reporting, and operating requirements were addressed by the law passed in Utah.

Virginia is one of the states that has passed laws restricting payday loans. The Virginian law changed the word “payday loans” to “short-term loans” and set the interest and costs for a short-term loan at 36 percent per year, plus a maintenance charge. It also raised the maximum loan amount from $500 to $2,500 and established a minimum of four months and a maximum of 24 months for these loans, with exceptions.

How do I know if a payday lender in my state is licensed?

You can see whether the state licenses the lender. It should be visible as an actual copy in the shop or a picture on the payday loan website. If you can’t find the license, inquire with the lender, and they should be able to present it to you.

If you’re still dubious, contact your state’s attorney general or financial regulations agency to double-check the license.

If your state prohibits payday loans, but you see one advertised, it might be a fraud.

Payday loans should be avoided if they are marketed in places where they are prohibited. Predatory lenders continue to operate in the shadows, offering illegal and unregistered payday loans. They frequently trap borrowers in a debt cycle by imposing interest rates and fees over the legal limit.

If you believe you have been a victim of a payday loan scam, you should call the police and your state attorney general for advice on how to proceed.

Taylor Day