Part 1 of our blog mentioned that each state prescribes limitations on payday lending companies and borrowers. What are these limits? In most states, the size of a payday loan is capped at a percentage of the borrower’s income and a loan that exceeds this limit may be deemed unlawful, consequently absolving the borrower of his payment obligations. Majority of states do not allow borrowers to borrow more than $500, and a few states set the limit lower than this. In Washington, a borrower may only borrow a total of $700 or 30% of his gross monthly income, whichever is less; and he may only take 8 payday loans per 12-month period. In fact, to make sure that all payday lenders have the borrower’s most up-to-date loan information the latter’s information is registered in a state-wide database. Consequently, the ninth loan becomes invalid and may excuse the borrower from having to repay this loan. In Washington, the maximum loan term is 45 days.
Payday loans have the bad reputation of being loan sharks; hence, states have regulations regarding maximum finance charges on borrowed money. In most states, payday loan companies may not charge more than 15 percent interest on borrowed money and in some states, it is illegal to charge service charges or other penalties other than interest. In the State of Washington, the maximum fee is 15% on the first $500 and 10% above $500.
It is important that you know your rights as a borrower, especially since most terms and conditions of such contracts are written in fine print and too cumbersome to read. In the State of Washington, a resident is protected from unlicensed lender who has no capacity to collect the unpaid debt in a court of law within the state as stated in RCW 31.45.105. A borrower is given a day to change his mind about the loan. The cost of credit must be disclosed under the Truth in Lending Act. It is the borrower’s right to have a payment plan and know all the fees involved in the transaction and this includes information outlining the finance charge and the annual percentage rate (APR, the cost of your loan).
A payday lender may not threaten criminal prosecution as a method of collecting a past due loan. Just as in other forms of loan, the government does not tolerate harassment as a means of collecting payment. A borrower who is harassed may contact the DFI (Department of Financial Institutions) and file a complaint. Payday lending complaints are handled by DFI's Division of Consumer Services.
Aside from filing a complaint with the appropriate government agency like Washington’s DFI, the following remedies are likewise available to a borrower: (1) he can file a complaint with the state's consumer protection agency, (2) take the lender to small claims court or (3) file a written request with the lender to verify the legality of the loan if he disputes the lender's rights to collect payment.
This blog is not legal advice, but shares information on the law. We are living in hard times; people lose their jobs and many are struggling to make ends meet. Legalbargain.net gives back to society by sharing it’s knowledge and producing advocacy videos to put justice within the reach of those who believe justice is only for those with money.
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