Payday Loans Laws and Acts
In the United States payday loans are regulated by state laws.
- They are treated as small loans in many states and, therefore, are subject to small loan caps that require APR not to exceed 36% on average.
In accordance with the Pew Charitable Trusts payday loans can be divided into the following 3 groups with regards to the state law type:
Restrictive states have very strict rules with regards to payday lending. They introduced very strict rules with regards to short-term loans and either prohibit them completely or have usury caps very high (36%) so that lending isn’t taking place any more. There are no payday loan storefront lenders in these states as those are prohibited by state laws. Restrictive payday lending is practiced in 14 states and the District of Columbia.
Hybrid states presuppose that payday lenders should adhere to the following terms in order to operate:
- Set the rates about 10%; however APRs can reach 3-digit numbers.
- Offer a restricted number of loans per borrower.
- Making sure that borrowers could have multiple pay periods for repayment.
Storefronts are still present in these states. Hybrid payday lending is practiced in 9 states.
Permissive states are the ones where payday lenders have more liberty than anywhere else. They can set interest rates from 15% and higher with APRs also very high. Storefronts are allowed and live in these states. Permissive payday lending is practiced in 27 states.
Here is the interactive picture:
There are state and federal acts that regulate payday lending in the states. They are represented by Payday Lending State Statutes and Payday Lending 2016 Legislation as well as by various acts (e.g. California payday lending is regulated by Los Angeles Civil Code 1789.30 et seq., Financial Code 23000 et seq. and etc.).
The Truth in Lending Act is one more document that regulars payday lending that imposes all payday lending companies to disclose the complete information about a loan to the customer. There should not be any hidden points and especially when it comes to the financial charges such as interest rates and APR.
The U.S. has got special policy about loan collection as well. The procedure is either carried out by a lender personally, or by means of collection agency.
Here are the Payday Lending State Statutes as of 9/6/2016 from the National Conference of State Legislatures:
- In March 2015, the Consumer Financial Protection Bureau (CFPB), drew a proposal for regulating payday and other small cash short-term loans.
The proposal was to address practices related to payday lending with the objective to further restrict the terms of lending in order to protect borrowers and make sure they had ability for repayment. The major principle behind the proposal is that lenders should only provide a loan to those who are able to repay a loan.
- And in accordance with the Pew Charitable Trusts 2015 report based on a survey a great number of borrowers support the framework proposed.
However, a borrower should be aware of some points here. In the United States there are several loan collection practices that are legal, are allowed and frequently implemented by the lenders. They usually include collection calls and letters and in some cases lawsuits. However, no lender is able to take any measures that are not authorized by the state laws. Lenders are prohibited to either call a borrower’s employer, or neighbors, or to threat a borrower with arrest warrant, or the like.
According to the American laws a person failing to repay the loan is not considered a criminal and lenders have no rights to threaten borrowers with any criminal procedures unless they can provide evidence of non-repayment intentions. There is no arrest or imprisonment for debts. All these issues are regulated by the Fair Debt Collection Practices Act (FDCPA).
There is more detailed information on the account of payday lending laws on the website of the Consumer Federation of America. As it has been aforementioned, there is a list of regulations and information specifically about every state on the site.
For customers’ complaints there are the following resources:
For more information about payday lending in every state visit Legal Status of Payday Loans by State .