Payday Lending LawsDue 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. A constant tug of war keeps restrictions tight: lenders appeal to lawmakers to allow their services to continue, while watchdog organizations argue the high cost of the loans is unfair and unscrupulous. 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).While many states do have laws in place to protect consumers’ interests when obtaining a payday loan, some payday lenders have found ways to skirt the usury laws by teaming up with “nationally chartered” banks that are based in a state that does not have a usury ceilings (Delaware and South Dakota are two such states). This is a similar principle that many credit card issuers use in order to justify charging high fees and interest rates.Another common practice that skirts the laws on the books is that payday lenders keep their interest rates within the legal limits, however they add on multiple process and handling fees. New consumer protection laws put into effect by most states, as well as the United States federal government, have cracked down on this practice and stops lenders from charging any fees that are not expressly allowed by law. The Federal Truth In Lending Act further requires lenders to list all fees upfront, while requiring these fees to remain constant.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. While many states have these laws on the books, many do not have the resources to enforce them, giving lenders and borrowers leeway to circumvent the restrictions. Both lenders and borrowers know how to work the system to their advantage. If you find yourself in need of a short term loan, such as a payday loan, it is extremely important to research the laws in your state and find a reputable lender who will abide by fair lending practices. Taking the time to do this will ensure both parties are fully protected.
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