State Restrictions on Small-Dollar Loans and Financial Services, 2004-2009: Summary, Documentation, and Data

STATE RESTRICTIONS ON SMALL-DOLLAR LOANS AND FINANCIAL SERVICES, 2004-2009: SUMMARY, DOCUMENTATION, AND DATA NANCY PINDUS DANIEL KUEHN RACHEL BRASH URBAN INSTITUTE October 2010 STATERESTRICTIONS ONSMALL-DOLLARLOANS ANDFINANCIALSERVICES,2005–2009:SUMMARY,DOCUMENTATION,ANDAPPENDIX Prepared for the US Department of the Treasury by the Urban Institute, 2010Authors of this report are:Nancy Pindus, Urban InstituteDaniel Kuehn, Urban InstituteRachel Brash, Urban InstituteAcknowledgmentsThis document was completed under contract to the U.S. Department of the Treasury under OrderNumber GS23F8198H/T09BPA017, with funds authorized by the U.S. Department of the Treasury.Oversight and review were provided by the Office of Financial Education and Financial Access. Thedocument benefited from the experience and advice of Signe-Mary McKernan and Caroline Ratcliffe andpolicy reviewers from the Center for Responsible Lending, the Conference of State Bank Supervisors, theU.S. Department of the Treasury, and the Association of Progressive Rental Organizations. A reviewerfrom a pawnbroker association who wished to remain anonymous provided confirmation of theaccuracy of our data on pawnshop restrictions.The Urban Institute is a nonprofit, nonpartisan policy research and educational organization thatexamines the social, economic, and governance problems facing the nation. The views expressed arethose of the authors and should not be attributed to the Urban Institute, its trustees, or its funders. TABLE OFCONTENTSSTATE RESTRICTIONS ON SMALL-DOLLAR LOANS AND FINANCIAL SERVICES ______________________________ 1STATE POLICY DATA DOCUMENTATION ____________________________________________________________ 2STATE AUTO TITLE LOAN RESTRICTIONS________________________________________________________________ 4STATE PAWNSHOP RESTRICTIONS____________________________________________________________________ 6STATE PAYDAY LOAN RESTRICTIONS___________________________________________________________________ 7STATE REFUND ANTICIPATION LOAN RESTRICTIONS________________________________________________________ 11STATE RENT-TO-OWN RESTRICTIONS_________________________________________________________________ 13SOURCES___________________________________________________________________________________ 17APPENDIX A__________________________________________________________________________________ 19 1STATERESTRICTIONS ONSMALL-DOLLARLOANS ANDFINANCIALSERVICESThe Urban Institute documented several types of restrictions of five small-dollar products: auto titleloans, pawnshop loans, payday loans, refund anticipation loans (RALs), and rent-to-own (RTO)agreements. The table below provides the number of states with each category of restriction for the fiveproducts as of 2009.Auto Title RestrictionsAuto title loans prohibited27 states1APR cap13 states2Pawnshop RestrictionsMonthly interest rate cap40 statesReturn requirement10 statesPayday Loan RestrictionsPayday loan prohibited13 statesAPRcap33 statesMaximum loan amount33 statesMinimum or maximum period35 statesFee disclosure requirement34 statesRefund Anticipation Loan RestrictionsAPR cap3 statesDisclosure requirements17 statesRight to rescind2 statesRent-to-Own RestrictionsTotal cost or APR cap11 statesTotal cost label disclosures16 statesReinstatement rights346 statesNote:Some restrictions are aggregated for the purposes of this table. Forexample, at least three types of disclosures may be required by rent-to-ownregulations, but they are combined for the purposes of this summary table. APR,fee, and price caps are also combined.1. Texas prohibits auto title loans, but lenders circumvent restrictions withunregulated credit service organizations.2. South Carolina has an APR cap, but it only applies to small auto title loans andthus does not cover many loans.3. Requires stores to reinstate the terms of an agreement if a delinquentborrower meets certain requirements.The majority of states provide some form of regulation of the five products considered. The four maincategories of regulation are disclosures, price caps, prohibitions, and contract requirements. Disclosuresand price caps can be placed on different components of price, including restrictions on total dollarcosts, interest rates, and annual percentage rates. 2A number of states explicitly prohibit these small-dollar products:Twenty-seven states prohibit auto title loans, and thirteen states prohibit payday loans.Forty-seven states have a price cap on at least one of the five products.Payday lenders also face restrictions on loan periods and maximum loan amounts.The majority of states impose an interest rate cap on pawnshops and payday lenders.In contrast, less than half the states impose disclosure or price caps on rent-to-own agreements.STATEPOLICYDATADOCUMENTATIONMany of the restrictions placed on alternative financial services are implemented at the state level.Some prod