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State Governments Capping Payday Loan Interest Rates

Payday loans are very easy to use. A borrower will write a post marked check to a lender after he is approved for the loan. This check will have the loan amount and the interest that will be due in two weeks. The check will be cashed on the borrower’s next payday. Payday lenders have been accused of offering ridiculously high rates which has persuaded states to improve their payday loan laws to cap these high interest rates. Even though the interest rates that are charged are only about $17 on average which is much less than defaulting on a credit card payment or overdrawing from your bank account.

State laws are no going hard at payday loan companies which have actually closed down many stores around the United States. In some states, they have even outlawed payday loans. States that have not outlawed payday loans, most have capped the interest rates and very little states have done nothing in regards to payday lending. Many of the states feel obliged to protect consumers as it seems that these companies target poor and low income people who are likely to be unable to payback the loan and put them into a cycle of debt. New York, West Virginia, North Carolina and Pennsylvania have all outlawed payday loans. Some payday loan companies were sued out of business such as in the case of NY where others simply got rid of it. Other states that have practically obliterated payday lending include Connecticut, Massachusetts, Vermont, Maryland, New Jersey and the District of Columbia.

Many state laws regarding payday loans cap the interest rates so that the payday loan company is unable to make a profit, forcing it out of business. Capping rates also make payday lenders screen who they would have normally given a payday loan to. Thus defeating the point of being able to lend to anyone in need. All state laws are different so while choosing a payday loan, you should make sure that you know exactly what the laws are regarding payday loans and your rights as a payday loan borrower.