States with the Toughest Payday Lending Legislation
President Barack Obama has said that he wants payday lending laws to become federalized rather than leaving important decisions, such as interest rate caps, up to each state. Until that happens, however, the laws between states will continue to vary wildly.
Some states have very strict laws that are diligently enforced. Other states have laws on the books, but they are not enforced. Other states have yet to enact legislation that limits interest rates to the point that many consumer groups feel is acceptable.
Below is information about some of the states that have the strictest payday lending laws on the books.
West Virginia
It seems that West Virginia lawmakers had the consumer’s best interest at heart when they passed payday lending legislation in 2006. With a tight cap in place on the interest rate that could be charged in the state, most lenders pulled out.
One, however, did not. First American Cash Advance continued offering loans as if it was business as usual. This happens in other states, but West Virginia lawmakers were serious about protecting their citizens and enforcing their laws.
The attorney general came down hard on the lender and in 2007 an agreement was reached that not only had First American Cash Advance leaving the state, but they also agreed to forgive over $600,000 in payday loans that were in default.
They also had to establish a small fund to refund money to customers who had paid interest after the 2006 laws went into effect.
Massachusetts
Massachusetts allows payday loans, but because the allowable interest rate is so low, most lenders have left the state. The maximum interest rate is 23%. While some states allow payday lenders to get around low interest rates by charging high fees, Massachusetts put a cap of $20 in fees per loan.
New York
New York is yet another state that wants payday lenders to know that they mean what they say. In 2005, when a lender shirked the law and made hundreds of loans to military families, the state not only shut them down, but voided all of the loans that had been made.
New Mexico
While New Mexico does allow payday lending, and does not have a very low cap on the APR, they do have some tough laws that protect consumers. First, borrowers can only have one loan at a time and they must wait 10 days after paying off one loan before they can borrow again. Also, borrowers are not allowed to extend their loans.
While loans of up to $2500 are allowed, lenders can only offer 25% of the borrower’s gross monthly income. This is a lower percentage that what is allowed in some other states.
Perhaps, the most consumer friendly part of the law in New Mexico relates to those having trouble paying the loan back. If you cannot pay the loan back, you are entitled to enter into a 130 day repayment plan. During this time, you cannot be charged interest or any fees.
Once the loan is paid back in full, you can take another loan after the ten day waiting period.
While some will not be happy until payday lending is banned completely, the laws in New Mexico work to protect the consumer from having more payday loan debt than income and by offering reasonable options for paying the loan back.
Kilmarnock, Virginia
While this article is about the states with the toughest laws, it seemed appropriate to mention this little Virginia town. Because the city council was not happy with the Virginia laws, they simply created their own city ordinances that banned payday lenders from operating within city limits.
Yes, residents of Kilmarnock can simply drive a few miles down the road to get a payday loan, but the city wanted its position about what they consider predatory lending to be very clear.
It is important to note that the laws in each state can change frequently. Some states that once banned payday lending now allow the practice.
If you would like to learn about payday lending laws in your state, visit www.paydayloanlegislation.com or similar sites that include highlights of payday lending legislation for each state.
If you think your state needs tougher laws, contact your congressmen.
Related Links:
Comments, Questions, Reviews?
Make yourself heard: feel free to drop a few lines below.
You must be logged in to post a comment.
