How to Handle a New York Payday Loan

Are payday loans in New York legal? I have several I cannot repay that are overwhelming me. What can I do?

Read full question
New York City street signs | New York Collection Laws
Bill's Answer: Answered by Mark Cappel

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:, the leading online encyclopedia, list 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."

Quick Tip: Payday loans are illegal in New York, and a debt collector cannot collect or attempt to collect on a payday loan from a New York resident. In February 2013, the governor of New York directed the New York State Dept. of Financial Services to inform debt collectors that any attempt to collect payday loans in New York is illegal. File a complaint with the Dept. of Financial Services if a you are a New York resident and a collection agent attempts to collect a payday loan from you.

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, which we discuss later.

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.

Editor’s note: Comments on this page are closed. See Payday Loans to learn how to handle payday loan collections. See the payday loan resources for California, Florida, Illinois, Massachusetts, Missouri, New York, Texas, and Virginia to learn more about payday loan laws in those states.

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 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.

To learn more about your rights as a New York resident, read the article New York Collection Laws.

Payday Loan in New York

New York has several laws prohibiting payday loans. Under New York General Obligations Law § 5-501 the civil usury cap is 16% APR. Under New York Penal Law § 190.40 and 190.40 the criminal usury cap is 25% APR. Check cashers are prohibited under New York law from cashing checks with deferred dates.

If payday lending is essentially illegal in New York, how do payday lenders operate openly in the state? Some New York payday lenders partnering with banks located in deregulated states. These lenders deliver loans via electronic funds transfer and claim the local storefront is brokering loans for the bank that is exporting its home state interest rates and other terms to New York. This is called rent-a-bank lending.

The New York City Dept. of Consumer Affairs Tips about Payday Loans outlines New York law, and offers suggestions on how to avoid payday loans. See also New York State’s Avoiding Dangerous or ‘Predatory’ Loans.

More Payday Loan Information

To learn more about tactics and strategies for dealing with creditors, read the article Debt Negotiation and Settlement Advice. also offers more information on the Payday Loan Information page, and has answered reader questions about payday loans in California, Florida, Illinois, Massachusetts, Missouri, Texas, and Virginia.

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

See also the no-cost Financial Planning and Budget Guide, which can help you manage your finances and you can learn about budgeting and prudent financial management.

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



Rate this article
Not helpful

This page is closed to new comments.
Please read the article and prior comments in order to resolve your question.

Comments (14)

Skye D.
Sherrill, NY  |  October 14, 2011
I am in upstate NY and a company by the name of DJR Group LLC is a payday loan company. however i did NOT autorize them to give me money and i did NOT autorize the loan at all. they hacked my account. so when i went to the bank to report fraud they told me that their was nothing they could do for me. they told me that i had to pay back what the company put into my account before they could do anything with my account. they could not even freeze my account. my account was previously negative due to personal reasons, so when the money they deposited hit my account it was gone before i knew anything. ive made 2 police reports, a FTC report, a NYS banking report, and i contacted the attorney general's internet fraud office. now im being told by NYS banking that i need a lawyer and i am looking at legal aid programs cause i cant afford to pay one. im at an utter loss of what to do, im terrified, and i just want to give up. i just want this to end. this is NOT how i wanted to spend my 23rd year on this god forsaken rock.
Shelly B.
Hurley, NY  |  September 30, 2011
I live in New York and took out a payday loan of $250 over a year ago. Since then they have taken a payment out of my account bi-weekly totaling more than $2,300. Is this legal ?
September 30, 2011
Not in the least. Consult with a lawyer who has experience in consumer law. You may have a cause of action against the payday lender for violating New York's state usury law. If you cannot afford a lawyer, call your county bar association and ask for the names of the local organizations that provide no-cost legal services to people with no or low income. Make an appointment with that organization, and bring all of your documents relating to the loan, including your bank statements, to your meeting. The lawyer you meet will advise you accordingly.
Magda S.
El Paso, TX  |  March 29, 2011
March 29, 2011
See the resources Texas Collection Laws and Payday Loans & Hot Checks in Texas to learn more about your rights as a Texas resident.
  1. Delinquent debt is a civil matter, and not criminal. I doubt a Texas district attorney would give the time of day to a New York collection agent.
  2. The collection agent may not call you at work. See the resource Harassed By A Collection Agent to learn how to handle an aggressive collector.

File a complaint with the Federal Trade Commission and your state Attorney General’s consumer protection office.

Cizzzz -.
August 24, 2011
the fact that this is written in all caps makes it that much FREAKIN SWEETER
August 24, 2011
Yep, we thought maybe it was a NEW YORKER kind of thing... but did our best to answer the question nonetheless.
December 07, 2010
In no state can a payday lender "press criminal charges" against a delinquent borrower. A district attorney is the only one who can decide whether to file criminal charges against a person. As for an affidavit and you requiring to possess ID to sign the document, that is simply nonsense and a mashup of legal phrases meant to intimidate you. Payday collectors are, as a group, aggressive in their collection practices and will seemingly say anything to brow-beat a debtor into paying the entire balance they think is due. Continue to negotiate.
Malisa W.
Hutchinson, KS  |  December 07, 2010
Thank you for your help. It has been really annoying getting these people to leave me alone. The worst part is that you are in debt and they know it. Why can't people just work with you?
August 05, 2010
No cause of action at all, if my interpretation of New York law is correct. However, I hasten to add that I am not licensed to practice law in New York, and therefore am incompetent to offer advice regarding matters of New York law. I urge New Yorkers who have payday loans to consult with a New York attorney or the New York Legal Aid Society for a precise legal opinion that will be based on each consumer's circumstances.
Malisa W.
Hutchinson, KS  |  December 07, 2010
I have a payday loan that is in Kansas. I have been getting calls from an agency in New York that is telling me that they are going to press criminal charges on me for not repaying a loan. I have looked up the laws in Kansas and it states that they can only sue you for a judgment on the amount that is due. I have been called by a guy named Mark and he is telling me I have to have my id card and he has to have my signature for an affidavit that is being sent to me. I have never been called from anyone before stating this. I tried to make a payment and when the lady told me that there was no way I could pay the amount I was trying to give her and I would have to fight this in court. Isn't there a law that states they can't deny payment, since this is the real reason they are calling me anyway?
Lyn .
August 04, 2010
So, is the jist of it that the pay day loan company must obey laws in the consumers state, which I understand is New york State law............if they are doing business in NY, then they must abide by NY state laws.............essentially, since pay day loans are illegal in NY, then these loan companies cannot sue, or garnish wages.....they would be doing this on an illegal issue. And if someone is attempting to work out a repayment on th eprincipal, what cause would they have to sue or garnish when they are the ones refusing to cooperate?
Joann P.
Cheektowaga, NY  |  November 04, 2011
Is it really illegal to garnish for a payday loan? Should I file chapter 13? Will that protect me?
November 04, 2011
I know of no state law that prevents wage garnishment for payday loans. However, a debtor may have other circumstances, or live in a state where wage garnishment is outlawed for judgments, that prevents a wage garnishment. A chapter 13 bankruptcy will prevent all wage garnishments temporarily. Consult with a lawyer who has bankruptcy experience to learn more.
Waiting for comments to load Loading more comments
Thanks for your feedback!

Tool Box   Easy to use resources to help you find solutions to your money questions