Laws About Payday Loans

Payday loans or cash advances are means for people to get the money they need right away. In order to get a payday loan, a person must have a checking account and job. Lenders typically base the advances on the person's bi-weekly income. Certain laws protect those who use payday services. These laws keep lenders from preying on their customers.

State Laws

The laws for payday advances and loans vary by each state. Some states like Vermont prohibit payday companies from charging outrageous interest rate fees on loans. This includes applying three digit rates to the loans consumers receive. Other states like Washington require lenders to only allow loans up to 30 percent of a person's monthly income.

Department of Financial Institutions

Cash advance companies must register with the Department of Financial Institutions before they provide services. Each state has access to the organization and consumers can verify the licenses of payday companies through the department.

Defaulted Loans

In some states, companies may legally pursue consumers who default on advances if they are legally registered with the Department of Financial Institutions. They cannot, however, threaten to put someone in jail for not paying the loan back. They cannot call or harass family, friends or employers to collect on a loan.

Truth in Lending Act

Loan providers must provide an agreement that states the fees associated with payday loans. They cannot add hidden fees to the agreement once a consumer signs it. Payday loan laws require consumers to know the costs of the loan including interest rates, late fees and finance charges before they sign the agreement.