Payday loan services in the US are regulated by individual state legislation and can vary significantly from one state to another. Depending on the prevalence of lobby pro and against payday loans different laws are passed to the local governments, forcing businesses to adjust their activities on a constantly shifting ground. In overall, 37 states allow legal payday loan services, while in other 13 states it is either illegal or regulated so strictly there’s no reason for the lenders to work there. Such regulations usually set strict limits on the percentage of fees for the services and are expressed in APR.

In those states where the usury laws on payday loans take force, some businesses have found ways to avoid such regulations. One of the most popular ways of doing so is to collaborate with a commercial bank based in another state. Such a practice has become widely used and known as the “rent-a-bank” model, which is perfectly legal under the interest-rate exportation doctrine, established by Marquette Nat. Bank of Minneapolis v. First of Omaha Service Corp. 439 U.S. 299 (1978), that makes the loan governed by the state laws where the lending bank is located, not the borrower’s state of residence. The practice has become so popular that the federal regulators were forced to put restrictions on such relations between commercial banks and lending services, making them follow strict guidelines. Since 2007 no no federally insured banks are using this model of payday loan services anymore.

Specialists argue that state laws have to take in consideration all possible fees for payday loans, because setting regulation on one fee can force lenders to raise other fees. That’s why the federal Truth In Lending Act requires all fees to be disclosed when the borrower signs the lending contract.

In some states the legislation sets limits on the number of loans a person can take at a time. Such regulations impose a real-time tracking system, that allows lenders to whether the applicant has an active loan at this moment or not. Such systems are currently present in Virginia, New Mexico, Florida, North Dakota, Illinois, Indiana, Michigan and Oklahoma. In Virginia there’s also an additional limit on the number of payday loans a person can take per year. While in Oklahoma a person can have more than one past due loan.

As said above, payday loan services are primarily regulated by state authorities in the US. However, in October 2006 a federal regulation concerning payday loans to military personnel and member of their families has been passed to the Congress, setting strict regulations on payday loan services for this group of citizens. This is due to the fact that military bases and facilities were usually a very attractive target for businesses to set their service centers, taking advantage of the military personnel’s tendency to use these services.

All of this makes it easier and more advantageous for consumer to use payday loans in the US today. If previously there were many disadvantages of taking the loan, now it is less risky and better regulated.