# Why don't payday loans violate usury laws? \[ed.\] **URL:** \ **Category:** Great Debates\ **Created:** [October 6, 2007, 4:40pm UTC](https://boards.straightdope.com/t/why-dont-payday-loans-violate-usury-laws-ed/421763 "2007-10-06T16:40:33Z")\ **Posts on this page:** 20\ **Page:** 1
**Author:** ![bob\_co](https://avatars.discourse-cdn.com/v4/letter/b/b3f665/32.png) [@bob\_co](https://boards.straightdope.com/u/bob_co)\ **Post date:** [October 6, 2007, 4:40pm UTC](https://boards.straightdope.com/t/why-dont-payday-loans-violate-usury-laws-ed/421763/1 "2007-10-06T16:40:33Z")
In recent news, I saw that on Oct 1, it became illegal to loan money to a member of the US armed services at more than %36 APR. My girlfriend is in the car title / payday loan business. She received a memo from corporate stating that they will risk a jail term if they do not have a waiver in every loan they make stating that the debtor is not in military service nor related to anyone that is. In the last 5 or 10 years, I’ve noticed that short term loan / high risk loan business is on just about every street corner. Just like we’ve noticed the difference in banking in retrospect after reading how the bank branch laws have changed on TSD. I also distinctly recall in the distant past that there was a state district attorney crack down on lease-back non-loans as being against the law because they were circumventing the maximum interest rates allowed. What happened to the laws on interest rates? Are they gone? In relation to this question, is there still a law about the speculative nature of a loan? ie. A minimum down payment? Or is that just for cars and houses, not cash? ---
**Author:** ![Harmonious\_Discord](https://avatars.discourse-cdn.com/v4/letter/h/74df32/32.png) [@Harmonious\_Discord](https://boards.straightdope.com/u/Harmonious_Discord)\ **Post date:** [October 6, 2007, 4:56pm UTC](https://boards.straightdope.com/t/why-dont-payday-loans-violate-usury-laws-ed/421763/2 "2007-10-06T16:56:06Z")
I believe Reagan removed the 18% limit that was on loans. ---
**Author:** ![bob\_co](https://avatars.discourse-cdn.com/v4/letter/b/b3f665/32.png) [@bob\_co](https://boards.straightdope.com/u/bob_co)\ **Post date:** [October 6, 2007, 5:02pm UTC](https://boards.straightdope.com/t/why-dont-payday-loans-violate-usury-laws-ed/421763/3 "2007-10-06T17:02:20Z")
I seem to recal a %100 or %125 limit for many years. Another interesting note is that members of the military have always needed permission from their commanding officer before applying for a loan. ---
**Author:** ![Joey\_P](https://avatars.discourse-cdn.com/v4/letter/j/919ad9/32.png) [@Joey\_P](https://boards.straightdope.com/u/Joey_P)\ **Post date:** [October 6, 2007, 5:45pm UTC](https://boards.straightdope.com/t/why-dont-payday-loans-violate-usury-laws-ed/421763/4 "2007-10-06T17:45:50Z")
[QUOTE=bob\_co] I seem to recal a %100 or %125 limit for many years. Another interesting note is that members of the military have always needed permission from their commanding officer before applying for a loan. [/QUOTE] My wife, for some stupid reason, decided to use BillMeLater, if you miss the payment on that, it’s something like 141% interest. ---
**Author:** ![bob\_co](https://avatars.discourse-cdn.com/v4/letter/b/b3f665/32.png) [@bob\_co](https://boards.straightdope.com/u/bob_co)\ **Post date:** [October 6, 2007, 6:01pm UTC](https://boards.straightdope.com/t/why-dont-payday-loans-violate-usury-laws-ed/421763/5 "2007-10-06T18:01:56Z")
The average payday loan is %500 and the avage car title loan is %300. I pulled those figues out my A$$ but I have inside info. The break even point for a two week $100 payday loan is $11.75. Thats %305.5 APR. Another note is that loan sharking is defined as illegal. Forgive the thread title. The OP question is what the usury laws are. ---
**Author:** ![UltraVires](https://avatars.discourse-cdn.com/v4/letter/u/ecccb3/32.png) [@UltraVires](https://boards.straightdope.com/u/UltraVires)\ **Post date:** [October 6, 2007, 6:06pm UTC](https://boards.straightdope.com/t/why-dont-payday-loans-violate-usury-laws-ed/421763/6 "2007-10-06T18:06:01Z")
Burns (to Homer): Are you familiar with this state’s harsh usury laws? Homer: What? Burns: Oh, nothing. That a silly word I just made up. Sign here… ---
**Author:** ![Duckster](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/duckster/32/1244_2.png) [@Duckster](https://boards.straightdope.com/u/Duckster)\ **Post date:** [October 6, 2007, 6:06pm UTC](https://boards.straightdope.com/t/why-dont-payday-loans-violate-usury-laws-ed/421763/7 "2007-10-06T18:06:25Z")
[This article](http://www.bankrate.com/brm/news/chk/19980217.asp) about loan sharking, err payday loans, is from 1998. ---
