Payday loans are 369% interest rate loans trapping families in an endless cycle of debt. Payday lending is considered to be a scourge by advocates for the poor and working class. They say the payday loans crush families by trapping them in an endless cycle of debt at outrageous interest rates.
The cost of a payday loan may be small in terms of dollars, such as the $42.50 that could be charged for a $300, two-week loan. But the “pay off” amount adds 369% interest when computed as an annual percentage rate.
The lenders like to talk about payday loans as the equivalent of throwing a drowning man a credit lifeline, but data from other states where 300 percent loans are legalized show that it’s more like throwing a drowning man a leaded anchor.
The Pennsylvania Supreme Court has ruled that our interest rate cap law applies to loans made over the internet to Pennsylvania borrowers. The seminal case, Cash America v. Pennsylvania Department of Banking held that consumer lenders that are not licensed in the state of Pennsylvania are bound by the 6% cap imposed by the Loan Interest and Protection Law (LIPL) 41 P.S. §§ 101-605. Further, a licensed consumer lender may only charge between 6%-24% interest on loans under $25,000 pursuant to the Consumer Discount Company Act (CDCA), 7 P.S. § 6203.A
If you would like to figure out how to “Re-Negotiate” your payday loan, visit the Department of Banking website and find out whether your consumer lender is licensed in Pennsylvania.
Consumer lending law changed dramatically in July 26, 2008. Prior to that time, the Department of Banking had previously allowed out of state consumer lenders to be exempt from the LIPL’s general 6% interest rate or the CDCA’s 6-24% interest rate cap because they interpreted the phrase “in the commonwealth” in Section 3.A of the CDCA not to apply to consumer lenders without any offices or employees physically present in the Commonwealth,
The Department of Banking reversed course on July 26, 2008 and published a policy change in the Pennsylvania Bulletin in a “Notice to those Engaging or Considering Engaging in Nonmortgage Consumer Lending to Pennsylvania Residents,” 38 Pa.Bull. 3986 (July 26, 2008)(Notice), indicating its intent to provide Pennsylvania consumers with the protections of the CDCA, regardless of whether the consumer lender or its employees are located in Pennsylvania.
The Department now requires licensing under the CDCA for consumer lenders (such as Cash America) that engage in consumer lending to Pennsylvania residents in amounts below $25,000 in which charges exceed 6% simple interest per annum.
Pennsylvania law prohibits payday lenders from charging interest rates and fees that aggregate in excess of 6%, pursuant to Section 201 of the LIPL, 41 P.S. § 201. Any unlicensed payday lender engaging in internet lending to Pennsylvania residents is not authorized by Pennsylvania law because it violates the CDCA and the LIPL.
The CDCA specifically requires consumer lenders in the business of making loans of $25,000 or less and charges and fees that aggregate in excess of 6% annual simple interest to obtain a license from the Department of Banking. 7 P.S. § 6203.A.
A payday lender with no license is limited to 6% annual simple interest.
Even if the consumer lender happens to obtain a license from the Department of Banking, the CDCA provides that it may only charge interest and fees between 6-24%,
7 P.S. §§ 6213.E and 6217.1.A, in exchange for submitting to a regulatory scheme that includes examinations by the Department, minimum capital requirements, and other caps on interest rates and fees. 7 P.S. §§ 6207, 6211, 6213, and 6217.1.
A payday lender with a license is limited to 24% annual simple interest.
The Cash America decision held that consumer lending over the internet by unlicensed lenders is an illicit attempt to bypass state usury laws and consumer protections by doing business in Pennsylvania without a license. See NCAS of Del., 948 A.2d at 761, n.11 (“usury is generally accompanied by subterfuge and circumvention of one kind or another to present the color of illegality.”).
Know your rights and call up your payday lender and let them know you read the Cash America decision by the Pennsylvania Supreme Court.