Payday loans are small loans subject to state small loan, usury or payday loan laws. Fifteen states prohibit payday lending under state usury and small loan laws. Thirty-three states and the District of Columbia have enacted laws or regulations to authorize check-based payday lending. Alaska enacted a payday loan-authorization law that will take effect in 2005.
Two additional states, New Mexico and Wisconsin, permit licensed lenders to make payday loans without substantive restrictions on loan terms. States that legalize payday loans typically require lenders to be licensed or registered and to comply with a range of provisions, including maximum loan size, duration, and terms.
Internet payday lenders evade state usury and payday loan laws that protect consumers by getting licenses in states without meaningful restrictions, by operating without state licensing at all, or by locating out of the country and claiming that loans are made subject to the laws of the lender’s purported home country. In addition Internet payday lenders often claim a choice of law in states with few restrictions and no usury caps.
At its web site, USAdvance.com says “You have entered the legal domain of the Federation of Saint Christopher and Nevis.” Transactions will be “deemed to have taken place in the Federation,” despite the fact that arbitration hearings for disputes with this website will be conducted in Wilmington, DE. A major online lender, United Cash Loans, provides a Carson City, Nevada address although the domain is registered to a Vancouver, Canada marketing firm, but is not licensed by Nevada payday loan regulators.
PaydayConnection.com states that “we are currently providing our services for residents of the states listed below,” then provides links to sites in cities, such as Philadelphia, New York, Baltimore, and Boston, all in states with usury or small loan rate caps that do not permit payday lending.12 The disclaimer at FastCashAdvancePaydayLoan.com states that its service “does not constitute any offer or solicitation for a short term or payday loans cash advance loans in any state…may or may not be available in your particular state…” Then the site provides links to all fifty states and cities in states where payday lending is not legal.
Paydayconnection posts a notice that “by applying for a loan with us, you are agreeing that your loan transactions will be governed by the laws of the State of Delaware. Delaware laws and regulations may be different from your state of residence.” Another site provides an application for Georgia payday loans, a state where small lenders are required to be licensed by the state and charge no more than 60% annual interest. Paydayconnection.com will lend $1,000 to California residents, despite that state’s cap of $300 for the loan plus finance charge.
Some sites try to have it both ways, by providing links for payday loans in all fifty states while including a disclaimer that “This ad does not constitute an offer or solicitation for short term payday loans, payday advance, payroll loans, or personal loans in all states. The source lenders we use may or may not be available in your particular state.” Only a few sites in the CFA survey actually refused to accept loan applications coming from specific states.