**Author:** ![PatriotX](https://avatars.discourse-cdn.com/v4/letter/p/c4cdca/32.png) [@PatriotX](https://boards.straightdope.com/u/PatriotX)\ **Post date:** [October 6, 2007, 6:14pm UTC](https://boards.straightdope.com/t/why-dont-payday-loans-violate-usury-laws-ed/421763/8 "2007-10-06T18:14:39Z")
[QUOTE=bob\_co] Another note is that loan sharking is defined as illegal. Forgive the thread title. The OP question is what the usury laws are. [/QUOTE] Whats the difference? [http://www.investorwords.com/5639/loan\_sharking.html](http://www.investorwords.com/5639/loan_sharking.html) > **[Loan shark](https://en.wikipedia.org/wiki/Loan_shark)** > > A loan shark is a person who offers loans at interest rates that are extremely high or illegal, has strict terms of collection, and generally operates outside the law, often using the threat of violence or other illegal, aggressive, and extortionate actions when seeking to enforce the satisfaction of the debt. As a consistent or repeated illegal business operation or "racket", loan sharking is generally associated with organized crime and certain criminal organizations. Because loan sharks opera... ---
**Author:** ![bob\_co](https://avatars.discourse-cdn.com/v4/letter/b/b3f665/32.png) [@bob\_co](https://boards.straightdope.com/u/bob_co)\ **Post date:** [October 6, 2007, 6:32pm UTC](https://boards.straightdope.com/t/why-dont-payday-loans-violate-usury-laws-ed/421763/9 "2007-10-06T18:32:23Z")
[QUOTE=PatriotX] Whats the difference? [http://www.investorwords.com/5639/loan\_sharking.html](http://www.investorwords.com/5639/loan_sharking.html) > **[Loan shark](https://en.wikipedia.org/wiki/Loan_shark)** > > A loan shark is a person who offers loans at interest rates that are extremely high or illegal, has strict terms of collection, and generally operates outside the law, often using the threat of violence or other illegal, aggressive, and extortionate actions when seeking to enforce the satisfaction of the debt. As a consistent or repeated illegal business operation or "racket", loan sharking is generally associated with organized crime and certain criminal organizations. Because loan sharks opera... [/QUOTE] The title shoud be When did high interiest rate loans become leagal in the US? and what are your local laws on usury? Loan sharking by definition has never been leagal. ---
**Author:** ![Tristan](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/tristan/32/18058_2.png) [@Tristan](https://boards.straightdope.com/u/Tristan)\ **Post date:** [October 6, 2007, 6:45pm UTC](https://boards.straightdope.com/t/why-dont-payday-loans-violate-usury-laws-ed/421763/10 "2007-10-06T18:45:28Z")
I can almost guarantee that this law has been made in response to the existance of CashCall, who prey on those that are fiscally irresponsible… they use the same laws that allow a “Cash and Go” type place exist, but for much MUCH larger sums of money. This enable them to charge, for example, 58% interest on loan (such as mine) or even higher (83%, in the case of my brother, whom was National Guard at the time). ---
**Author:** ![Wee\_Bairn](https://avatars.discourse-cdn.com/v4/letter/w/90db22/32.png) [@Wee\_Bairn](https://boards.straightdope.com/u/Wee_Bairn)\ **Post date:** [October 6, 2007, 9:51pm UTC](https://boards.straightdope.com/t/why-dont-payday-loans-violate-usury-laws-ed/421763/11 "2007-10-06T21:51:26Z")
As an aside, if Judge Marilyn’s rulings on People’s Court can be trusted, in some states if you loan a person money with an excessive interest rate, not only do they not have to pay the illegal interest, they also do not have to pay back the original loan amouunt. I think I read once that rent-a-center places and payday loan places are legally allowed to exceed the rate maximums. ---
**Author:** ![shelbo](https://avatars.discourse-cdn.com/v4/letter/s/3d9bf3/32.png) [@shelbo](https://boards.straightdope.com/u/shelbo)\ **Post date:** [October 6, 2007, 11:37pm UTC](https://boards.straightdope.com/t/why-dont-payday-loans-violate-usury-laws-ed/421763/12 "2007-10-06T23:37:00Z")
The usury laws still exist, and have dramatic penalties. In CA, if you make a usurious (sp?) loan, you need to pay back all the interest times 3 (IIRC). The law has many, many exceptions however - basically any company in the business of making loans, with a California lender’s license, is exempt. So all your finance companies, credit card companies, etc. can charge what they want without violating the usury law. If you loan money to your brother in law, however, at a similar interest rate, he can hit you up for a penalty. ---
