California Payday Loan

These small loans, also called "cash advance loans," "check advance loans," or "deferred deposit check loans," are a frequent pitfall for consumers. A fee anywhere from $15-$30 per $100 borrowed is charged for an average loan of $300. The borrower will give the lender a post-dated check, which the lender later uses to electronically transfer a payment or the entire balance of the loan from the borrowers account.

An especially insidious practice is to withdraw a partial payment from the account as a "customer service." This partial payment becomes a perpetual installment that continues despite the borrowers’ best efforts to halt it.

With rates so high and the term of the loan so short there is no wonder that a very high percentage of these loans are rolled over by the borrower again and again so that the accumulated fees equal an effective annualized interest rate of 390% to 780% APR depending on the number of times the principal is rolled.

One slightly light-hearted fact regarding payday loans: Wikipedia.org, the leading online encyclopedia, lists payday lending under Loan Shark, stating that "if the defining characteristics of loan sharking are high interest rates and a credit product that traps debtors, then the label certainly applies."

The Federal Trade Commission offers a great Web page regarding payday loan alternatives.

Payday Loans and Consumer Rights

A payday lender may attempt to collect the balance itself. If the borrower defaults, the payday lender may sell the debt to a collection agent.

If the payday lender (or collection agency, for that matter) cannot convince you to pay through standard collection tactics, such as phone calls and letters, the payday lender may decide to file a lawsuit against you to obtain a judgment for the balance of the debt. If the lender sues and obtains a judgment against you, it can then take steps to enforce the judgment as allowed by your state law in civil court. The most common methods of enforcing a judgment are wage garnishment, bank account levies, and property liens.

Note that not on this list of enforcement actions are calling your employer, contacting your neighbors, or getting a warrant for your arrest. Failing to repay a debt is a civil matter and not criminal. A common threat many payday lenders use is arrest for check fraud: This is a groundless threat unless the payday lender has evidence to prove the borrower never intended to repay the payday loan. Proving that is very difficult. Remember, no one has been arrested or imprisoned for debt in the United States since the Civil War.

To learn more about debt collection laws in your state, see the Privacy Rights Clearinghouse Debt Collection Law Guide.

If the payday loan company sells an account to a collection agent, the borrower is now obligated to repay the balance to the collection agent.

A federal law called the Fair Debt Collections Practices Act (FDCPA) states that a third party collection agent must stop calling you if you notify them in writing to do so. Several states, such as California, New York, and Texas, extend many of the regulations in the FDCPA to cover original creditors as well. See "Advice If You’re Being Harassed by a Collection Agent" to learn what actions you can take if you believe a collection agent is violating the FDCPA.

If the payday loan company sells the account to a collection agent, the debtor can stop the telephone calls by sending a cease communication demand letter, commonly called a cease and desist notice, to the collection agent. (See the Bills.com debt self-help center for sample cease-and-desist letters.)

How Can I Handle Payday Loan Collections?

Many payday loan collectors use intimidation to strike fear into borrowers. Just because a person is in debt does not mean that person loses their rights as a consumer.

As mentioned above, many payday lenders require borrowers to provide their checking account numbers so that payments can be withdrawn from the borrowers’ accounts automatically using the Automated Clearing House (ACH). In instances where the borrower accounts lack sufficient funds, the payday lender will continue to attempt withdrawals. This may create overdraft charges for the borrower, and if done often enough, the bank may close the borrower’s account.

One common tactic to deal with payday lenders who repeatedly withdraw funds from a borrower’s account is for the borrower to close the account and reopen another at the same bank. This is effective unless the bank links all transactions from the old account to the new one. If that happens, when the payday lender makes a withdrawal, the bank simply reaches into the new account to remove the funds. The lesson here is to make sure the bank does not allow electronic withdrawals from the old account to be transferred automatically to the new account.

California Payday Loans

A federal law called the Fair Debt Collections Practices Act (FDCPA) states that third party collectors must stop calling you if you notify them in writing to do so. Several states, including California, extend many of the regulations in the FDCPA to cover original creditors as well.

If the creditor or collection agency cannot coerce you to pay through standard collection tactics, such as threatening phone calls, the creditor may decide to file a lawsuit against you to obtain a judgment against you for the balance of the debt. If the lender sues and obtains a judgment against you, it can then take steps to enforce the judgment as allowed by your state law. From my experience, the most common methods of enforcing judgments in California are wage garnishment and bank account levies. A creditor with a judgment against you may also file a lien against you. The lien will appear on your credit report and can be a barrier to your qualifying for any other loan, until the lien is satisfied.

You may be in luck in regard to your inability to repay these loans. California law limits the interest, fees, number of rollovers, and other penalties which payday lenders can charge. Check out the payday loan information from the Consumer Federation of America at PaydayLoanInfo.org where you will be able to read all about these loans and the various state attempts to regulate them. Follow the "state information" link to find out the specific regulations for payday lenders in California.

If you think that this lender is violating California's payday loan regulations by charging excessive fees, interest, or violating state collection laws, you can contact the California Department of Corporations to file a complaint at 1-866-ASK-CORP (1-866-275-2677). You may also wish to file a complaint with the Better Business Bureau which maintains information on this business, usually the BBB where the company is headquartered. Hopefully you will get the results you want after these regulatory and consumer advocacy agencies become involved.

Given the interest rate caps and limitations placed on payday lenders in California, you may want to consider simply making payments in whatever you can afford to pay down the balance of the loan over time. While the interest rate is capped under California law, it is still a high interest rate, so I would encourage you to pay off this debt as quickly as possible. If the lender will not accept your payments, simply put what you can afford aside each month until you have enough money to either pay off the loan or to offer a settlement.

It would be wise to learn more about how to negotiate with your creditors.

Bills.com also offers more information on the Payday Loan Information page, and has answered reader questions about payday loans in California, Florida, Illinois, Massachusetts, Missouri, New York, Texas, and Virginia. To learn more about California laws affecting payday loans, see What you need to know about payday loans and Wage Garnishment & Payday Loan in California

If you do not repay a payday loan, the payday loan company has several legal remedies, including wage garnishment, levy, and lien. See the Bills.com resource Collections Advice to learn more about the rights of creditors and debtors.

Hopefully, one of the strategies I have discussed above will help you resolve these payday loans, and help you Find. Learn Save.

I hope this information helps you Find. Learn & Save.

Best,

Bill

Bills.com