About Usury Laws

There are many people who lean on payday loans in times of emergencies. Whether it’s for car maintenance, a hospital visit or to meet the month’s financial obligations, many people see payday loans as a good idea. Payday loans serve as a means of getting your paycheck before you get paid. The payday loan lender will give you an amount valued by your normal paycheck and expect to be repaid on the date you are paid. Due to the popularity of payday loans amongst many people and the payday lenders getting outrageous with their interest rates there were a few laws set in to place to protect the rights of the borrower.

These laws are referred to as Usury Laws and were put into effect by the federal Truth in Lending Act to keep consumers from falling into the hands of predatory lenders. A predatory lender is considered to be any lender that charges extremely high interest rates for payday loans. The foundation of this law is pretty much the same however the details vary from state to state. The federal Truth in Lending Act now require payday loan company’s to give full disclosure of the terms of the loan they are extending to the consumer. Therefore, they can’t use tricky or unclear language when informing the borrower about interest rates and repayment terms.

Usury Laws also require payday loan lenders to make clear how much it will cost the consumer to borrow the money they need in two ways. They first have to show the amount they are charging the borrower as an annual percentage rate. Secondly, they have to use the annual percentage rate they are charging and make it into a flat fee so that the consumer can see clearly the exact dollar amount they will be charged on top of the amount they are borrowing. This amount will take into consideration the loan amount, the interest rate and the length of the loan.

Alongside the requirement of true and accurate disclosure, the Truth in Lending Act also puts a cap on the interest rates payday loan lenders are allowed to charge. This would be considered a more detail look into the Usury Laws and varies from state to state. Outside of capping on the allowable interest rates, there are also limits set on the length of the payday loans, the amount of the loan and additional charges.

If a payday loan is found to be violating the Usury Laws, they run the risk of facing hefty penalty charges. They can even have to swallow the cost of the payday loan they loaned to a consumer if they violated any of the Usury Laws while executing the loan. There are, however, a few states that are exempted from Usury Laws. Before you take out a payday loan, be sure to check to see if the state it will be originated in is required to adhere to the Usury Laws and also be sure you are receiving the type of service and explanation as required by the laws.