Payday loans are legal in 27 states, and 9 other states allow some type of short-term lending with restrictions. The remaining 14 and the District of Columbia prohibit the practice. Some states have aggressively pursued lenders who they believe were violating their state laws. Payday loans are small loans subject to state regulation.
Traditionally, states have limited small interest rates on loans to an annual interest rate of 24 to 48 percent and have required installment payment schedules. Many states also have criminal usury laws to protect consumers. Payday loans are currently legalized in 37 states and are illegal in 13 states. The largest and most in-demand payday loan states are Texas, Nevada and California. Four other states have set some interest rate limits on payday loans.
Among those states are Montana, New Hampshire, California and South Dakota. Payday loans are a way for Americans to get cash immediately when they need it before payday. They can be very necessary in a financial emergency. However, lenders have been criticized for being unfair to payday borrowers. In some states, payday loans and similar types of loans are completely prohibited.
Subject to division (B) (of this section), the minimum loan duration is 91 days and the maximum loan duration is one year. A monthly maintenance fee may be charged for each month the loan is outstanding after the first 30 days of the loan. They are often forging partnerships with tribal members to offer loans in addition to the Internet, which evades state law. In states that still have small limits on loan interest rates or usury laws, the state page includes the quote of the law that limits rates and the rate limit on small loans. For example, on a six-month loan, a monthly maintenance fee may be charged at the end of the second to the sixth month if the loan is outstanding during that period. A loan agreement to which article 342.251 applies and which is paid in a single installment may provide for an acquisition charge and an interest charge on the cash advance that does not exceed a rate or amount that produces the same effective return, determined as an actual daily profit rate, as allowed in article 342.252, taking into account the amount and term of the loan. F) Damages, costs and disbursements to which the licensee may be entitled in connection with any civil action to collect a loan in the event of default, except that the total amount of damages and costs will not exceed the amount of the loan initially contracted.
B) A purchase charge under this section is considered accrued at the time a loan is granted and is not subject to repayment. Collection limits specify the fees that lenders may charge if the loan is not canceled and whether the lender can use or threaten to take criminal action if the borrower is unable to pay the check used to obtain a loan. Most lenders who offer payday loans require borrowers to pay a financial fee (service fees and interest) to get the loan, whose balance is due two weeks later, usually the next payday. Small loans secured by access to the borrower's bank account are authorized in three states at lower rates than typical. However, borrowers are often unable to repay these high-cost loans right away, so they are involved in a cycle of lending and accumulating financial expenses. Among Americans who report losing income, 3% of those surveyed say they have had to borrow money through a payday loan, deposit advance, or pawn shop loan. New York and New Jersey prohibit fast lending through criminal usury laws, limiting lending at an annual interest rate of 25 percent and 30 percent, respectively.
If you have questions about applying a state law to a specific payday loan, contact your state's Attorney General's Office. The final report of the Small Business Review Panel on the drafting of CFPB rules on payday, vehicle title and similar loans has been released.