While both states and the federal government have jurisdiction when policing payday lenders and protecting consumers, states have been more aggressive on this front. Several have taken individual actions against businesses that make short-term loans with annual interest rates in the triple digits.
Fifteen states and the District of Columbia ban payday loans outright; and nine states allow them with restrictions, such as limits on loan sizes and interest caps. Online, however, payday lenders have managed to dodge many of the bans and restrictions. In New York, Benjamin M. Lawsky -- the state's Superintendent of Financial Services -- directed 35 loan companies to cease and desist offering and making usurious payday loans in New York by any means, including the Web. He also threatened banks with legal action if they did not shut off the money source for payday loans. Internet-based Western Sky announced that it would stop funding loans on Sept. 3.
"This is a tremendous victory for families in every state," said Uriah King, the Center for Responsible Lending's vice president of state policy. "Contrary to payday lender spin, illegal lending can be stopped -- and states are leading the way." CRL notes that momentum on the issue has shifted, but agrees that there is still room for change at the federal level. “State laws are working, but all Americans deserve protection from abusive payday loans,” said Gary Kalman, CRL’s executive vice president for federal policy. “The Consumer Financial Protection Bureau should look to states for tested models of effective laws as they develop rules that will protect families nationwide.”