Payday loans are prohibited in Pennsylvania. There are some consumers and lenders that are still able to get past these laws. The internet is their answer. Native American tribes make short-term loans based on post-dated checks with exorbitant interest rates, using their sovereignty as a way around state law. In 1998 there was a law passed in Pennsylvania that stopped all check-cashing companies from lending money based on receiving post-dated checks from the consumer. Even though they are not check-cashing companies, payday lenders are subject to this rule.
In addition to prohibiting payday loans, Pennsylvania has some very strict rules regarding interest rates that can be charged to consumers. There are some payday loans that can run up to 700% interest annually. The average payday loan has an interest rate that runs approximately 300%. Pennsylvania passed the Consumer Discount Company Act. This was specifically designed to regulate interest rates. It specifies that small short-term lenders cannot charge more than 6% on any loan they issue in the state. Some lenders are allowed to charge up to 24% interest but they need proper licensure to do so.
The initial result of this legislation was extremely positive. A large percentage of payday loan companies stopped working in the state. Most payday lenders in the state of Pennsylvania just didn’t feel that the low-interest rates are beneficial to them so they don’t issue loans anymore. There are some lenders that have partnered up with native American tribes and together continue to fleece the consumer. The state of Pennsylvania is aware of this but unfortunately cannot do anything about it. It looks like payday loans will be around in Pennsylvania for a while. This begets an interesting question…
Why do people still pay these ridiculously high-interest rates to obtain payday loans in Pennsylvania? The answer is pretty obvious. They need the money to pay their bills.