Why Some States Allow Payday Loans and Others Don’t?



American lending system that provides online payday loans has long served as a model for banks in many countries around the world. Under certain conditions, online payday loans in the United States can be taken by foreign citizens. Still, not all American banks cooperate with foreigners, and interest rates on online payday loans are slightly higher.

It makes sense to think about American online payday loans if you plan to move to the United States or decide to enroll in one of the country’s universities. It is helpful to know what online payday loans are in the United States. Financial literacy at the beginning of the 21st century is one of the most important qualities of a modern consumer who wants to become familiar with online payday loans.

General Information About Lending Online

Payday loans for USA citizens from the former USSR countries are growing in popularity. For example, emigration to Poland from the CIS has acquired a serious scale. The United States of America is in particular demand as it is a country of great opportunities. It is the country where you can get a good job even if you arrived in the state with practically no money.

Many successful Americans today have been helped by well-taken online payday loans. At the moment, the United States offers loans for the following purposes:

  • education;
  • purchase of a car;
  • mortgage;
  • business development;
  • consumer.

It is difficult for a non-resident to take online payday loans in the United States even with the help from organizations like MoneyZap, which helps people find the best lender for them. For US citizens, lending is not a problem. The system has been tested and adjusted and has been working reliably for many decades.

Who Can Get Loans in the USA?

It must be said right away that the conditions for granting loans to foreign citizens in the United States of America are not as favorable as for the local population. In order to get approval from the borrower for online payday loans, you need to have:

  • age from 25 to 75 years;
  • the presence of a confidential letter from the bank in which the client is served;
  • availability of insurance;
  • availability of funds for making the first installment (that is from 30 to 40% of the value of the property). 

The chances will increase significantly if you have documented official income to take online payday loans.

States Which Allow Payday Loans

  • Alabama
  • Alaska
  • Delaware
  • Florida
  • Idaho
  • Missouri
  • Nevada
  • North
  • Dakota
  • Oregon
  • Rhode
  • Island
  • South
  • Carolina
  • North Dakota
  • Tennessee
  • Utah
  • Wisconsin
  • Wyoming

States Which Do Not Allow Payday Loans

  • Arizona
  • Arkansas
  • Connecticut
  • Georgia
  • Maryland
  • Massachusetts
  • New Jersey
  • New York
  • North Carolina
  • Pennsylvania
  • Vermont
  • West Virginia
  • the District of Columbia

Legal Status of Payday Lending

Payday loans are small-size loans subject to US government regulation. Traditionally, states have limited interest rates on microloans at 24 to 48 percent per annum and set a schedule for repaying the loan in installments. Many states already have agreed-upon passed criminal usury laws to protect consumers. Payday loans are paid in full at three-digit payday rates. They are legal in states where legislatures have either removed the regulation of small loans, exempted payday loans from a traditional small loan or usury laws, or enacted legislation to allow payday loans or based on a check or electronic payment from the bank account of the borrower.

Payday lenders are a rather slippery group. In recent years, several states have passed laws restricting these loans which often charge three-digit interest rates and are a last resort for the financially disadvantaged. Some states have banned them entirely while others have tightened their rules to protect borrowers from what lawmakers call offensive terms.

However, the low-income lending business is too lucrative to give up without a fight. Even as state legislators have tried to curb payday lending, lenders have found loopholes at every turn. They play with definitions, get creative with licensing, or even collaborate with Indian tribes. In one of his political discourses about the trademark, comedian John Oliver called the situation a “legislative blow to the mole”. The Consumer Protection Bureau has indicated that it will propose a national set of rules to better regulate the industry. Citing anonymous sources, the New York Times reported that the CFPB is considering stricter lending standards and limits on how many times a loan can be rolled over.

They Call Themselves “Credit Intermediaries”

To get around Texas payday loan laws, many in the industry have registered as “credit repair organizations”. They themselves are not engaged in lending but also fix loans. Instead, these groups act as intermediaries linking customers with legitimate loans from third-party lenders. They make money by charging their commission on every transaction. So far, the practice is bypassed by legal formality.

The courts have ruled that loan repair fees are not considered usurious interest although in practice unwealthy citizens still pay a lot to get a small loan. There is a lot of ironies here. Credit repair organizations were originally conceived as charitable groups to help people get out of debt. As Feltner explains, “The law was intended to allow organizations to help borrowers who are having credit problems.” Inadvertently, the same law has provided a safe haven for organizations in Texas seeking to make high-interest loans.

They Use Native American Tribes to Bypass the Law

Some payday lenders work with Indian tribes to avoid being subject to local payday loan laws. This is the same principle of sovereignty that allows many tribes to run casinos on their lands. Indian tribal lenders generally operate on the Internet which allows them to offer their services throughout the country including in states where payday loans are completely prohibited.

Last year, Al Jazeera America introduced the matchmaker which brings together lenders and tribes who want to make a profit by lending their names to these transactions. The outfits have been involved in several lawsuits. 

To be honest they are now engaged in criminal usury,” a regulator in Connecticut told Bloomberg. Connecticut recently fined some Indian tribal lenders for illegal loans to residents of the state. New York regulators have put forward a similar argument: “Although these lenders operate on Indian lands, the transactions involve state residents and must be regulated by state law.”

Author: Frank Glemstone – Frank is a graduate of the Master’s program in Economics Sciences. He has written numerous articles about personal finances and wealth. Working as the main author for MoneyZap he is now with clients across the country, helping them achieve their financial and life goals.

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