INFORMATION ABOUT
PAYDAY LOANS

Many people with financial problems think about making a short term unsecured payday loan. The information below explains the terms of typical payday loans and discusses some downsides to these high interest loans.

We hope that the questions and answers presented here will assist you in familiarizing yourself with the issues surrounding payday loans. While the material below attempts to answer common questions in this area, State and local laws may significantly modify the facts set forth. Because all legal problems are unique, nothing provided here is a substitute for the advice of competent counsel. We strongly urge you to consult with an attorney licensed to practice in your state about any particular legal problem you may have.

WHAT IS A PAYDAY LOAN?

A payday loan is a small (usually between $100.00 and $500.00), short term (typically two weeks), unsecured, single payment, high cost (usually with an annual percentage interest rate between 400% and 800%) loan made either from a local payday lender or over the internet. A typical payday loan would be a loan of $300.00 for two weeks. At the end of the two week period, the borrower is obligated to repay the lender the $300.00 borrowed plus a fee or finance charge of $60.00, or a total of $360.00.

ARE PAYDAY LOANS LEGAL?

Most states have laws setting forth the requirements that a lender must meet in order to make small loans payday loans. A state can more easily ensure that a local lender is in compliance with state law than a lender who solicits loans over the internet. Dessen, Moses & Rossitto is currently involved in litigation with out-of-state internet lenders yjat the firm believes have violated certain federal laws and laws of the Commonwealth of Pennsylvania.

CAN A PAYDAY LOAN BE EXTENDED?

Most payday lenders will permit a borrower to renew an existing loan between one and four times for the payment of an additional fee or finance charge. So, using the example from above, a borrower would pay the lender $60.00 at the end of the first three two week periods and $360.00 at the end of the fourth two week period. At the end of the eight weeks, the borrower would have paid the lender $240.00 in interest for the $300.00 loan, or interest at an annual percetage rate of 486.67%.

WHAT ARE SOME OF THE OTHER TERMS OF A PAYDAY LOAN ?

Local payday lenders usually require the borrower to leave a check in the amount of the loan plus the finance charge with the lender. Internet payday lenders require borrowers to authorize electronic withdrawals from their checking accounts. Almost every payday lender requires borrrowers to give up their rights to go to court if there is a problem with their loan. Instead, payday lenders require borrowers to submit any dispute to arbitration conducted by a company selected by the lender.

SHOULD I BORROW FROM A PAYDAY LENDER?

Although most people with a regular paycheck can get a payday loan, it should be your last choice because of the costs involved. If you absolutely have no other alternative, you should do everything possible pay the loan back on the due date to avoid paying additional extraordinairly high fees.

WHAT HAPPENS IF I CANNOT AFFORD TO REPAY MY LOAN?

If you do not repay a loan made from a local payday lender when it is due, the lender will deposit the check you left when you made the loan. If the loan was made from an internet lender, the lender will attempt to electronically deduct the amount due from your checking account. Some lenders, if there are not sufficient funds in the account or the account has been closed, will refer the matter to a collection agency. In some cases the lender or collection agency may attempt to collect the loan amount by pursuing criminal charges under your state's bad check laws.

DESSEN, MOSES & ROSSITTO is happy to assist you in any matter that arises in either Pennsylvania or New Jersey, the two states in which our attorneys routinely practice. If you have other questions or comments about payday loans or any other area in which we practice, please send us an E-Mail message with your questions or comments and we will be happy to try to assist you.

LINKS TO OTHER INTERESTING INFO

Better Business Bureau
Consumer Federation of America
Fair Debt Collection Practices Act
Federal Reserve Board, Regulation E (Electronic Fund Transfers)
Federal Trade Commission
Truth in Lending Act
Uniform Commercial Code

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