Government Regulations on Payday Loans

Payday loans are short term loans taken to cover expenses by the borrower, with a pay back duration until the next payday. It can also be termed as paycheck advance. In the United States of America these loans are legal in 37 states and are regulated. However, it is by state law either not feasible or illegal, in the remaining 15 states.

To avail a payday loan one would visit a payday lending store and provide one or more recent pay receipts as well as a statement of their most recent banking transactions, showing a steady source of income which would enable the borrower to secure a loan. This amount is usually small and would have to be returned by his or her next paycheck which is usually two weeks apart. The person who has taken the payday loan would usually write out a post dated check to the lender, which would include the full amount of the loan in addition to the fees. When it's time to return the borrowed money, the borrower has to return to the store in person and repay the loan; and in case the borrower fails to do so, the lender can process the check either by electronic withdrawal or by the traditional way.

These Payday lending institutions usually provide payday loans at rates which do not go in excess of a certain annual percentage rate (APR), laid out by Usury laws. Some have gotten around these laws in certain states by tying up with nationally-chartered banking institutions in states that have no usury cap. This practice caught the attention of federal bank regulators and soon these partnerships between payday lenders and commercial banks were prohibited. Although payday loans are still allowed for members of the FDIC, in March 2005 new guidelines were issued so that a payday debt after six renewals, transitions to a long term loan and due to this, no federally insured banks engaged in payday.

One can also avail payday loans online. Consumers are targeted through e-mail, paid ads and various other means of the World Wide Web. The application can be filled online or if the application requests employer information, social security and other personal information, such as copies of checks and recent bank statements, they can be faxed along with signed paper work. Once all the paperwork is completed, the loan is then deposited into the borrower's account and the payment along with the interest rate, is withdrawn electronically on the next payday.