What is the law regarding payday loans if the lender is not licensed in your state?

UPDATED: Feb 19, 2012

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What is the law regarding payday loans if the lender is not licensed in your state?

I have defaulted on several payday loans. I have read that if they are not licensed in your state that the contract is void; you would only owe the amount borrowed. Is this true?

Asked on February 19, 2012 under Bankruptcy Law, Ohio


FreeAdvice Contributing Attorney / FreeAdvice Contributing Attorney

Answered 11 years ago | Contributor

Different states have different laws with respect to unlicensed pay day loan companies. Most states old that if a pay day company is not licensed to do busienss in the state of operation, it cannot bring a lawsuit or defend a lawsuit against it until it is licensed.

Other states have statutes holding that the loan is deemed an interest free loan to be paid back by the borrower under the agreed terms of the loan.

I suggest that you consult with an attorney who practices consumer law in your state of residence to further answer questions that you have on your pay day loan and review the loan documentation so that you can receive a more definitive answer to your question.

My initial assessment is that the interest rate on these pay day loans most likely violate state usury laws on allowed interest.

IMPORTANT NOTICE: The Answer(s) provided above are for general information only. The attorney providing the answer was not serving as the attorney for the person submitting the question or in any attorney-client relationship with such person. Laws may vary from state to state, and sometimes change. Tiny variations in the facts, or a fact not set forth in a question, often can change a legal outcome or an attorney's conclusion. Although AttorneyPages.com has verified the attorney was admitted to practice law in at least one jurisdiction, he or she may not be authorized to practice law in the jurisdiction referred to in the question, nor is he or she necessarily experienced in the area of the law involved. Unlike the information in the Answer(s) above, upon which you should NOT rely, for personal advice you can rely upon we suggest you retain an attorney to represent you.

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