Payday Loan Laws

Payday Loan LawsIt’s good to have an understanding of the payday loan laws that are in place in your state. It helps to know why your payday lender behaves the way they do, why they’re charging what they do, and able and not able to do what they do. In most states every single action that a lender takes is limited by the laws in that state. So much so that it’s easy to predict what they will do if you are aware of the law.

Shutting States Down
Payday loan laws vary from state to state, and there aren’t any federal laws governing these companies. Some states have put legislation in place that doesn’t necessarily outlaw payday loans, but makes it so hard for them to survive that they end up pulling out of the state altogether.

Some states attempt to get rid of payday loans, but fail to. For example, in 2008 the state of Ohio tried to limit the interest rate lenders could charge, in an effort to get rid of them. For awhile it worked, but now payday loans are still flourishing in the state. Sometimes it can be hard to get rid of them, they’re like cockroaches they seem to survive somehow.

It’s hard to say what the future holds for the entire payday loan industry. Eventually all states may ban them, or it could go the other way and all states may end up letting them do business. It’s interesting to note that payday loans are so bad that some states feel the need to ban them entirely.

Sidestepping the Laws
When statewide laws like these get passed, a payday loan company has a few options. They can either shut down shop and move to a more friendly state, or they can try to circumvent the new law by changing the way they do business. For example, they may rearrange the pricing structure so that technically you are not being charged an interest rate, or they will line themselves up with a bank that is headquartered in another state, which lets them avoid the new law.

These methods usually only work for a short time, until new legislation gets drafted that makes these new practices illegal. When a state wants to get rid of payday loans, they typically are successful. This usually ends up with payday loan office sprouting up at state borders so that consumers can just drive across state lines and get the money they want.

Why Such Harsh Payday Loan Laws?

Why is the industry regulated so heavily? It seems that if something is good it should be left alone, and if it’s bad it should be outlawed. But payday loans fall somewhere in between, or are viewed as a necessary evil that needs to be patrolled and controlled.

If you think that payday loans are a bad deal as they are now, imagine if states didn’t get involved and it was left to a free market. Lenders would charge as much as they possibly could while still remaining competitive in the marketplace. Even though the amounts that states have authorized is still exorbitant, the lenders feel restricted by these limits and would love to charge you even more.

What Would Happen With No Payday Loan Laws?
In America, we try to follow some sort of free market capitalism, and the government should only be stepping in if it’s absolutely necessary. Since so many laws are in place, it’s hard to tell what would happen if payday lenders were left to their own devices. Would their rates go through the roof even further, or would the law of supply and demand keep them at a level that both sides could agree on. Would payday lenders run rampant and take advantage of unsuspecting borrowers if they weren’t policed as much as they are?

It is our belief that payday lenders would function quite the same way, and perhaps might even charge less than they do to borrow money. By introducing caps to the amount of interest that a lender charges, states have inadvertently allowed these lenders to charge the maximum amount. It’s a way of price-fixing the industry and leaves little room for competitive pricing when everyone is just charging the maximum.

If the pricing structure was left alone it would find it’s natural balance according to the market. If one lender was charging lower prices they would attract more customers until the other lenders in the area followed suit. The way it stands in many states, it doesn’t make a difference which lender you go with, they will all be charging the state maximum.

How Payday Loan Laws Effect You

It doesn’t matter which state you live in, you’ll be effected by the laws in that state one way or another, either by not being able to a loan at all, or limited to how much you can take out. Find out how these laws basically set the tone for the type of experience you’ll have, and what sort of loan options will be available to you.

No Payday Loans in Your State
If you reside in one of the 13 states that has effectively banned payday loans, you are not able to use this in a time a need. Many of these states are referenced by legislators as they try to get payday loans outlawed in their own states. They cite fewer instances of bankruptcy, and the fact that somehow the people in these states are surviving, even without the ability to take out a payday advance. This sheds doubt on whether or not payday loans are even necessary at all.

Proponents of payday loans say that consumers that don’t have the option of getting a cash advance will turn to darker elements like loan sharks or the mob. This is obviously not a reality for most people, and the 13 states that don’t have these loans are still functioning quite fine without them.

Regulated Payday Loans in Your State
There are a total of 37 states where payday loans are legal, but regulated. These regulations will usually govern almost every aspect of the loan process, including what kind of wording needs to be included in the agreement that you sign. It can get as detailed as forcing the lender to clearly show you the whopping APR you’ll be paying, and to verbally state it out loud.

Aside from that these states will cap the amount of money that a lender is able to loan, for example in Michigan this figure is $600. It will also limit the number of loans that you can take out at one time. Again, in Michigan this number is two.

Other laws and regulations can stipulate whether it is legal or not to rollover you loan. This means you just return to the lender on your due date and pay the fee, gaining yourself another week or two, and keeping the principal balance unpaid. In many states this procedure is illegal, and lenders are forced to make you pay off the entire amount, but then can re-loan to you immediately afterward.

Unregulated Payday Loans in Your State
Some states don’t regulate payday lenders very much, and it’s pretty much a hands off approach. For example in Nevada they don’t even limit the interest rate or other fees that lenders are able to charge, nor do they regulate when your loan should be due. This is one state where it pays to shop around, because each lender will be able to set their rates and fees using their own discretion.

You shouldn’t be scared to take out a payday loan if you are in a state with few regulations, you just have to do more due diligence before you jump into a loan. You will also be able to negotiate more with the lender, since their hands aren’t tied by state laws. They may not give you the terms that you seek, but at least they’re not so heavily monitored as they are in other states.

Repayment Plans
Many states that allow payday loans, will force payday lenders to offer you a repayment plan if you’re unable to pay off your loan on your due date. There may be stipulations that must be in place, such as a minimum number of loans in a given amount of time, but you should inquire at your local lender what sort of repayment options are available. By law, they have to disclose this information to you.

Rolling over a loan is something that is often regulated as well, with many states disallowing the practice. Banning rollovers is a rather useless practice, unless it is combined with a cooling off period. By re-loaning to a customer immediately after they repay the loan, it’s essentially the same thing as a rollover. Technically it’s not the same money, but really it is.

Cooling Off Period
Some states mandate that a lender cannot re-loan you the funds immediately and must wait a designated time before they can loan to you again. The theory is this time will give you a chance to let the dust settle, or to clear your thinking to make sure that you actually need another loan. It can be easy to get into the habit of taking out a loan, so much so that some people will just automatically re-loan the money without considering whether or not they really need it.

Know Your State
Get to know the payday loan laws that are in place in your state. We have a page dedicated to each state so you can quickly size up what you’re in store for.

This will give you a heads up on what you can expect from a lender, and can help you dispute and malpractice they have committed. The big things you want to focus on is what are the limits to how much you can loan, what are the limits to how much interest they can charge you, how many loans you can have out at one time, how long you’ll have to repay the loan, what type of repayment plans are available and how can you qualify, and what a lender is able to do in order to collect if you don’t pay.

By knowing the payday loan laws in your state you will avoid a lot of frustration and have a better experience.

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