Payday Loans Laws and Regulations in the USA

What are Online Payday Loans?

Online payday loans are short-term, high-interest loans that are typically used to cover unexpected expenses or financial emergencies until the borrower's next payday. They are usually obtained through online lenders, making the application process quick and convenient.

While some online payday loan lenders claim to offer no credit check loans with same-day approval, it's important to note that responsible lenders will always perform at least a soft credit check to assess the borrower's ability to repay the loan. This means that even if your credit score is not the determining factor, your credit history may still be reviewed.

Same-day approval is possible with some online payday loan providers, but it is not guaranteed. Factors such as the time of day you apply, the lender's processing times, and your bank's transfer policies can all impact how quickly the funds become available. In general, applying early in the day and on a weekday may increase your chances of receiving the payday loan on the same day.

Why should Payday Loans be regulated?

States authorities consider Payday cash advances to be rather dangerous for borrowers. That’s why their laws are mostly aimed at the protection of the residents from scams and debts. To help people avoid triple-digit interest and additional penalty fees, the Government often:

• caps interest rates, 
• limits the maximum allowed Payday Loan amount, 
• states possible repayment terms, 
• imposes certain repayment plans or schedules,
• determines the number of simultaneous cash advances,
• prohibits criminal collection practices, 
• states the possibility of rollovers, extensions, etc.

Besides being restricted by certain rules, Payday Loans may be completely prohibited by law. It concerns those states where legislation doesn’t authorize loans based on holding the borrower’s postdated check. For detailed information on short-term Payday advance regulation in every state read further.

States where Payday Loans are legal, restricted or prohibited

Most states in the USA allow short-term lending and consider Payday Loans to be legal both online and in a store. There are 32 permissive states allowing their borrowers apply for small cash loans without any usuary laws, rates caps or other limits. They are:

Alabama, Alaska, California, Delaware, Florida, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Michigan, Minnesota, Mississippi, Missouri, Nebraska, Nevada, North Dakota, Ohio, Oklahoma, Rhode Island, South Carolina, Tennessee, Texas, Utah, Virginia, Washington, Wisconsin, and Wyoming.

A group of states impose certain restrictions on Payday lending but don’t ban the residents from taking out quick emergency funds. For example, Washington lets to borrow only 88 payday loans a year, Virginia limits repayment terms and the number of rollovers, and Maine and Oregon limit the rates. So, Payday Loans are allowed but with certain restrictions in:

Georgia, New Jersey, Montana, Colorado, Arizona, North Carolina, Connecticut, Maryland, Massachusetts, Pennsylvania, District of Columbia, Maine, Oregon, New Mexico.

And finally, short-term loans are prohibited in Arkansas, Connecticut, New Hampshire, New York, Minnesota, South Dakota, Vermont, West Virginia, Indiana. It means in these states companies can’t provide Payday Loans legally. Even if they find loopholes in the legislation and offer cash advance online or through brokers, the residents should be careful as in the case of scams or fraud they may not be protected by the Government. 

Payday Loans general information

A payday loan is actually a short-term small dollar unsecured cash advance backed by a post-dated check or paid by electronic funds transfer. The loan amount is from $50 to $1500 on average. Repayment terms vary from 10 to 31 days.

According to statistics, most people borrow Payday Loans online to cover recurring or, more seldom, unexpected expenses. It’s recommended to apply for this cash advance only if you need immediate funds for a short period of time. But make sure that your income is enough and you can afford to cover a Payday loan within a very tight time scale.

Pew Charitable Trusts 2015 report concludes the following Payday Loans characteristics:

• The average Payday Loans  APR is 300-500% but it's always recommended to use the Payday Loan Calculator before applying.
• About 12 million US residents use Payday Loans.
• The average fee for a $375 Payday Loan is $520.
• 69% used payday loans to cover recurring expenses.
• 16% use such loans for cases of emergency unexpected expenses.

How do Payday Loans work?

• Apply online to send a loan request to the lender. 
• In a short time get a decision from a lender: either approval or rejection.
• Receive the funds deposited into your bank account within 1 - 2 business days.
• Repay the loan by an automatic withdrawal of the loan cost from your account.

Payday Loan Interest Rates and Fees

The interest or APR for Payday Loans differs by state. Usually, the rates are very high. In some states, they are limited by laws. Besides, they vary depending on the lender. On average, the APR is 400%. 

The highest interest is charged in Nevada - 652%, Utah - 658%, and Texas - 662%, for example. Better rates are in Oregon -154%, New Mexico – 175%, and Minnesota – 200%.

What are Payday Loans eligibility criteria?

