Payday Advance Legislation
Posted on Thursday, August 6th, 2009 at 8:08 pm in Miscellaneous Cash Loan Info
There has been a tremendous increase in the number of companies offering payday loans over the past several years. Consumer demand for payday loans has skyrocketed, and the business is evidently profitable enough to attract a large number of new operators every year.
While the industry is largely regulated on a state level, two separate federal payday loan reform bills that would standardize fees to $15 per $100 for every two-week period are currently in the first stages of debate. Critics assert that both bills would also strip consumers of many of their current rights. However, it is widely considered unlikely that either of these bills will ever become law.
The recent general trend in state payday lending laws has been towards more restrictions, and outright bans in certain states. There is strong opinion against high-interest payday loans in many quarters, including certain churches, legislators, consumer associations and other social activist groups. Even so, there are many groups and individuals with equally strong views in favor of payday lending, as long as it is regulated and consumers are given adequate protection. Pro-payday loan groups also stress the importance of consumer education about short-term cash loans, fees, regulations and careful loan management.
Previous attempts to introduce nationwide interest rate caps actually prompted some states to deregulate payday loan fees to prevent lenders from quitting the state. In other states, lenders compensated for the interest rate limits imposed by charging high hidden fees. Consumers lost out, and payday loan laws were reformed in these states as well.
These days, the states can be grouped into two basic regulation categories. One group of states regulates payday loan companies under their respective small loan and usury laws. In these cases, annual interest rates are usually set at 36% or under, which is considered uneconomical by cash advance industry operators who cite high default rates that eat up a large portion of their profits. Under these laws, borrowers are typically prohibited from extending their loans beyond the first two-week term.
States that follow this model are mainly those in the Northeast, such as New York, New Jersey, Connecticut, Pennsylvania and Massachusetts. Although traditional payday loans are in theory not available in these states, it is possible to get an online loan in most of them. Georgia bans payday lending outright, while Arkansas virtually closed down the industry in 2008.
There are 35 states that do allow high-interest payday loans, but all have restrictions that apply variously to fees, extensions, total loan duration, and so on. Each state applies a limit for the amount you can borrow, ranging from $300 to $1,500. California, Hawaii and South Carolina set loan fees at a maximum of $17.65 per $100 for a two-week loan, while Montana allows lenders to charge up to $25 per $100. Only Delaware, Idaho, Wisconsin, Nevada, South Dakota and Utah have no caps on fees.
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