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Consumer Credit Regulation: 9.3.44 South Dakota

While payday lending is legal in South Dakota, voters overwhelmingly adopted a 36% rate cap in November 2016.510 The cap includes all ancillary products or services and all charges or fees incident to the extension of credit.511 It became effective November 16, 2016.512 Violations of the amended law are a class 1 misdemeanor.

Consumer Credit Regulation: 9.3.46 Texas

Payday lenders do business in Texas under that state’s Credit Services Organization Act.523 That statute allows licensed credit services organizations to charge fees for arranging extensions of credit for consumers. The payday lender arranges for a short-term loan from an ostensibly independent lender. The lender charges just the legal rate of interest, but the payday lender that arranges the loan charges a large, flat fee that brings the true APR to as much as 450%.

Consumer Credit Regulation: 9.3.48 Vermont

Vermont does not authorize payday lending. Small loans are governed by the state’s Small Loan Act, which prescribes a rate cap of 18%.541 Consequently, payday lending is effectively prohibited in Vermont. Lenders must have a Vermont license to make loans to state residents regardless of where the lender is located or whether the lender has a physical presence in the state.

Consumer Credit Regulation: 9.3.49 Virginia

Payday (now called “short-term”) lending is authorized by statute in Virginia.544 The 2010 amendments imposed a number of restrictions on lenders. In 2020, the statute was amended again, with an effective date of January 1, 2021.

Consumer Credit Regulation: 9.3.52 Wisconsin

Wisconsin law specifically authorizes payday lending.578 While this law states that it imposes no limit on the interest that a lender may charge before the maturity date of a payday loan,579 it does impose other restrictions upon lenders. For payday loans not paid in full on or before the maturity date, a lender may charge, after the maturity date, interest at a rate not exceeding 2.75% per month.

Consumer Credit Regulation: 9.3.53 Wyoming

Payday lending is legal in Wyoming.587 The only restriction the law places on lenders, other than a maximum finance charge (the greater of $30 or 20% per month on the principal balance of the check588) is that no rollovers are permitted.589

Consumer Credit Regulation: 9.4.1 Talent-Nelson Military Lending Act

The Military Lending Act (MLA) effectively bans payday lending extended to servicemembers and their dependents even in those states that permit high-rate payday lending. The MLA does this in four ways: it limits annual percentage rates (including most fees) to 36%; it limits rollovers of payday loans; it places limits on various ways payday lenders access the consumer’s bank account or wages; and it ensures that state laws limiting payday lending apply to military personnel stationed only temporarily in the state.

Consumer Credit Regulation: 9.4.2.1 Overview

The Consumer Financial Protection Bureau (CFPB) has jurisdiction over state and federal, bank and non-bank, payday lenders. It accepts complaints from consumers regarding payday loans605 and has brought enforcement actions606 against payday lenders.

Consumer Credit Regulation: 9.4.2.3.1 General scope

The repayment provisions of the payday loan rule apply to “covered short-term loans” and “covered longer-term balloon-payment loans,” plus “covered longer-term loans” that secure repayment through a “leveraged payment mechanism.”624 Collectively, these three categories of loans are known as “covered loans.”

Consumer Credit Regulation: 9.4.2.3.2 Wage advance programs

The payday loan rule does not apply to employer-based earned wage advance programs.649 These are programs offered by an employer or the employer’s business partner that provide access before the regular paycheck schedule to accrued wages the employee has earned.

Consumer Credit Regulation: 9.4.2.3.4 Alternative loans

“Alternative loans” are “conditionally exempt” from the payday loan rule if they meet certain requirements.656 Alternative loans are based on the “payday alternative loans” (PALs) authorized by the National Credit Union Administration (NCUA), as described in § 9.5.1, infra.

Consumer Credit Regulation: 9.4.2.3.5 Accommodation loans

The exemption for accommodation loans is a form of de minimis rule that preserves the ability of non-payday lenders to make small loans “as an occasional accommodation to existing customers.”663 This exception would, for example, allow banks and credit unions that offer larger loans at mainstream rates but with an application fee to offer smaller loans as an occasional accommodation even if the application fee pushes the APR above 36%.

Consumer Credit Regulation: 9.4.2.4.2 Ban on payment transfers after two consecutive failed transfers

The CFPB deems it to be an unfair and abusive practice for a lender to make more than two attempts to withdraw a payment on a covered loan from a consumer’s account if the previous two consecutive attempts failed because the account has insufficient funds, unless the lender obtains the consumer’s new and specific authorization to make further withdrawals.681 This general identification of the unfair and abusive practice is implemented by more detailed rules on prohibited payment transfer attempts,682

Consumer Credit Regulation: 9.4.2.4.3 New consumer payment authorization after two consecutive failed transfers

Once a lender’s payment authorization has been revoked by virtue of two consecutive failed payment transfers, the lender may initiate new payment attempts only if the consumer provides a new authorization in the manner prescribed by the rule.690 The rule does not dictate general authorization requirements;691 these requirements apply only for new authorizations after two consecutive failed transfers.

Consumer Credit Regulation: 9.4.2.5 Enforcement of the Payday Loan Payments Rules

The CFPB adopted the payday loan rule under its authority to implement the ban on unfair, deceptive, or abusive acts or practices (UDAAPs) under the Dodd-Frank Act.730 If and when the rule goes into effect,731 regulations adopted under the CFPB’s UDAAP authority may be enforced by state attorneys general and state regulators, but there is no direct private right of action for consumers to enforce the federal UDAAP ban or regulations adopted under the UDAAP authority.

Consumer Credit Regulation: 9.4.3.1 Introduction

This subsection considers guidances and principles on small dollar lending, including payday lending, issued by the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve Board (FRB), and the Consumer Financial Protection Bureau (CFPB).

Consumer Credit Regulation: 9.4.3.2 OCC Guidance

The OCC, which regulates national banks and (since 2011) federal savings associations, issued guidance on small-dollar lending in 2000,746 2013 (repealed in 2017),747 2018 (repealed in 2020),748 and 2020 (together with three other regulators).749 In addition, in 2000, the OCC issued an advisory letter on abusive lending practices that is not specific to small dollar loans but does apply to them.