Currently there are 18 states that do not allow by law Online Payday Loans. Other states that do allow it supposedly have it governed. Congress is working on a national standard for Online Payday Loans. Some states do not allow this service because people are not supposed to write post dated checks.

Somehow, at least for now, Online Payday Loans have found a way around the system and have reclassified the word loan to get out of giving the state the power to regulate the interest rates that Online Payday Loans impose. 19 states have been successful using this tactic and have avoided any control from the state on interest rates, 13 states allow Online Payday Loans and have no set regulations for them whatsoever, with the exception of Indiana that does set a maximum annual rate but still allows a $33 finance fee per loan borrowed. The remaining states do have a cap on interest charges but allows for no exemptions.

Because of the hot debate over interest charged, there is a usury law that allows Online Payday Loan Companies to do business only with companies from those states. Online Payday Loan Companies refer to their rates as fees whereas legally it is called interest but the term fees allow them a lot more flexibility. State laws do require Online Payday Loan Companies to state APR and set limits on rates and loan renewals.

Some states simply do not allow Online Payday Loans because they take advantage of the lower and lower middle class population as they are the primary group who uses these types of services. With the APR so barbarically high, the states intervene as a precautionary measure. Generally, the people who also take Online Payday Loans are in a position where their options are greatly limited because they have bad credit. Therefore they are unable to get a credit card or a bank loan which people with a good credit standing conventionally do.

The states are well aware of how Online Payday Loan Companies operate and know that once a consumer turns to one of the many Online Payday Loan Companies they are trapped in a repetitive cycle that puts them in worse shape than they were in originally. Further, this industry continues to flourish from the continuous cycle of repeat customers. These people become repeat customers not so much by choice but because they can not afford to repay the loan in its entirety and end up flipping the loan until the next payday and so on.

Some states actually consider Online Payday Loans and any other type of Payday loan in general a felony. If a person is caught operating a company such as this they are charged with racketeering charges and face felony convictions. This is because it really is not much more than a loan sharking business. Other states have strict regulations regarding this while still others have no guidelines at all. The states that have regulated or banned Online Payday Loans have done so because in most cases rather than borrowing this money and it being of help, it turns out to be a financial burden on the consumer that can take a very long time and a lot of money to climb out of.