Idaho, Nevada, and Utah are three of only seven states that impose no legal limits on payday loans. Subsequently, they have some of the highest interest rates in the country, according to a new study from the Pew Charitable Trusts.
Idaho payday lenders charge an average 582 percent annual interest on their loans. Nevada averages 521 percent in annual interest, and Utah averages 474 percent. Among states with storefront payday lenders, the lowest average interest is in Colorado at 129 percent, followed by Oregon at 156 percent and Maine at 217 percent. Fifteen states either ban payday loans or cap their interest rates at 36 percent.
The research also shows that when there is no limit on interest rates, competition among lenders does not tend to lower rates significantly. The four largest payday loan companies in the nation charge similar rates within any given state, usually the maximum permitted by law. States with higher limits have more stores; but their rates tend to stay higher, despite competition.
The study calls on states to limit payments to "an affordable percentage of a borrower's periodic income." Monthly payments above 5 percent of a borrower's gross monthly income are considered unaffordable. The average payday loan, however, eats 36 percent of a person's pre-tax paycheck.