often come across enticing ads such as "EeeZee Payday Cash..."
｡ｧCash at your doorstep on the same day..｡ｨ etc. on the FM, TV,
Net, and in our mailboxes. Are the numerous payday loan companies
that promise cash advance loans, check advance loans, or deferred
deposit check loans, really a viable option to the consumer? What
are the laws related to this flourishing industry in the United
States? This article aims to answer these questions.
payday loans are two to four weeks loans. Let us take a typical
example of how payday loans work. A person borrows $400 from a
payday loan company at which time, he would also write a personal
check to the lender for $360, including the borrowed amount $400
and a $60 fee. On the following payday, the person either redeems
the check by paying the $360 in cash, or lets the payday loan
company to withdraw the amount, by using the personal check. If
the person｡ｦs bank savings is less than $360, the borrower may
face legal action, for the bounced check. Usually it is difficult
to raise $60 within the two weeks period to clear the loan and
so, the person gets it renewed for another term. This gets repeated.
the above example, the interest of $60 is the equivalent of $1,170
for a year, or 390 % Annual Percent Rate. Though this amount is
higher than the APR announced for house loans etc., it doesn｡ｦt
require collaterals, real estate to mortgage or some other security.
This is one reason that makes payday loans seemingly easy.
a report ｡ｧQuantifying the Economic Cost of Predatory Payday Lending｡ｨ,
published December 18, 2003 [and revised February 24, 2004], The
Center for Responsible Lending, says that payday loan companies
force borrowers to keep renewing their loans. It says, ｡ｧThis
cycle (the ｡ｧdebt trap｡ｨ) locks borrowers into revolving, high-priced
short-term credit instead of meeting the need for reasonably priced,
2005 CRL Fact sheet says, ｡ｧResearch shows that payday lending,
also known as cash advance or deferred deposit, fails to help
families solve their financial crises. There are many more payday
borrowers trapped in loans than there are occasional users｡Xninety-nine
percent (99%) of payday loans go to repeat borrowers. Instead
of benefiting borrowers, payday loans trap them in high-cost debt.｡ｨ
related to payday loans laws
lending is legal in the majority of states in the United States.
Several national payday companies partner with out-of state banks
to get around the law by opening ｡ｧrent-a-bank｡ｨ shops. To quote
an example, payday lending is legal in Texas, and the state has
the highest number of rent-a-bank shops in the country. These
shops collect fees in excess of the triple-digit interest rate
limit in Texas.
federal regulatory organizations, the Office of the Comptroller
of the Currency, the Office of Thrift Supervision, and the Federal
Reserve Board have come up with action to prevent financial institutions
from partnering with payday lenders. The Federal Deposits Insurance
Corporation is an exception in that it still tolerates the rent-a-bank
Georgia and in Maryland, legislation has been enacted to prevent
｡ｧrent-a-bank｡ｨ arrangement and ban predatory payday loans
laws lending practices.
payday lending law
Georgia Act prescribes harsh penalties for lenders who make loans
of $3,000 or less in violation of Georgia's existing lending and
consumer protection laws. The Bill, signed by Governor Perdue
in April 2004, caps small consumer loans at 60 percent per year
and explicitly prohibits all non-bank lenders from partnering
with out-of-state banks in order to avoid Georgia's usury limit.
A few of the penalties for payday lending according to the Georgia
Bill SB 157, Criminal Code Title 16, Chapter 17, are as follows:
Borrowers are authorized to sue for three times the amount of
all interest and charges, plus attorneys｡ｦ fees and court costs.
Class actions are specifically authorized. [16-17-3]
ハハDistrict attorneys and the Attorney General are also authorized
to bring a civil action on behalf of the State seeking three times
the amount of all interest and other charges. District attorneys
may keep half of any recovery for their office budget. [16-17-4]
ハハIllegal payday loans are declared void, and lenders are barred
from collecting the indebtedness. [16-17-3]
ハハPayday loan offices are declared a public nuisance. [16-17-8]
ハハA tax equal to 50% of all proceeds received from illegal payday
loans is imposed. [16-17-5]
ハハPayday lenders are barred from obtaining certificates of authority
to do business in Georgia from the Secretary of State and the
Department of Banking and Finance. Payday lenders with existing
certificates will face revocation. [16-17-7]
ハハPayday lending is a misdemeanor of a ｡ｧhigh and aggravated
nature.｡ｨ Punishment for the first three offenses is maximum 1
year in jail and up to $5000 fine per violation. For the fourth
and all subsequent violations, the crime is declared a felony,
and punishment is up to 5 years in jail and up to $10,000 fine.
ハハLenders engaged in a pattern of illegal payday lending may
be liable for ｡ｧracketeering｡ｨ under the Georgia RICO laws. [16-14-3(9)(a)(xxxiii)]
Existing RICO laws authorize felony prosecution with punishment
of 5-20 years in jail, and a fine of either $25,000 or three times
the amounts illegally gained. [16-14-5]
RICO also authorizes forfeiture proceedings in appropriate cases
[16-14-7], and a civil remedy for victims of three times actual
damages and punitive damages where appropriate.
State of Maryland also did something similar by amending its Credit
Services Act to ban the brokering of unsecured closed-end loans
in violation of its 33% APR cap on small loans.
Center for Responsible Lending has come up with alternative proposal
of emergency loan products with minimum loan term of 90 days with
option to repay in installments with no prepayment penalty. It
also suggests that lenders should consider the borrowers｡ｦ ability
to repay the loan and that they should stop using personal check
or electronic equivalent.
while there is much more to be done in the legislative action,
thanks to CRL and many other lobbyists, there are many viable
alternatives to the consumer.
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