Laws About Payday Loans
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There are different names by which people recognize payday loans. Some of these include cash advances, check loans, deferred deposits and deferred presentments. All mean the same. Payday loans are primarily short-term small loans that come at a very high cost that must be repaid on the following payday.
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Financial experts consider payday loans as one of the most abusive forms of lending that result in customers ending up losing thousands of dollars.
Hence, payday loans have been termed illegal in certain states of the US. In others, these loans are strictly regulated. Payday lenders have to abide by certain rules and regulations in states where these loans are legal. Some of these laws that are used to regulated the activities of payday lenders and protect the interests of the consumers are listed below:
- All payday lenders should comply with the Truth-in-Lending Act. Under this act, the true cost of the loan must be disclosed to the borrower. Any violation of this law is considered to be a crime.
- In almost 20 states in the US along with the Virgin Islands and Puerto Rico, payday lenders have to comply with the small loan or criminal usury laws. Under this, the interest rate on a payday loan is capped up to 36 percent per annum. Also, the maximum loan amount provided to a customer should not exceed $500 or one-third of the customer’s monthly salary. Under these laws, even issues such as maximum and minimum loan term, maximum interest rate, permitted charges and penalties for late payment are also regulated. For example, in North Carolina, a payday lender can charge a 15 percent charge on a maximum loan amount of $300.
- In certain states, issues such as rollovers and refinancing a payday loan with another loan are prohibited.
- In states such as Delaware, Idaho and Illinois, payday lenders are permitted to charge any interest rates. However, this rate should be agreed by both the parties.
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