Payday Lending Laws
Due to recent financial reform laws, payday lending laws
have undergone a bit of a facelift lately. While lending businesses are
mandated on a state level, the growing movement to crack down on predatory
lending practices has affected the industry as a whole.
Payday loans are currently legal, although regulated in a
total of thirty-five states. The remaining
fifteen states do not allow payday
loans under their current laws and statutes. The fifteen states that have banned the
practice include: Arizona, Arkansas,
Connecticut, Georgia, Maine, Maryland, Massachusetts, New Hampshire, New
Jersey, New York, North Carolina, Ohio, Pennsylvania, Vermont, and West
Virginia. The states that allow this
form of lending do impose certain usury limits, as well as place caps on annual
percentage rates (APR).
Due to the recent economic problems, some states are now
placing limits on the number of loans (of any types) that a borrower can obtain
at any one time. This is being enforced
by statewide databases that are updated in real time. States such as Florida, Illinois, Indiana,
Michigan, New Mexico, North Dakota, Oklahoma, South Carolina, and Virginia have
set up these databases that provide all licensed lenders to verify the eligibility
status of a customer prior to any paperwork being filed. This system is helping to reduce the risk to
lenders, as well as helping to keep borrowers from getting in over their heads.
In addition to limiting the number of loans that can be
obtained in a certain time period, some states are now setting restrictions on
the number of times loans can be renewed.
After this number has been reached, lenders must extend the loan to a
longer term and lower the interest rate so the borrower can stop the debt cycle
and pay off what is owed.