Below is a summary of legislation and regulation that impacts access to short-term credit.
Updated May 2014
In April 2014, a bill that would have prevented people from taking out more than $500 in short-term loans at a time died in the state legislature. An attempt to cap the interest rate charged on various types of short-term loans to 36% failed in the state legislature last year.
The 2000 law that allowed payday lending in Arizona expired in July 2010. The annual interest rate for short-term loans is now capped 36 percent, a rate that makes it impossible for most lenders to operate. Many payday loan stores have shut down in the state. A survey of CRC membership in the state found that 100 percent of respondents had bounced a check since short-term payday loans are no longer an option.
In April, 2013 legislation that would limit the number of loans to six that a consumer can take out in a year failed to pass a key committee. The bill would also extend the term of loans from 15 to 30 days and create a database to track loans.
Some of the fees and loan terms associated with payday loans changed in August 2010. The minimum loan term is now six months, and lenders may charge the following: a finance fee of 20% of first $300 loaned, plus 7.5% of any amount loaned over $300; interest of 45% APR; and, a monthly maintenance fee of $7.50 per $100 loaned, up to $30 per month. In February 2012, a court ruled that the state Attorney General can no longer investigate two Native American tribes offering short-term loans.
In June 2010 Illinois Governor Pat Quinn signed House Bill No. 537 which caps interest rates charged by consumer finance companies at 99 percent on loans under $4,000 and 36 percent on loans above that amount. Additionally, fees on payday loans are limited to $15.50 for every $100 borrowed over a two-week period.
In September 2013, the Iowa Department of Inspections and Appeals ruled that online short-term loans made by a tribal lender are subject to the state’s consumer protection laws. The lender had argued that its business fell under tribal sovereignty.
Two efforts in 2014 to restrict short-term loans in Louisiana both failed. The State House of Representatives defeated a bill that would have capped interest rates at 36 percent, a rate that makes it impossible for most lenders to operate. The State Senate failed to pass a bill that would have limited consumers to 10 short-term loans per year and created a database to track these loans.
Former Gov. Haley Barbour signed legislation (House Bill 455) that changes how payday lending companies operate and extends the existence of the industry in Mississippi. The legislation caps consumer fees at $20 for every $100 received for checks written up to $250. For loans on checks over $250, the fee is capped at $21.95 per $100 cash received. Consumers who take out the larger loans have at least 28 to 30 days to pay it back. The new law took effect on January 1, 2012. The law was originally intended to expire in 2015, but current Gov. Phil Bryant signed a bill in March 2013 making these provisions permanent.
A proposed ballot initiative in Missouri that included a cap on interest rates for most forms of short-term credit failed to qualify for the 2012 election ballot. The rate cap would have effectively eliminated most small dollar credit options for Missourians. A group called Missourians for Responsible Lending is gathering signatures to put the proposal back on the ballot in 2014. In late April and early May, the state legislature approved a bill that would ban renewals on short-term loans and cap interest rates. The bill is awaiting final approval by the governor.
A November 2010 ballot initiative asked Montana voters to determine whether or not to cap the interest rates on payday loans at 36 percent—a rate that would likely drive short-term lenders out of business. The ballot initiative passed; and as expected, many short-term loan stores have closed in the state.
Benjamin Lawsky, the Superintendent of the New York Department of Financial Services, is attempting to ban online short-term lending in the state by clamping down on banks that process online lending transactions. In August 2013, Lawsky ordered 35 online lenders to stop doing business in New York. He recently sent another round of cease-and-desist letters. Two Native American tribes that operate online lenders in New York are suing Lawsky, arguing that as sovereign nations, they are exempt from these regulations. In October 2013, a federal judge sided with Lawsky, but the judgment is awaiting a ruling by the appellate court.
A ballot initiative that placed a 28 percent interest-rate cap on short-term loans passed in the state in November 2008. Since passage, a large number of short-term lenders have shut down in the state. A challenge to this law is currently pending before the Ohio Supreme Court.
Legislation that raised loan limits to $550, limited consumers to one loan at a time and created a database to track loans passed in the House and Senate, but was vetoed by then Governor Mark Sanford. The House and Senate overrode the Governor’s veto, passing the bill into law in June 2010.
In 2011 the Texas legislature passed two laws regulating short-term lending–House Bills 2592 and 2594. HB 2592 required credit service organizations to provide consumers with “adequate information” about the costs they face before they sign any agreements. The companion bill, HB 2594, required short-term and car title lenders specifically to be licensed and regulated by the state. The legislation was signed by Gov. Rick Perry in June 2011.
In April 2013, the Texas Senate passed a bill that would strictly limit short-term lenders in the state, including capping interest rates on short-term loans at 36% APR. The bill stalled in the Texas House of Representatives, but it could come up again in the future. Several major cities in the state, including Houston, Dallas, Austin, El Paso and San Antonio, have passed their own restrictions on short-term loans.
In April 2014, Utah implemented a law requiring short-term lenders to assess a borrower’s ability to repay the loan before issuing the loan or allowing rollovers.
In the spring of 2010, the Washington state legislature passed and the Governor signed a bill that restricts short-term lending in the state. It limits short-term loans to 30 percent of a customer’s monthly income, or $700, whichever is less. Customers who fall behind on their payments can request an installment plan to pay off the loan. And it sets up a database to track the number of loans customers take out and bars them from having multiple loans from different lenders.
In 2013, the state Senate passed a bill that would have reversed some of the restrictions in the previous law, but the bill stalled in the House.