**Author:** ![PaulParkhead](https://avatars.discourse-cdn.com/v4/letter/p/7ea924/32.png) [@PaulParkhead](https://boards.straightdope.com/u/PaulParkhead)\ **Post date:** [October 7, 2007, 2:20am UTC](https://boards.straightdope.com/t/why-dont-payday-loans-violate-usury-laws-ed/421763/13 "2007-10-07T02:20:07Z")
Why are US military personnel protected from these dubious practices when the rest of us are not? ---
**Author:** ![alphaboi867](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/alphaboi867/32/3898_2.png) [@alphaboi867](https://boards.straightdope.com/u/alphaboi867)\ **Post date:** [October 7, 2007, 3:16am UTC](https://boards.straightdope.com/t/why-dont-payday-loans-violate-usury-laws-ed/421763/14 "2007-10-07T03:16:25Z")
[QUOTE=PaulParkhead] Why are US military personnel protected from these dubious practices when the rest of us are not? [/QUOTE] Because they’re expected to devote all their thoughts and efforts to the defence of the nation without having to worry about problems at home. Any civil proceedings (including foreclosures, evictions, divorce) are suspended while they’re on active duty. It’s called the [Servicemembers’ Civil Relief Act](http://en.wikipedia.org/wiki/Servicemembers_Civil_Relief_Act) and the idea dates to the Civil War ---
**Author:** ![What\_Exit](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/what_exit/32/10652_2.png) [@What\_Exit](https://boards.straightdope.com/u/What_Exit)\ **Post date:** [October 7, 2007, 3:44am UTC](https://boards.straightdope.com/t/why-dont-payday-loans-violate-usury-laws-ed/421763/15 "2007-10-07T03:44:59Z")
[QUOTE=bob\_co] … Another interesting note is that members of the military have always needed permission from their commanding officer before applying for a loan. [/QUOTE] This does not sound correct. I got a small loan from the on-base Naval credit union and no permission from my CO was required. Even if I was ignorant of the reg, I doubt the loan officer would have been. I have to ask for a cite on this please. Jim ---
**Author:** ![Cluricaun](https://avatars.discourse-cdn.com/v4/letter/c/bb73d2/32.png) [@Cluricaun](https://boards.straightdope.com/u/Cluricaun)\ **Post date:** [October 7, 2007, 6:37am UTC](https://boards.straightdope.com/t/why-dont-payday-loans-violate-usury-laws-ed/421763/16 "2007-10-07T06:37:11Z")
[QUOTE=What Exit?] This does not sound correct. I got a small loan from the on-base Naval credit union and no permission from my CO was required. Even if I was ignorant of the reg, I doubt the loan officer would have been. I have to ask for a cite on this please. Jim [/QUOTE] I’m going to go with **What Exit?** on this one. As a family member of two current duty Marines, this sounds like something that a CO might \*tell \* you, but in reality isn’t true. ---
**Author:** ![Raguleader](https://avatars.discourse-cdn.com/v4/letter/r/258eb7/32.png) [@Raguleader](https://boards.straightdope.com/u/Raguleader)\ **Post date:** [October 7, 2007, 10:24am UTC](https://boards.straightdope.com/t/why-dont-payday-loans-violate-usury-laws-ed/421763/17 "2007-10-07T10:24:02Z")
[QUOTE=What Exit?] This does not sound correct. I got a small loan from the on-base Naval credit union and no permission from my CO was required. Even if I was ignorant of the reg, I doubt the loan officer would have been. I have to ask for a cite on this please. Jim [/QUOTE] Active Duty Air Force in tech school here. I was required to attend a mandatory financial briefing a couple of weekends ago, and while they did address payday loan places and why we should avoid them in much the same manner we wish to avoid four hour long financial briefings, they did not say anything about requiring permission from our superiors to get a loan. Incidentally, another neat perk of being in the military is being able to pull out of an apartment lease without penalty (at least in the state of Texas, I have no idea if this is a federal thing or not) as long as you present a copy of your orders to your landlord on request when you cancel the lease. ---
