The states where payday lenders don't operate have generally enacted a simple 36% APR cap on loans. Payday lenders say the fee on their short term loans would be so small at that rate that it isn't worth doing business in those states. The cap more or less serves as a ban on payday lending.

The Internet has allowed payday lenders to skirt these bans in some respects. If a consumer in a state where payday lending is banned goes online to take out a loan, the lender is physically outside the state's jurisdiction.

Now there are signs that the states are upping the ante, showing a serious determination to cut off payday lending at its source. In early August Benjamin M. Lawsky, New York's Superintendent of Financial Services, sent letters to 35 payday loan companies directing them to cease and desist offering and making usurious payday loans in New York by the Internet or any other means.

Lawsky said New York's ongoing investigation has shown that these companies have charged New York consumers for payday loans with interest rates many times the legal limit. He further warned debt collectors not to try to collect these loans if consumers refuse to pay them back.