In what states are high-cost payday loans illegal?
Georgia is the only state where high-cost payday loans are expressly prohibited under racketeering laws. In 2014, several states limited the feasibility of payday loan businesses by enforcing small-loan caps that range between 17% and 30%. There are 32 states in which payday loan companies are free to charge triple-digit annual interest rates. Many states have specific legislation, while others have none.
New York limits annual interest rates to 25% under criminal usury statutes. New Jersey sets a maximum interest rate of 30% under legislation for all lenders. Arkansas has a 17% limit on interest rates on all loans. Arizona limits loans to 36% annually plus a 5% fee. Connecticut limits loans to 30.03% with some allowable add-on interest. Maryland caps interest rates at 2.75% per month or 33% per year. In Massachusetts, the limit is 23% plus a $20 administration fee. North Carolina limits lenders to charging 36% annually. Pennsylvania defines its cap as $9.50 per $100 per year interest plus a charge of $1.50 per $100 per year. Vermont has a limit of 18% per year. West Virginia limits lenders to charging 31% per year for loans of $2,000 or less. The District of Columbia mandates a 24% cap annually to lenders.
A payday loan involves being given a specific amount of cash, often in exchange for a post-dated check made out for an amount higher than the check. For example, a borrower would make out a check for $115 if borrowing 100, and this equates to over 390% per year. Borrowers with payday loan companies are not required to present collateral or have any assets. Payday lenders take on risk by lending to people based on their word that they will honor a check, and the business is not profitable or feasible unless lenders are permitted to charge exorbitant lending rates. Consumers are often puzzled as to why a practice could be heavily controlled and subject to racketeering laws in some states and permitted in others.
Maine allows check-cashing loans that charge up to 30% annually with additional fees allowed. Oregon allows up to 36% to be charged plus an additional $10 per $100. New Hampshire has a cap of 36% yearly. Ohio limits payday loan lenders to charging 28% each year. Montana has a limit of 36%. Colorado allows lenders to charge 52-65% per year, depending on loan size.
There are 32 states where payday loans are legal and lenders may charge triple digit annual interest rates or have no rate limit at all. They include: Alabama, Alaska, California, Delaware, Florida, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Michigan, Minnesota, Mississippi, Missouri, Nebraska, Nevada, New Mexico, North Dakota, Oklahoma, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, Washington, Wisconsin and Wyoming.
Bank of America currently offers a home equity line of credit with an introductory rate of 1.99% and regular variable rate of 3.73%. Credit cards typically charge 11.99-21.99%. Paying triple-digit interest rates when other options may be available could prove to be a costly decision.