Payday Loans Laws - Know Your Rights

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.