Payday Loans Laws and Acts

General Idea

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 anymore.  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.

Regulation Documents

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.

Generally, the Federal Truth and Lending Act regulates payday loans like other types of credit:

  • The borrower must be advised of the cost of the loan;
  • The lender must inform the customer of the commission amount;
  • The lender must disclose the annual percentage rate (APR- the cost of the credit on a yearly basis);
  • The payday lender must detail all the terms of the loan in writing before the loan is authorized by the customer.

The U.S. has got a special policy about loan collection as well. The procedure is either carried out by a lender personally, or by means of a collection agency.

Here are the Payday Lending State Statutes from the National Conference of State Legislatures:

StateRegulationLoan amount (max), $Loan term (max)APRCharges
AlabamaAla. Code §§ 5-18A-1 et seq.50031 days456%Max fee is 17.5%
Alaska§§ 06.50.010 et seq.50014 days435%15% of the amount advanced
CaliforniaCal. Fin. Code §§ 23000Civil code 1789.30 et.seq30031 days460%15% of the amount advanced
ColoradoColo. Rev. Stat. 5-3.1-101 et seq.5006 months36%
DelawareDel. Code Ann. Tit. 5 2227 et seq.100060 days521%No limit for finance charges; 5 loan limit for 12 months
FloridaFl. Stat. Ann. §§ 560.402 et seq.50031 days304%10% charge; One loan limit at a time; No roll-over allowed
HawaiiHawaii Rev. Stat. Ann. 480F-1 et seq.60032 days460%15% of the mount advances; One loan limit at a time; No roll-over allowed
IdahoIdaho Code §§ 28-46-401 et seq.1000Not specified652%A loan cannot exceed 25% of borrower’s gross monthly income
Illinois815 ILCS 122 et seq.1000 or 25% of gross incomeUp to 120 days404%One loan limit at a time; Finance charge 15.5% per $100
IndianaInd. Code §§ 24-4-4.5-7-101 et seq.550 or 20% of gross incomeNot specified382%10%, 13% or 15% finance charge depending on amount advanced; No roll-over allowed
IowaIowa Code Ann. 533D.1 et seq50031 days337%15% finance charge on the loan up to $100 and only 10% on subsequent $100
KansasKan. Stat. Ann. § 16a-2-404, 40550030 days391%15% of the amount advanced; No roll-over allowed; 2 loans at a time
KentuckyKentucky Rev. Stat. Ann. §§ 286.9.010 et seq.50060 days460%15% finance charge of $100; No roll-over allowed
LouisianaLa. Rev. Stat. Ann. §§ 9:3578.1 et seq.35030 days391%16.75% of the amount advanced
MaineMe. Rev. Stat. tit. 9-A § 1-201,  2-401 2000Not specified30% (actually 217%)Small loan rate cap
MichiganMich. Comp. Laws §§ 487.2121 et seq.60031 days369%Two loans at a time allowed; 15%-11% finance charge
MinnesotaMinn. Stat. 47.60 et seq.35030 days200%Finance charge varies depending on amount of a loan
MississippiMiss. Code Ann. §§ 75-67-501 et seq.50030 days521%Finance charge 20%-21.95% for $100; No roll-over allowed
MissouriMo. Rev. Stat. §§ 408.500.1 et seq.50031 days443%Finance charges should not exceed 75% of initial loan amount;6 roll-overs allowed
MontanaMont. Code Ann. 31-1-70130031 days36% small loan cap1.39% finance charge for $100 given for 2 weeks
NebraskaNeb. Stat. Ann. §§ 45-90150034 days460%15% of the amount advanced; No roll-over allowed
NevadaNev. Rev. Stat. 604A.010 et seq.25% of monthly gross income35 daysNo limitReal APR 625%;No restriction to a number of loans
North DakotaN.D. Cent. Code 13-08-01 et seq.50060 days48720% of the amount advanced
OhioOhio Rev. Code Ann. 1321.35 et seq. 10001 year28%One loan is allowed at a time; No roll-over allowed
OklahomaOkla. Stat. Tit. 59 §§ 3101 et seq.50045 days395%10%-15% finance charge
Oregon54 Or. Rev. Stat. § 725A.010 et seq.50,00060 days154%Finance charges are capped at 36%
Rhode IslandR.I. Stat. Ann. 19-14.4-1 et seq.500Not specified261%10% on the amount advanced
South CarolinaS.C. Code §§ 34-39-110 et seq.55031 days391%10% on the amount advanced
South DakotaS.D. Codified Laws 54-4-36 et seq.500Not specified36%1.39% finance charge for $100 given for 2 weeks; 4 roll-overs allowed
TennesseeTenn. Code Ann. 45-17-101 et seq.50031 days460%15% of the amount of the check
Texas5 Tex. Fin. Code §§ 393 et seq.,  4 Tex. Fin. Code §§ 342.004Not specifiedNot fixed662%Finance charge varies depending on amount of a loan; No roll-over allowed
UtahUtah Code Ann. 7-23-101 et seq.No limit70 days658%No limits on finance charges
VirginiaVa. Code Ann. §§ 6.2-1800 et seq.50030 days36% (can reach 601%)APR is capped at 36%; 5% verification fee; 20% loan fee
WashingtonWash. Rev. Code Ann. 31.45.010 et seq.700 or 30% of gross monthly income45 days391%10%-15% finance charges; no roll-over
WisconsinWis. Stat. 138.141500 or 35% of gross monthly income90 days547%2.75% monthly finance charge; 2 renewals allowed
WyomingWy. Stat. 40-14-362 et seq.Not specified1 month261%20%-30% finance charges per month

In 2010 the US government creates the Consumer Financial Protection Bureau (CFPB) to protect and educate the customers in financial matters. The main task of this independent agency is to monitor that all federal laws are enforced consistently to provide customer financial protection.

Some states do not implement necessary standards on payday loan pricing and affordability policy which skyrocketed the lender’s interest to almost 700%.

A new proposal was drawn by the Consumer Financial Protection Bureau (CFPB) in 2017 for regulating payday and other small cash short-term loans.  A document highlights two major aims:

  • The first one is an increase in customer protection from balloon payments by way of advanced checking the consumer’s ability to pay back.
  • The second aim is to limit the lender’s ability to withdraw any costs directly from the consumer’s account without special authorization.

The compliance deadline for the rule was August 19, 2019. But with a new head of CFPB Mick Mulvaney shelved new regulations on payday loans. And payday lenders got so favorable reprieve of the rule until late 2020.

Loan Collection Practices

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 an arrest warrant, or the like.

Criminal Actions

According to the American laws, a person failing to repay the loan is not considered a criminal and lenders have no right 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:

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