Payday Loans

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Payday Loans
Laws Protecting Montana Borrowers
2002
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AuthorsMarsha A. GoettingMSU Extension Family
Economics Specialist Britta A. Schernthanner
FCS Intern, MSU
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MSU Extension MontGuide MT200102HRwww.montana.ed
u/wwwpb/pubs/mt200102.html
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• Quick Money!!!
• No Credit Checks!!!
• Fast Cash Loans!!!
• Payday Advances!!!

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Payday loan Industry

• Emerged in response to consumer demand for small
  loans for short periods of time

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Small Loans

• Typically not made by traditional lenders
• 50 to 300

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Common Loan Names

• Cash Advance
• Payday
• Post dated Check
• Delayed Deposit Check

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Payday Lenders

• MT Definition
• Business that provides loans from 50 to 300
  for up to 31 days

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Montana Division of Banking Financial
Institutions

• Issues annual licenses
• Conducts annual examinations

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Montana Licensed Payday Lenders

• 97
• January of 2004

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How does a payday loan work?

• Two ways are typical

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Method 1

• Lender loans money to borrower
• Lender accepts check for loan amount plus fees

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Method 1 (contd)

• Borrower dates check on day written
• Lender holds check for agreed number of days of
  the loan

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Payday Loan Example

• Mary has too much month left at the end of the
  money!
• Borrows 100

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Mary Borrows 100

• Writes check for 113
• 100 plus 13 fee
• Dates check on day written, January 22

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Marys Payday Loan

• 7 day loan
• Payment Due
• January 28
• Lender deposits check for 113

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Method 2

• Lender loans money
• Lender accepts post dated check for loan amount
  plus fees

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Method 2 (cond)

• Lender holds check until date written on it
• Borrower can buy back check with cash

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Payday Loan Example

• Mike has too much month left at the end of the
  money!!!!

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Mike Borrows 100

• September 10
• writes check for 118
• Post dates check
• September 21

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Mikes Loan

• 12 days later
• Lender deposits check for 118

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Montana Deferred Deposit Loan Act October 1,
1999
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How much money may be borrowed?

• Maximum
• 300
• Plus fees

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How much money may be borrowed?

• Minimum
• 50
• Plus fees

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Costs for loans

• Finance Charges
• Fees

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Montana Fee Cap

• Cant exceed 25 of face value of check

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Example Fees on 100

• 4 days
• 10 days
• 15 days
• 20 days
• 30 days

• 10.00
• 16.00
• 22.00
• 33.24
• 33.25

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Federal Law

• Payday lenders must disclose finance charges
  (fees) as
• Annual Percentage Rates APRs

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Shop Around

• Compare Annual Percentage Rates
• APRs

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Typical Loan APRs

• 10 to 18
• Banks, Savings Loans, Credit Unions

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Typical Loan APRs

• 16 to 21
• Credit Card Cash Advances

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Payday Loans Typical APRs

• 4 days
• 10 days
• 15 days
• 20 days
• 30 days

• 913
• 584
• 535
• 607
• 406

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Table 1 Page 5

• Examples
• Fee Amounts
• APRs,
• Fee Rates per 100

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Table 1 Page 5 Fees, APR, Fee Rates per 100
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Montana Deferred Deposit Loan Act Additional
Rules
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Payday loan cannot exceed

• 25 of monthly net income of borrower

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Example 1

• 1,110
• x .25
• 275 limit on loan

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Example 2

• 1,500
• x .25
• 375 but loan limit is 300

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Borrower cannot

• Have more than 2 loans outstanding at any one
  time with single payday lender

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Limitation

• Total of two loans with same lender cant exceed
  300 limit

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Can loan be extended? NO

• Lenders prohibited from refinancing a payday
  loan with proceeds of another payday loan to same
  borrower

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What does lender require from borrower?

• Photo ID
• Checking Account
• Payroll Stub
• Physical Address

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What does lender have to provide to borrower?
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Two items

1. Pamphlet
2. Written Loan agreement

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Pamphlet

• Explains borrowers rights responsibilities
  for payday loan

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Pamphlet

• Telephone number for Montana Department of
  Commerce
• 406-444-2091

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Pamphlet

• Informs borrower that MT Dept of Commerce
  provides info about lenders license

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What does lender have to provide to borrower?

• Two items
• Pamphlet
• Written Loan agreement

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Requirements

• Written Loan agreement

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Loan Agreement

• Name, address phone number of lender

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Loan Agreement

• Means of identifying employee who signs agreement

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Loan Agreement

• List of fees interest charges to be paid by
  borrower

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Loan Agreement

• Description of borrowers payment obligations

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Statement

• You cannot be prosecuted in criminal court for
  collection of this loan

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But..If loan not paid

• Lender can sue in Civil Court

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Civil Court

• Can assess borrower
• Court fees
• Attorneys fees

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Civil Court

• Garnish borrowers wages

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Civil Court

• Place lien on home or other asset

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Alternatives to Payday Loans
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Alternatives

• Check cost of loan from bank, credit union, or
  savings loan institution

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Alternatives

• Ask employer for advance on paycheck

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Alternatives

• Ask family or friends for a short-term loan

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Alternatives

• Is APR on credit card cash advance lower than
  APR on a payday loan?

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Alternatives

• Use credit card to make purchases pay total
  when due

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Alternatives

• Use credit card to make purchases make monthly
  payments

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Alternatives

• Ask creditors for more time to pay bills

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Alternatives

• Obtain overdraft protection on checking account

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How to avoid needing a Payday loan?

• Better management of money

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Track Income Expenses

• Use info to develop spending plan

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Establish Emergency Fund

• Use these funds instead of payday loan

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Avoid these rates

• 4 days
• 10 days
• 15 days
• 20 days
• 30 days

• 913
• 584
• 535
• 607
• 406

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Payday Loans
Laws Protecting Montana Borrowers
2002