PayDay Loans
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PayDay Loans PayDay Loans Presentation Transcript

  • Payday Loans Laws Protecting Montana Borrowers 2002
  • Authors: Marsha A. Goetting MSU Extension Family Economics Specialist Britta A. Schernthanner FCS Intern, MSU
  • MSU Extension MontGuide MT200102HR www.montana.edu/wwwpb/pubs/mt200102.html
  • Advertisements
    • Quick Money!!!
    • No Credit Checks!!!
    • Fast Cash Loans!!!
    • Payday Advances!!!
  • Payday loan Industry
    • Emerged in response to consumer demand for small loans for short periods of time
  • Small Loans
    • Typically not made by traditional lenders
      • $50 to $300
  • Common Loan Names
    • Cash Advance
    • Payday
    • Post dated Check
    • Delayed Deposit Check
  • Payday Lenders
    • MT Definition
      • Business that provides loans from $50 to $300 for up to 31 days
  • Montana Division of Banking & Financial Institutions
    • Issues annual licenses
    • Conducts annual examinations
  • Montana Licensed Payday Lenders
    • 97
    • January of 2004
  • How does a payday loan work?
    • Two ways are typical
  • Method 1
    • Lender loans money to borrower
    • Lender accepts check for loan amount plus fees
  • Method 1 (cont’d)
    • Borrower dates check on day written
    • Lender holds check for agreed number of days of the loan
  • Payday Loan Example:
    • Mary has too much month left at the end of the money!
    • Borrows $100
  • Mary Borrows $100
    • Writes check for $113
      • $100 plus $13 fee
      • Dates check on day written, January 22
  • Mary’s Payday Loan
    • 7 day loan
      • Payment Due
        • January 28
    • Lender deposits check for $113
  • Method 2
    • Lender loans money
    • Lender accepts post dated check for loan amount plus fees
  • Method 2 (con’d)
    • Lender holds check until date written on it
    • Borrower can buy back check with cash
  • Payday Loan Example:
    • Mike has too much month left at the end of the money!!!!
  • Mike Borrows $100
    • September 10
      • writes check for $118
    • Post dates check
      • September 21
  • Mike’s Loan
    • 12 days later
    • Lender deposits check for $118
  • Montana Deferred Deposit Loan Act October 1, 1999
  • How much money may be borrowed?
    • Maximum
      • $300
      • Plus fees
  • How much money may be borrowed?
    • Minimum
      • $50
      • Plus fees
  • Costs for loans
    • Finance Charges
    • Fees
  • Montana Fee Cap
    • Can’t exceed 25% of face value of check
  • Example Fees on $100
    • 4 days =
    • 10 days =
    • 15 days =
    • 20 days =
    • 30 days =
    • $10.00
    • $16.00
    • $22.00
    • $33.24
    • $33.25
  • Federal Law
    • Payday lenders must disclose finance charges (fees) as
      • Annual Percentage Rates APRs
  • Shop Around
    • Compare Annual Percentage Rates
      • APRs
  • Typical Loan APRs
    • 10% to 18%
      • Banks, Savings & Loans, Credit Unions
  • Typical Loan APRs
    • 16 to 21%
      • Credit Card Cash Advances
  • Payday Loans: Typical APRs
    • 4 days =
    • 10 days =
    • 15 days =
    • 20 days =
    • 30 days =
    • 913%
    • 584%
    • 535%
    • 607%
    • 406%
  • Table 1: Page 5
    • Examples
      • Fee Amounts
      • APRs, &
      • Fee Rates per $100
  • Table 1: Page 5 Fees, APR, Fee Rates per $100
  • Montana Deferred Deposit Loan Act Additional Rules
  • Payday loan cannot exceed
    • 25% of monthly net income of borrower
  • Example 1
    • $1,110
    • x .25
    • $ 275 limit on loan
  • Example 2
    • $1,500
    • x .25
    • $ 375 but loan limit is $300
  • Borrower cannot
    • Have more than 2 loans outstanding at any one time with single payday lender
  • Limitation
    • Total of two loans with same lender can’t exceed $300 limit
  • Can loan be extended ? NO
    • Lenders prohibited from refinancing a payday loan with proceeds of another payday loan to same borrower
  • What does lender require from borrower?
    • Photo ID
    • Checking Account
    • Payroll Stub
    • Physical Address
  • What does lender have to provide to borrower?
  • Two items
      • Pamphlet
      • Written Loan agreement
  • Pamphlet
    • Explains borrower’s rights & responsibilities for payday loan
  • Pamphlet
    • Telephone number for Montana Department of Commerce
      • 406-444-2091
  • Pamphlet
    • Informs borrower that MT Dept of Commerce provides info about lender’s license
  • What does lender have to provide to borrower?
    • Two items
      • Pamphlet
      • Written Loan agreement
  • Requirements
    • Written Loan agreement
  • Loan Agreement
    • Name, address & phone number of lender
  • Loan Agreement
    • Means of identifying employee who signs agreement
  • Loan Agreement
    • List of fees & interest charges to be paid by borrower
  • Loan Agreement
    • Description of borrower’s payment obligations
  • Statement
    • “ You cannot be prosecuted in criminal court for collection of this loan”
  • But…..If loan not paid
    • Lender can sue in Civil Court
  • Civil Court
    • Can assess borrower
      • Court fees
      • Attorney’s fees
  • Civil Court
    • Garnish borrower’s wages
  • Civil Court
    • Place lien on home or other asset
  • Alternatives to Payday Loans
  • Alternatives
    • Check cost of loan from bank, credit union, or savings & loan institution
  • Alternatives
    • Ask employer for advance on paycheck
  • Alternatives
    • Ask family or friends for a short-term loan
  • Alternatives
    • Is APR on credit card cash advance lower than APR on a payday loan?
  • Alternatives
    • Use credit card to make purchases & pay total when due
  • Alternatives
    • Use credit card to make purchases & make monthly payments
  • Alternatives
    • Ask creditors for more time to pay bills
  • Alternatives
    • Obtain overdraft protection on checking account
  • How to avoid needing a Payday loan?
    • Better management of money
  • Track Income & Expenses
    • Use info to develop spending plan
  • Establish Emergency Fund
    • Use these funds instead of payday loan
  • Avoid these rates
    • 4 days =
    • 10 days =
    • 15 days =
    • 20 days =
    • 30 days =
    • 913%
    • 584%
    • 535%
    • 607%
    • 406%
  • Payday Loans Laws Protecting Montana Borrowers 2002