Independent lenders have their own individual requirements that must be met, but typical minimum requirements include, but may not be limited to:

• US residence
• Minimum regular income of $1,000 per month
• Valid checking or savings account with direct deposit
• Phone number and e-mail address (if applying online, you must be able to be contacted via phone if verification of application information is necessary)
• Not be a regular or reserve member of the Air Force, Army, Coast Guard, Marine Corps or Navy (or be a dependent of someone who is,) serving on active duty under a call or order that does not specify a period of 30 days or fewer.
• If applying Online, you must provide a valid Social Security Number
• If applying at Loan Store, you must bring a valid government-issued photo ID. A Social Security Number might not be required
• If applying in-store, you must bring proof of income and proof of a bank checking account. Debit cards or pre-printed checks may be accepted in your state as proof of bank checking account; contact your local store for details. Acceptable documents may vary by state.

All the general information on Payday Loans Amounts, Terms, Rates, and Other Conditions is summed up in the table below:

Read more: Payday Loans Online.

Documents, Statutes, and Acts regulating Payday Loans

Mostly Payday Loans are under the jurisdiction of the Consumer Financial Protection Bureau (CFPB). The Dodd–Frank Wall Street Reform and Consumer Protection Act gave them specific authority to regulate all payday lenders regardless of the loan amount. 

The basic legislative documents regulating Payday Lending are the following:

• Payday Lending State Statutes
• Payday Lending 2016 Legislation
• States’ Acts
• The Truth in Lending Act
• The Military Lending Act

The most important rules stated by The Truth in Lending Act are:

• Every payday lender must provide detailed information about a loan to the customer. 
• No hidden financial charges or additional fees are allowed.
• The borrower must get the necessary education, advice, and assistance concerning the loan cost;
• The lender must inform applicants about any commission or other additional fees;
• The lender must disclose the annual percentage rate (APR- the cost of the credit on a yearly basis);
• The payday loan terms and rates details must be disclosed in writing in the agreement which the customer is to sig before submitting a loan.
• Any collection practices can be carried out only by a lender or a special agency. It’s forbidden to sell borrower’s personal or financial information to any third parties.

The consumer Financial Protection Bureau (CFPB) aims at protecting and educating customers on Payday Loans Laws. They make sure that all federal laws are enforced consistently to provide customers with financial protection.

Moreover, a short-term cash advance is constantly subject to new regulations. The Government, the Consumer Financial Protection Bureau (CFPB) in particular is always trying to impose strict laws on Payday lenders. A good example was an attempt to draw A New Proposal, Payday Loan Rule.

These documents were supposed to increase customer protection from Payday Loans as well as other short-term Vehicle Titles, and Certain High-Cost Installment Loans. They also tried to limit the lender’s ability to withdraw any costs directly from the consumer’s account without special authorization. But no considerable changes have been made yet.

Payday Loan collection laws

One of the most dangerous things expecting Payday Loan borrowers is not paying it back on time, getting into debt, and becoming subject to collecting practices. 

So, it’s better to be aware of all the practices that are legal, is allowed, and frequently implemented by the lenders. 

The Fair Debt Collection Practices Act (FDCPA) applies only to third-party debt collectors. The CFPB and the Federal Trade Commission (FTC) have oversight of the FDCPA. Collections are not subject to the FDCPA if the debt being collected belongs to the entity collecting the debt. Payday lenders may contact a borrower in an attempt to collect on a payday loan, or to notify the borrower the loan is coming due. However, the lender cannot commit an unconscionable act. The Deputy Commissioner noted the common violations for payday lenders include:

• Unsigned contracts: the licensee attempts to contract without the consumer’s signature;
• The APR is either understated or no APR is disclosed to the consumer; and amount of loans: the consumer has more payday loans than allowed under law.
• Excessive phone calling
• Calling outside allowable hours
• Becoming verbally abusive over the phone
• Threatening police action
• Disclosing private information to unauthorized parties
• Providing misleading or dishonest information

Keep in mind that by law a lender is prohibited to take any unauthorized measures. If a borrower fails to repay the loan, nobody is allowed to threaten him with any criminal procedures. There is no arrest or imprisonment for debts. All these issues are regulated by the Fair Debt Collection Practices Act (FDCPA).

Other legal ways to get necessary funding besides Payday Loans 

• Check if you are eligible for community assistance programs.
• Apply for credit counseling from some non-profit organization, bankruptcy attorney, or legal aid center.
• If Payday Loan debt is almost al your income, think about filing for bankruptcy;
• Consider other more affordable Personal Loans which you can use to consolidate existing debts.