Pennsylvania has a new way of dealing with the growing number of online lenders. Internet payday lenders and other out-of-state companies that make consumer loans to Pennsylvania residents will need to be licensed by the state Department of Banking and comply with state laws.

"Pennsylvania consumers should be protected by Pennsylvania laws regardless of where the company they're doing business with is located, whether it's down the street, in another state or on a Web site," said Secretary of Banking Steve Kaplan. "This new approach addresses the rising prevalence of Internet-based lending activity, especially Internet payday lending, which has left Pennsylvania consumers vulnerable to practices that our laws were intended to prohibit."

The Department of Banking had previously interpreted the state's Consumer Discount Company Act (CDCA) to apply only to companies with a physical location or employees in the commonwealth. As a result, companies in other states were able to make loans to Pennsylvania consumers via the Internet or mail under terms that would not comply with Pennsylvania law.

The department's new position states that the CDCA applies to any company that lends to Pennsylvania consumers. The CDCA limits the interest and fees a non-bank company can charge for non-mortgage loans of $25,000 or less. If companies do not obtain a license from the Department of Banking by Feb. 1, they will face the potential for fines and other penalties.

In May, the Pennsylvania Supreme Court upheld a lower court ruling in the department's lawsuit against Advance America, the nation's largest payday lender, for charging interest and fees on lines of credit that violated state law.

The department is now seeking restitution for Advance America customers who were charged nearly $150 per month in fees for loans up to $500.

Kaplan said some banks and credit unions offer similar loans that cost much less and can be paid back over longer periods of time than traditional payday loans.

The Pennsylvania Treasury Department and the Pennsylvania Credit Union Association partnered in 2006 to create the "Credit Union Better Choice" program. Today, there are 72 credit unions with 193 locations throughout the state that offer Better Choice loans.