Payday loans boomed into popularity in about the year 2000. They quickly become the consumer’s “go-to” source for funds for bill payments, shopping sprees, auto emergencies, financial cushions and the like. Payday loans are still excellent for consumers who have poor credit and need quick cash.
Payday loans are generally prohibited in the state of Pennsylvania. However, some consumers and lenders are still getting past the laws. Pennsylvania residents may still obtain payday loans and other short-term loans by way of the Internet. Lenders who are still providing short-term loans in Pennsylvania are doing it by the laws of the state.
Backdated Check Law
In 1998, Pennsylvania passed a law that prohibited check-cashing companies from issuing loans based on post-dated checks. Payday lenders are subject to this rule even though they are not technically considered check-cashing companies. The entire basis of a payday loan revolves around a consumer's paycheck. The consumer is writing a post-dated check in a sense when he or she signs an agreement with the payday lender to withdraw paycheck funds from a bank account. Therefore, payday loans are prohibited in Pennsylvania for the most part. Some lenders still argue their positions.
Pennsylvania also has strict rules regarding interest rates. The average payday loan has an interest rate of approximately 300 percent. Some of them have interest rates that go well past 600 percent. The Consumer Discount Company Act was passed in Pennsylvania to regulate interest rates. Small loan lenders are not allowed to charge more than 6 percent interest on any short-term loan they issue in the state. Some lenders can charge as much as 24 percent interest, but they have to go through the process of obtaining licensure to do such.
The Effect of the Laws
A large portion of the payday loan business has been halted due to the Pennsylvania laws. Most payday lenders do not feel as if the low interest rates are beneficial to them, so they do not issue loans any further. Those who do still offer cash advances are sure to stick to the strict guidelines.
Consumers can still obtain short-term cash advances by other means. However, the state of Pennsylvania feels as though it should not condone lenders taking advantage of struggling low-income consumers. Pennsylvania's perspective on the payday loan industry is not a positive one.