Consumer alerts from the office of the Attorney General aim to inform consumers on unfair, misleading or deceptive business practices, and to provide information and guidance on other credit issues. One great concern addressed by the Attorney Generals today is regarding the issue on getting payday installment loans.
Also known as payday loans, cash advances, or check advances are described by law as a “deferred presentment service transaction.” Most payday installment loan transactions are small, short-term arrangements where the consumer gives the payday lender a check to cover the payday loan amount borrowed including service fees. In return, the payday lender provides the consumer with immediate cash. Typically, payment is required from the consumer’s next paycheck. To qualify, the consumer will only need personal identification, a checking account and proof of steady income from a job or governmental benefits.
Because payday installment loans have a short repayment period, many consumers fail to make the payments. Instead of short-term financial relief, the consumer experiences perpetual indebtedness. This is why the Attorney General is informing the public on the proper use of payday installment loans and the rights of consumers.
When a consumer applies for a payday installment loan, he is asked to sign a written agreement, which includes an itemization of the fees to be paid and the annual percentage rate. The limits on the service fees for payday installment loans are based on the amount of the loan. The payday lender may charge up to 15% on the first $100, 14% on the second $100, 13% on the third $100, 12% on the fourth $100, and 11% on the fifth and sixth $100. However, the fees charged depend on the state where the payday installment loan is offered.
A consumer needs to know his rights when applying for a payday installment loan. The written loan agreement must include the following:
1. Payday installment loans are not intended to meet long-term financial needs.
2. State laws prohibit lenders from entering into a transaction if you already have a service agreement in effect with the lender or have more than one agreement in effect with any other lender who provides this service.
3. Lenders must immediately give consumers a copy of the signed agreement.
4. State law entitles consumers the right to cancel loan agreements and receive a refund of the fees. To do this, consumers must notify the lender and return the money they received by the time the office closes or on the next business day.
5. State law prohibits lenders from renewing the payday installment loan agreement for a fee.
6. State law prohibits lenders from using any criminal process to collect payments from consumers.
7. State law entitles consumers the right to file a complaint against lenders if they believe that the lender has violated the law. Consumers can call the Department of Insurance and Financial Services toll-free at 1-877-999-6442.
8. Any consumer who believes a payday lender has violated the law should contact the payday lender in writing detailing the nature of the violation and providing all the evidence to substantiate the complaint.
The payday lender has three days after the complaint is filed to respond and if they did violate the law, they must return the check received from the consumer and any service fees paid. If the payday lender does not believe they have violated the law, they must notify the Commissioner of the Department of Insurance and Financial Services (DIFS) and the consumer of their conclusion. DIFS will investigate complaints promptly.
It is necessary that consumers of payday installment loans know their rights. This will not only save consumers from predatory lenders, but will also help them become responsible borrowers.