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Consumer Credit Regulation: 9.2.8 Closing Accounts

Because stop payment orders are unlikely to permanently protect a consumer’s assets from an aggressive payday lender, a consumer may be safer closing her bank account to prevent a payday lender from draining it. The UCC gives consumers the right to close their bank accounts.162 And the official comments to the UCC say that a bank should bear any loss caused by the bank’s failure to timely close the account, if the consumer has complied with reasonable procedures.163

Consumer Credit Regulation: 9.3.1 General

States vary widely in how they approach payday loan regulation. The degree of regulation ranges from outright prohibition to the codification of caveat emptor. The question of whether payday lending is legal may depend on definitions and business practicalities. In some states, traditional, single-payment, short-term payday lending is technically legal but interest rate caps amount to a de facto ban because the loans cannot be profitably made.

Consumer Credit Regulation: 9.3.2 Alabama

In Alabama, the Deferred Presentment Services Act171 authorizes payday lending. The law places certain limitations on payday lenders. Payday lenders may not require borrowers to provide security for transactions or guarantors.172 But a personal check is not considered a security interest under the Act.173 The maximum amount that may be advanced in any transaction is $500.

Consumer Credit Regulation: 9.3.4 Arizona

In July of 2010, Arizona allowed a law that formerly authorized payday lending to sunset, thus effectively ending the practice as it had existed in the state. The loans that were formerly covered under the statute now fall under the state’s Consumer Lenders Act, which provides for no greater than a 36% rate of interest on loans of $3,000 or less.184 This cap effectively prohibits the practice of payday lending in Arizona.

Consumer Credit Regulation: 9.3.5 Arkansas

In 2008, the Check-Cashers Act, which had purported to authorize payday lending in Arkansas, was found to be unconstitutional by the state’s Supreme Court.187 Specifically, the court found that the law violated the usury cap of 17% provided in the state constitution188 by attempting to circumvent the cap by designating as service “fees” what was actually interest. In the wake of this ruling, the practice of payday lending essentially came to an end in Arkansas.

Consumer Credit Regulation: 9.3.7 Colorado

In Colorado, payday lending is authorized by the Deferred Deposit Loan Act.203 The maximum amount that any lender may have outstanding is $500.204 The statute provides that a loan may not be renewed more than once,205 and a consumer is not subject to any criminal penalty for entering into a deferred deposit loan agreement unless the consumer’s account on which a dishonored check was written is closed before the agreed-on date of negotiation.

Consumer Credit Regulation: 9.3.8 Connecticut

Payday lending is not authorized by statute in Connecticut. Small loans are governed by a statute prescribing a rate cap of 36% for amounts under $5,000.215 This cap effectively bans the practice of payday lending in Connecticut. Out-of-state lenders making loans to borrowers in Connecticut over the internet, by phone, or by mail generally must obtain a Connecticut license.216

Consumer Credit Regulation: 9.3.9 Delaware

In Delaware, payday lenders are authorized by statute to make short-term consumer loans,217 for which they are permitted to charge any rate “as the agreement governing the loan provides.” However, the law does impose several restrictions on lenders.

Consumer Credit Regulation: 9.3.10 District of Columbia

While the practice of payday lending was formerly permitted in the District of Columbia, the authorizing statute224 was repealed in 2007.225 The law now specifically provides that “[n]o licensee [under the Check Cashers law] shall at any time cash or advance any monies on a post dated check.”226 Small loans are governed by a statute prescribing a rate cap of 24%.227 District of Columbia law provides t

Consumer Credit Regulation: 9.3.11 Florida

Making payday loans—known as “deferred presentment transactions” and, as of July 1, 2019, “deferred presentment installment transactions”—is authorized by statute in Florida.229 Several restrictions are imposed on lenders.

Consumer Credit Regulation: 9.3.12 Georgia

By legislation enacted in 2004, Georgia has specifically prohibited payday lending239 and declared any site or location of a place of business where payday lending takes place a public nuisance.240 The law imposes monetary penalties on violators,241 and it also criminalizes the practice.242 If a payday loan is made in violation of the law, the transaction is void.

Consumer Credit Regulation: 9.3.13 Hawaii

Payday lending used to be authorized by statute in Hawaii, but in 2021 the legislature enacted reforms that impose new restrictions on small installment loans.251 Under the new laws, installment loans of up to $1,500 are subject to a rate cap of 36%,252 which must be precomputed.253 The loan term must be at least two months i

Consumer Credit Regulation: 9.3.15 Illinois

Payday lending is technically legal. In Illinois under the Payday Loan Reform Act but, due to the 2021 enactment of the Predatory Loan Prevention Act, payday lending is now effectively prohibited. The new law imposes a 36% annual interest rate cap on payday loans.271 The APR is to be calculated using the methodology specified in federal the Military Lending Act.272

Consumer Credit Regulation: 9.3.17 Iowa

Payday lending is authorized by statute in Iowa under the Delayed Deposit Services Licensing Act.294 A lender is restricted from making more than two loans at a time, and the aggregate amount loaned at one time cannot be more than $500.295 Rollovers are not permitted.296 Loans made over the internet by out-of-state lenders to borrowers in Iowa are subject to Iowa law and may only be made by Iowa-licensed lenders.

Consumer Credit Regulation: 9.3.19 Kentucky

The Deferred Deposit Service Business and Check Cashing Act303 authorizes payday lending in Kentucky. However, it does impose some restrictions on lenders. A lender may not make more than two payday loans from a borrower at a time.

Consumer Credit Regulation: 9.3.22 Maryland

Payday lending is not authorized by statute in Maryland. Small loan transactions are governed by that state’s Consumer Loan Act,321 which prescribes an interest rate cap of 2.75% per month on that part of the principal balance not more than $500.322 This 33% APR effectively prohibits the practice of payday lending in Maryland. Loans made by unlicensed lenders are unenforceable and may not be collected by collection agencies.323