Payday loans have been one of the most widely used sources of quick cash advances for more than 10 years. Millions of consumers turned to payday loans for their emergencies. Lenders used to have free rein to charge consumers any annual percentage rate they saw fit, and some of them were charging customers 300 percent or more for each advance. Additionally, U.S. payday lenders were allowing their customers to rollover their loans if they could not afford to repay them.
The lack of proper legislation left some consumers deeply indebted to payday lenders. Several states started placing regulations on the way payday lenders could operate as of 2008. Currently, 37 states have regulations on payday advances, and 13 states have completely outlawed them. The following are some of the regulations that states have placed against these advances:
Maximum Loan Amount
Some states such as Alabama, Delaware and Florida have regulations on the maximum amount of money a payday lender can issue a customer. Delaware’s limit is $1,000, and Florida’s limit is $500 excluding the fees. Alabama only allows lenders to issue their customers $500. The state of Georgia prohibits payday loans, and Oregon allows loans of up to $50,000.
Maximum Loan Term
Some states felt as though lenders were not giving consumers enough time to repay their advances. Additionally, they did not feel that rollovers and refinances were fair deals for the customers. Therefore, they placed statues on the minimum and maximum loan terms. California allows its customers 31 days to repay a payday advance, and Delaware grants its residents a little less than 60 days.
U.S. states placed statutes on the finances charges for payday loans to protect the interests of American consumers. Alabama lenders may not exceed 17.5 percent in finance charges. Illinois payday lenders may not charge a customer more than $15.50 per $100 loaned. Colorado payday lenders may not charge more than 20 percent of a loan of up to $300. They must charge only 7.5 percent for any amount over $300.
How Payday Loan Regulations Affect Consumers and Lenders
Consumers across the United States can now feel confident that they can borrow money without someone taking advantage of their vulnerabilities. Some lenders closed their shops because they felt as though the regulations stunted business growth. A wealth of honorable lenders continue to provide payday advances to American borrowers.