The current economic situation has caused more people in the US to seek out alternative sources of loans, and as a response to this need, several companies have begun to offer payday loans online. Cash-strapped Americans are often searching, especially during the holidays for quick easy and often no credit check required short term loans. What they quickly discover is that these loans are marketed in all 50 states, but many have different rules and requirements. A few of them may even be located outside the US. The differences in the locations of the borrowers and of the loan providers have contributed to a general confusion as to which state statutes apply. Each state has its own laws regarding online loans and loans in general, but there is no certainty as to which laws apply when borrowers and lenders are located in different areas.
Variance in State Law Limits
Each state has different laws as to the minimum and maximum term duration of an online payday loan. Texas and Kansas, for example, allow an online loan to last from a week up to a month. On the other hand, Under Ohio regulations the term of the online loan may last up to six months.
Each state may also have a different cap amount as to the size of the loan legally allowed. In Montana, a borrower may only borrow an amount ranging from $50 up to a maximum of $300. In Oregon, the cap is set at 25% of the borrower’s net monthly income. Other states such as Maine, New York, and Vermont place no limits at all as to the amount that someone in need can borrow online.
The interest rate charged on payday loans may also be regulated by state statutes. California and Arizona set the interest rate at 15% of the loan at the most. Other states such as New Mexico and Idaho sets no legal limits at all, and if the borrower agrees to pay a certain interest rate then that rate is entirely legal.
Though the confusion regarding the proper application of state statutes still exists, there are possible solutions on the horizon. Politicians from both major political parties are currently investigating the benefits of transferring the oversight of the online lending industry from the states to the U.S. Office of the Comptroller of the Currency. This can then minimize the confusion and create much needed clarification and consistency.
The Necessity of Improving the Legal Situation
The need for clarification in the industry has become more evident as the use of online payday laws has become more prevalent. In 2010, more than a third of the $32 billion in small loans came from online means. Experts estimate that this share will double by 2016.
In conclusion, some states may be able to enforce their regulations, especially if the borrower and the lender are located within that state’s borders. But developments in the immediate future may result in a federal oversight organization to settle and manage the online lending industry.