United States Payday Laws

Regulations exist on payday loans in 37 of the 50 United States. Payday loans are not legal in the states of West Virginia, Vermont, Pennsylvania, North Carolina, New York, New Jersey, New Hampshire, Massachusetts, Maryland, Maine, Kentucky, Georgia, Connecticut and Arizona.

Several states cap APR rates of payday loans through usury laws. In Washington, extended payment plans are required. A limit to the number of payday loans taken out at one time by a given individual is required in Virginia, South Carolina, Oklahoma, New Mexico, North Dakota, Michigan, Indiana, Illinois and Florida.

Payday loan businesses sidestep some state laws to stay in business. For instance, in Texas payday loaners are officially known as “credit services organizations,” in order to go around the small loan limits established by Texas state law. Payday loan entities in New Mexico and Illinois change single payments into high-cost installment loans in order to dodge state law restrictions.

How does a borrower get out of a payday loan in the U.S.? He or she can contact the lender and tell them not to renew the loan and instead, negotiate repayment over a 90-day period.

Legal action against the borrower might not be an option for the payday loaner, especially if the income to the borrower is in the form of an entitlement, such as Social Security benefits, Supplemental Security Income (SSI) benefits, Veteran’s benefits, Civil Service and Federal Retirement and Disability benefits, military service pay, military annuities and survivors’ benefits, student assistance, railroad retirement benefits, merchant seaman wages, Longshoremen’s and Harbor Workers’ death and disability benefits, Foreign Service retirement and disability benefits, compensation for injury, death, or detention of employees of U.S. contractors outside the U.S., or the Federal Emergency Agency for Federal Disaster Assistance.

The borrower’s checking account might need to be closed in order to stop the continuous payday rollover of finance fees. The borrower needs to work with the bank in order to accomplish the bank account closing. Several state statutes dictate how many times a loan can be renewed and a maximum dollar value of a small loan (see the links below).
For specific laws regarding payday loans in each state, check out the following websites:

U.S. federal law stipulates a maximum amount of 36 percent APR on payday loans to military personnel.

The Dodd-Frank Wall Street Reform Act signed into law July 21, 2010, gave the Consumer Financial Protection Bureau, which is under the U.S. Treasury Department, the authority to regulate payday lenders. No longer a growing industry in the U.S., payday loan “stores” have dropped from the high number in 2009 of 20,600 to the present amount of 10,000.

Methods of collections used by payday loaners are stipulated by the Fair Debt Collection Practices Act (FDCPA). The U.S. Federal Trade Commission (FTC) enforces rules stipulating that debt collectors are prohibited from using deceptive, abusive, or unfair practices while attempting to collect money from anyone who received a payday loan. For instance, a debt collector cannot contact a loan recipient before 8 a.m., or after 9 p.m. Payday loan borrowers cannot be telephoned at work if the debt collector is told orally or in writing that the borrower is not allowed to get calls at work.

If an attorney represents a borrower about a debt, the debt collector must contact the attorney, not the borrower. Every debt collector must send the borrower a written notice informing the borrower of the amount due within five days after visiting the borrower. Information must be in the notice pertaining to whom the debt is owed and a procedure for disputing the debt, if the borrower doesn’t agree that money is owed. Threatening violence or harm is unlawful, along with the use of obscene or profane language.

A borrower’s name cannot be published as a person who doesn’t pay debts.

The repeated use of a telephone by a debt collector to annoy a payday loan borrower is unlawful. Debt collectors cannot make false statements that they represent government representatives or that they are attorneys. Payday debt collectors cannot falsely claim that the borrower committed a crime, falsely claim that the collector works for a credit report company, or indicate that they are sending the borrower legal forms. A payday loan borrower cannot be threatened with arrest for not paying his or her debts, threatened that property or wages will be seized, unless permitted by law.

Likewise, the FDCPA prohibits the collection of interest, fees, or other charges above the amount legally owed by the borrower, unless the contract that created the debt, or state law, allows such remuneration. A post-dated check cannot be deposited prematurely.

A collector cannot threaten to take property away from a borrower. Plus, a collector cannot contact a borrower by postcard. For more details, check out FTC’s information about FDCPA at http://www.consumer.ftc.gov/articles/0149-debt-collection.

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Information on Payday Loans: