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Rachel Hunter, J.D. | Article

Payday Lending Generally

11/22/2012
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:

http://www.credit.com/credit_information/credit_law/PaydayLoanLaws.jsp; http://www.paydayloaninfo.org/state-information;
http://www.ncsl.org/issues-research/banking/payday-lending-2012-legislation.aspx

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.


Copyright (c) 2012 by Rachel Lea Hunter


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