**Author:** ![ASAKMOTSD](https://avatars.discourse-cdn.com/v4/letter/a/919ad9/32.png) [@ASAKMOTSD](https://boards.straightdope.com/u/ASAKMOTSD)\ **Post date:** [October 7, 2007, 2:25pm UTC](https://boards.straightdope.com/t/why-dont-payday-loans-violate-usury-laws-ed/421763/18 "2007-10-07T14:25:17Z")
[QUOTE=Harmonious Discord] I believe Reagan removed the 18% limit that was on loans. [/QUOTE] Yep - According to [this](http://en.wikipedia.org/wiki/Usury) , “In 1980, due to inflation, national banks (banks that generally include N.A. in their name), federally chartered savings banks, installment plan sellers and chartered loan companies were exempted from state usury limits by the federal government through a special law. This effectively overrode all state and local usury laws.” So apparently, the answer to the question of when loan sharking became legal in the US is “1980”. ---
**Author:** ![Gfactor](https://avatars.discourse-cdn.com/v4/letter/g/9de053/32.png) [@Gfactor](https://boards.straightdope.com/u/Gfactor)\ **Post date:** [October 7, 2007, 2:34pm UTC](https://boards.straightdope.com/t/why-dont-payday-loans-violate-usury-laws-ed/421763/19 "2007-10-07T14:34:06Z")
[QUOTE=bob\_co] The title shoud be When did high interiest rate loans become leagal in the US? and what are your local laws on usury? Loan sharking by definition has never been leagal. [/QUOTE] I’ve edited the title. ---
**Author:** ![Gfactor](https://avatars.discourse-cdn.com/v4/letter/g/9de053/32.png) [@Gfactor](https://boards.straightdope.com/u/Gfactor)\ **Post date:** [October 7, 2007, 2:40pm UTC](https://boards.straightdope.com/t/why-dont-payday-loans-violate-usury-laws-ed/421763/20 "2007-10-07T14:40:39Z")
> [@](#): > > Is Payday Lending Legal? > > Payday Lending Is Illegal in New York > > • States traditionally regulate the small loan market and license lenders who are allowed to charge relatively high rates to make small loans available to consumers without perfect credit standing. New York’s civil usury cap is 16 percent interest a year (New York General Obligations Law § 5-501 and New York Banking Law § 14-a, subd. 2). The criminal usury cap is 25 percent annual interest (New York Penal Law § 190.40). Check cashers are prohibited from cashing checks with deferred dates in New York. > > • New York is one of fifteen states with a usury law or small loan rate caps that apply to loans of up to $500, the typical payday loan size. See attached chart for list of states that prohibit the high cost and short terms of payday loans. > > • Two states set no usury limits for licensed lenders. Payday lenders operate in those states with no limits on their finance charges or loan terms. > > • Thirty-three states and the District of Columbia have enacted safe harbor laws to exempt payday lending from small loan and/or usury laws and to authorize single payment loans based on check-holding. Restrictions on payday lending vary widely among these states. Authorized maximum loans range from $255 to $1,000. There is no minimum term for loans in 25 states, and the highest maximum term is six months in Ohio. The vast majority of payday loans are for a few days up to two-weeks in length. > > Finance charges permitted for payday loans in states that cap fees range from 10% of the loan plus up to $5 administrative fee in Florida to 25% of the loan in Montana. Eight states set no limit on payday loan finance charges. [404 Page Not Found](http://www.nypirg.org/Consumer/payday/) [http://www.consumerlaw.org/initiatives/seniors\_initiative/payday.shtml](http://www.consumerlaw.org/initiatives/seniors_initiative/payday.shtml) This is particularly good and recent: [http://papers.ssrn.com/sol3/papers.cfm?abstract\_id=1000041](http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1000041) (click download document and then click one of the links to view the huge pdf). A good source of resources on payday lending and military personnel: [http://www.responsiblelending.org/issues/payday/military.html](http://www.responsiblelending.org/issues/payday/military.html) And two threads on usury or payday loans: > **[Why are Payday lenders considered so evil?](https://boards.straightdope.com/sdmb/showthread.php?t=398523)** > > No one is forcing people to use them. Why are they considered so evil? Payday loans > **[What is "usury" and at what point is it illegal?](https://boards.straightdope.com/sdmb/showthread.php?t=316336)** > > About 9 months ago, I was in a financial bind. Pretty bad, and the only thing I could think of to do was call the Cash Call people. For those of you that haven’t seen Gary Colemans commercial, Cash Call loans money. They will loan money to just... [Next page](https://boards.straightdope.com/t/why-dont-payday-loans-violate-usury-laws-ed/421763.md?page=2)