Payday lending is prohibited in Vermont.
In the state of Vermont, payday loans are explicitly banned. The first law was enacted in 2001. However, Vermont is famous for having enacted the “strongest law in the nation” with regard to payday loans in 2012 that effectively drove all storefront lenders away from the state. Unlicensed lending is presently illegal, all licensed lenders must comply with the 18% APR loan cap.
Vermont Payday Lending Statutes
- “(13) No licensee shall agree to hold a payment instrument for later deposit. No licensee shall cash or advance any money on a postdated payment instrument.”
Vermont requires lenders to register with the Department of Financial Regulation (DFR). There is a set of very strict requirements that lenders willing to operate in the state have to adhere to. Among them are a surety bond with the state for at least $50,000 and “liquid assets” of at least $25,000 for their expenses. The Department of Financial Regulation (DFR) scans each application and determines which one is approved or not on the basis of the criteria met. It is not easy to get a license in Vermont.
In 2012, the most restrictive law was enacted. In fact, Vermont made all unlicensed lending and any attempts at its assistance “an unfair and deceptive act and practice”, in other words, it rendered the industry practices illegal.
It is difficult to get a payday loan in Vermont because of the prohibition. There aren’t any payday loan stores in the state.
However, there are weak points in the Vermont laws which create loopholes for lending companies. Vermont is taking steps to prevent Internet lenders from offering payday loans. Many companies that are located in other US states offer payday cash advances to the residents of Vermont. The state is working hard to stop this with the new legislation.
There are several methods to get around the prohibitive laws which prevent payday cash advance lenders from functioning in the state. Actually, the lender may purchase a charter from the bank and use the interest rates and loan terms of other US states. There are banks in Vermont providing charters for lending companies.
The bank headquarters are situated in a different state, although they operate in Vermont. The payday cash advance lender establishes shop in Vermont by partnering with this bank and purchasing a special charter. In fact, they take pains using a bank in a state having high-interest rates. According to the Vermont laws, it is a legal practice, because charters between the banks and the lending companies are allowed.
Rates, Fees and Other Charges in Vermont
- Depending on the type of loan, Vermont sets a limit to the rates of interest at 12-24% ARP.
- The maximum interest rate on “single payment loans by lenders regulated by Title 8” is 18% APR. (9 V.S.A. § 41a)
- Violation of these rules is considered a misdemeanor and is fraught with a criminal punishment of up to $500 or the imprisonment (up to 6 mo
nths), as well as other consequences. (9 V.S.A. § 50(c))
- Debt collection on an illegal loan and a violation of Vermont law.
More information about payday loan laws and regulations in Vermont can be found on the official website of the Vermont Banking Division.
Lenders in the state are supervised by the Department of Financial Regulation (DFR). You can file a complaint with them in case of indecent lender practice.
Regulator: Complaints & Information
Vermont Banking Division
Address: Department of Financial Regulation, 89 Main St, Montpelier, VT 05620-3101
Tel: 802-828-3301 or 833-337-4685 (toll free)
File a Complaint: https://dfr.vermont.gov/consumers/file-complaint/banking
The History of Payday Loans in Vermont
- 2001 – Vermont stopped payday lending in the state (8 V.S.A. § 2519(a)(13)).
- May 2012 – The Vermont Legislature applied consumer protection laws to payday loans. In fact, no other state had ever done anything like this before: it made illegal lenders and those who assist them directly liable under Vermont’s Consumer Protection Act. 9 V.S.A. § 2481w.
- First of all, it made all unlicensed lending “an unfair and deceptive act and practice” and by calling it so, a direct violation of the Consumer Protection Act.
- Also, it made all financial processing on behalf of unauthorized lenders illegal as well. (9 V.S.A. § 2481w(c)).
- Lastly, any “substantial assistance” to an unauthorized lender is also considered a violation of the Consumer Protection Act.
- Present days – As of 2019, by law payday loans remain prohibited in the state of Vermont.
[Updated As of February 2020]