A majority of states have chosen to meet consumer demand for payday advances with balanced, responsible regulation for their constituents. Thirty-four states have recognized the need for a small dollar, short-term credit source for their constituents and enacted legislation that protects consumers and their access to credit, while allowing law-abiding payday lenders to operate.
States Set Terms and Rates
Payday advance laws generally govern the terms of the transaction and require certain consumer protections. Most state laws limit the principal amount of an advance, set maximum fees and interest rates that may be charged, limit a customer’s ability to renew an advance, require various disclosures, and require that the customer have the right to rescind the transaction before the end of the next business day.
State statutes often specify minimum and maximum maturity dates for an advance. Some states have enacted no-cost extended payment plans for customers that are unable to repay an advance. For all other states, CFSA member companies provide an Extended Payment Plan for customers who are unable to repay an advance when due, at no additional cost to the borrower.
Collection activities regarding past due accounts are subject to consumer protection laws and state regulations relating to debt collection practices. But all CFSA member companies are committed to collecting past due accounts in a professional, fair, and lawful manner as required by our Best Practices. In addition, under the CFSA Best Practices, a member will not threaten or pursue criminal action as a result of the customer’s check being returned unpaid.
State Regulatory Agencies Ensure Enforcement of Payday Lending Laws and Regulations
There’s no question that the payday advance industry is stringently regulated at the state level. State regulators ensure that lenders are following the laws and regulations that govern the payday advance service through rigorous monitoring and enforcement activity. Statutes authorizing payday advance services typically provide state agencies that regulate banks and financial institutions with significant regulatory powers to administer and enforce the law. Under statutory authority, state regulators have broad discretionary power and may impose new licensing requirements, interpret or enforce existing regulatory requirements in different ways, or issue new administrative rules.
In most states payday lenders are required to apply for a license, file periodic written reports regarding business operations, and undergo comprehensive state audits and examinations to ensure compliance with applicable consumer protection and other laws. The majority of states have financial requirements for licensing, such as net worth, assets, or bonding requirements.