I answer questions on several legal websites and I have answered so many questions dealing with payday loans that I felt it was time to address this topic. Payday loans are absolutely horrible. No matter how desperate a debtor’s situation may be, payday loans are never the solution. They carry exorbitant interest rates for short term debt. Typically, whatever caused the debtor to be in financial straits has not resolved itself by the time the loan has to be repaid. So what the payday lenders do is allow a debtor to rollover the debt. They are not doing the debtor any favors. Given the levels of interest the payday lenders charge, the debtor quickly finds him or herself wholly unable to pay in a short matter of time as what had been a small loan of a few hundred dollars mushrooms into thousands. At that point, the debtor usually quits paying altogether and because the debtors are required to give the payday lender their banking information the debtors have to close their bank accounts to keep the lenders from continually raiding their accounts.
Then the phone calls start. If this is an overseas or tribal (several Native American tribes are now in the business of payday lending), the payday lenders take the position that state and federal lending and consumer protection laws may not apply. As a result, some of these lenders do not comply with the licensing or any other provisions. And they will violate the debt collection laws with impunity. It often does no good to tell these lenders not to call you at work as you often cannot find a valid address to write to the lender to tell them. Telling them verbally does no good as they don’t care. And they lie! They threaten to sue a debtor civilly or criminally, claiming that what the debtor has done is engage in criminal fraud. Taking out a loan that you intend to repay but cannot because of difficulties is NOT criminal fraud and you cannot go to jail. In most cases, especially where payday lending is prohibited or limited, you cannot even be sued. However, the payday lenders are hoping you don’t know any different so they will tell you anything and even impersonate law enforcement officers, government officials or attorneys all in an effort to get you to pay.
Some other points about the laws. Payday loans are governed by where the borrower resides, not where the lender is located. This is important if your state restricts or prohibits lending as it will affect the lender’s ability to sue you.
So what to do? If you are dealing with a payday lender and payday lending is prohibited, then I suggest contacting the attorney general in your state. Provide as much information as you can about the lender and hopefully, the attorney general can go after the lender to get them to stop the harassment. The attorney general has much greater enforcement power and if a problem gets bad enough and enough citizens are affected, they will act if there is a way to do so. If the lender is overseas, then not much can be done. I would still notify the attorney general but such lenders are outside the reach of US law.
If the payday lender is in the US, you can always try to settle the debt for a lower sum. You have a moral, if not a legal, duty to repay what you borrowed, but not the exorbitant interest that they charge. But if you settle, then get any agreements in writing BEFORE you pay. I don’t care what they promise you verbally – if the payday lender will not send you a letter outlining the settlement, then you do not pay. And never ever give them or any creditor access to your bank account!
Since I am admitted in Georgia, North Carolina and Pennsylvania, I will now focus on the laws in each of these states. If you are not in one of these states, there are several websites where you can check:
A note of caution – not all of these sites are completely accurate and I would specifically check with your state attorney general or banking department regarding the payday loan laws in your state to be certain.
Payday Lending in Georgia
Here is a link from the Georgia Department of Banking and Finance regarding payday loans: http://dbf.georgia.gov/payday-lending
Payday lending is largely prohibited in Georgia UNLESS the loan is made pursuant to the Georgia Industrial Loan Act (GILA) or is one of the other enumerated exceptions. O.C.G.A. § 16-17-2. Collection of a payday loan made in violation of the law is barred. O.C.G.A. § 16-17-3.
To be legitimate under GILA, the lender must be: (a) licensed; and (b) prohibited from charging more than 10% interest plus loan fees. O.C.G.A. § 7-3-8 and § 7-3-14. Payday loans are therefore legal to this extent.
Since lenders must be licensed and are limited to the fee they can charge, many payday lenders do not find it profitable to make legal payday loans. That does not stop them from violating the law and making the loans. However, it does mean that the lender cannot sue you or pursue any criminal charges as it would expose the lender to criminal charges. O.C.G.A. § 16-17-2(d). So a lawsuit by the payday lender is very unlikely.
Payday Lending in North Carolina
In 2001, the payday lending laws were allowed to expire. Payday lenders tried to circumvent the law and in 2006, the NC Attorney General was able to work out a deal with payday lenders who thereafter ceased doing business in North Carolina. You can read about it here: http://www.ncdoj.gov/News-and-Alerts/News-Releases-and-Advisories/Press-Releases/Payday-lending-on-the-way-out-in-NC.aspx.
Unfortunately, North Carolina has not seen the last of payday lenders. Banks are now getting into the act and coming up with their own creative ways to evade the prohibition on payday lending, as evidenced by this recent story: http://www.charlotteobserver.com/2012/09/19/3539841/regions-bank-assailed-for-payday.html.
Again, if you are threatened by a payday lender, a lawsuit is very unlikely to occur because the loans are illegal here.
Payday Lending in Pennsylvania
Pennsylvania has several laws which come into play, the Consumer Discount Company Act (CDCA), codified at 7.P.S §§ 6201—6219 and the Loan Interest Protection Law (LIPL), codified at 41 P.S. §§ 101-605.
While the laws actually have to be read in details as they are complex, in a nutshell, the CDCA requires companies lending less than $25,000 to be licensed. 7 P.S. § 6203.A. Licensed companies may charge interest at a rate in excess of the statutory maximum of 6%. 7 P.S. § 6213.E and § 6217.1A. However, unlicensed companies making loans under $50,000 cannot charge more than 6% under the LIPL, 41 P.S. § 201. The borrower is not required to pay interest over and above the statutory rate if the company is unlicensed. 41 P.S. § 501.
So payday loans are legal in Pennsylvania to the extent that the lender is either licensed and makes a loan of less than $25,000 under the CDCA OR the lender is unlicensed and caps interest at the maximum 6% rate specified in the LIPL.
What is good about this is that most payday lenders do not want to be licensed and do not want to cap their interest rates at 6%. While such companies can prey on consumers, if they fail to comply with these requirements, they cannot sue as it would subject them to criminal prosecution, LIPL, 41 P.S. § 505 and CDCA 7 P.S. § 6218, as well as a civil suit by the attorney general, LIPL, 41 P.S. § 506 or individual borrower, LIPL, 41 P.S. § 504. An individual can recover attorney fees. LIPL, 41 P.S. §§ 503-504.
Copyright (c) 2012 by Rachel Lea Hunter
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