Vermont

Currently, Vermont has usury laws that prohibit triple digit interest rates. For this reason, payday loan companies are barred from legally operating in the State of Vermont. The current interest rate for small consumer loans in Vermont is 24%.

Vermont’s loan laws are established under the Small Loan Act. Small loan laws were first adopted in the early 20th century in response to loan sharking. The first small loan law that was passed, the Uniform Small Loan Law was widely adopted by other states. The idea behind having small loan laws in Vermont is to drive loan sharks out of business by making it possible for licensed banks to lend small consumer loans with lower interest rates.

Although payday loan companies aren’t allowed to operate in Vermont, there are ways around the state’s small loan laws. Some payday loan companies buy what are called charters that give them the right to assume rates and loan terms from out of state.

Here’s how it works: a payday loan company establishes itself in the state of Vermont. Before doing so, it compiles a list of banks in Vermont that offer charters. The payday loan company buys a charter with a bank that has headquarters in another state with higher interest caps. By law in Vermont, a payday loan company can charter with banks locally and assume out of state rates. For this reason, payday loan companies are able to escape the small loan laws of Vermont.