The rules and regulations for payday loans are determined by the states.Â Each individual state usually has a statute that governs payday loans, how much can be charged, other fees permitted, and other regulations and requirements.Â The laws are very similar from state to state, with a few minor differences here and there.Â I think it would be helpful to look at an average stateâ€™s law to get an idea of its requirements.
Letâ€™s look at Kansas.Â You can find the law in the Statutes, Chapter 16a, Article 2, Section 404.Â Itâ€™s as simple and straightforward as laws get. Loans can range between 7 and 30 days, with a maximum amount of $500, and a maximum fee of 15%.Â A lender cannot have more than two loans outstanding to the same borrower at any one time and cannot make more than three loans to any one borrower within a 30 day period. No other fees can be charged, and rollovers are not permitted. Loans may be rescinded by the end of the next business day following the day the loan was taken out.Â Now, if the borrower doesnâ€™t pay the loan back in full, the lender canâ€™t just keep charging the same 15% every two weeks.Â He can only charge 3% monthly interest until the loan is paid back. There are several smart consumer protections. Lenders canâ€™t skirt the law by creating a different transaction, such as sales/leaseback or rebate arrangement.Â They reiterate the rules of the Fair Debt Collection Practices Act (a federal law) by not permitting lenders to use, or threaten to use the criminal process to collect on the loan or to sell a product in connection with the making or collecting of the loan (such as credit insurance).Â There are a few other protections you can read about in the link.
Kansas is about as fair a law as youâ€™ll find.Â Itâ€™s simple, makes it clear what the obligations of the lender are, and sets out the basic requirements.Â A payday law shouldnâ€™t be much more complicated than this, because itâ€™s a simple product.
You can find what laws apply in each state at this link and reading the cited statutes.
On a federal level, payday loans must follow the Truth In Lending Act.Â This requires certain disclosures be made regarding how much is being borrowed, the fees associated with it, how much is due back, and the Annual Percentage Rate.