What Are the Legal Protections Available to Borrowers of Payday Loans?

Payday loans are short-term, high-interest loans that are typically due on the borrower's next payday. These loans are often marketed to people who need quick cash to cover unexpected expenses, such as car repairs or medical bills. However, payday loans can be very risky, and borrowers can quickly find themselves in a cycle of debt.

The prevalence of payday loans has grown significantly in recent years. In 2019, an estimated 12 million Americans took out payday loans, totaling $9 billion in loan volume. The average payday loan is $375, and the average annual interest rate is 391%. This means that a borrower who takes out a $375 payday loan will pay back $1,463 in interest over the course of a year.

Despite the risks associated with payday loans, there are a number of legal protections available to borrowers. These protections include federal laws, such as the Truth in Lending Act (TILA) and the Consumer Financial Protection Bureau (CFPB) regulations, as well as state laws that govern payday lending.

I. Federal Protections

Truth In Lending Act (TILA)

TILA is a federal law that requires lenders to provide borrowers with clear and accurate information about the terms of their loans. This information includes the loan amount, the interest rate, the fees, and the repayment terms. TILA also gives borrowers the right to rescind their loans within three days of signing the loan agreement.

Key Provisions Of TILA That Apply To Payday Loans:

• Disclosure requirements: Lenders must provide borrowers with a clear and concise disclosure statement that includes the loan amount, the interest rate, the fees, and the repayment terms.
• Right to rescind the loan: Borrowers have the right to rescind their loans within three days of signing the loan agreement. This means that borrowers can cancel the loan and get their money back.
• Limitations on fees and interest rates: TILA limits the amount of fees and interest that lenders can charge on payday loans. The maximum finance charge that a lender can charge is $15 per $100 borrowed.

Consumer Financial Protection Bureau (CFPB)

The CFPB is a federal agency that regulates consumer financial products and services. The CFPB has implemented a number of regulations that apply to payday loans, including the Payday Loan Rule, the Ability-to-Repay Rule, and the Small-Dollar Lending Rule.

Regulations Implemented By The CFPB:

• Payday Loan Rule: The Payday Loan Rule limits the number of payday loans that a borrower can take out in a short period of time. The rule also prohibits lenders from making loans to borrowers who cannot afford to repay them.
• Ability-to-Repay Rule: The Ability-to-Repay Rule requires lenders to assess a borrower's ability to repay a loan before making the loan. This rule is designed to prevent borrowers from taking out loans that they cannot afford to repay.
• Small-Dollar Lending Rule: The Small-Dollar Lending Rule limits the amount of money that lenders can charge for small-dollar loans. The rule also prohibits lenders from making loans that have balloon payments or prepayment penalties.

II. State Protections

In addition to federal laws, there are also a number of state laws that govern payday lending. These laws vary from state to state, but they typically include provisions that:

• Require payday lenders to be licensed.
• Limit the amount of money that lenders can charge for payday loans.
• Prohibit lenders from making loans to borrowers who cannot afford to repay them.
• Restrict the number of payday loans that a borrower can take out in a short period of time.

Examples Of State Laws With Strong Protections For Borrowers:

• New York: New York has some of the strongest payday lending laws in the country. These laws limit the amount of money that lenders can charge for payday loans to 25% of the loan amount. They also prohibit lenders from making loans to borrowers who cannot afford to repay them.
• California: California also has strong payday lending laws. These laws limit the amount of money that lenders can charge for payday loans to 15% of the loan amount. They also prohibit lenders from making loans to borrowers who cannot afford to repay them.
• Ohio: Ohio has some of the strongest payday lending laws in the country. These laws limit the amount of money that lenders can charge for payday loans to 28% of the loan amount. They also prohibit lenders from making loans to borrowers who cannot afford to repay them.

Legal Remedies For Borrowers

If you have been the victim of predatory payday lending practices, you may have legal recourse. You can file a complaint with regulatory agencies, such as the CFPB or your state's attorney general's office. You can also take legal action against payday lenders, such as filing a lawsuit for breach of contract or deceptive lending practices.

Filing A Complaint With Regulatory Agencies

If you believe that a payday lender has violated the law, you can file a complaint with the CFPB or your state's attorney general's office. You can find contact information for these agencies online.

When you file a complaint, you will need to provide the following information:

• Your name and contact information.
• The name and address of the payday lender.
• The date and amount of the loan.
• A description of the alleged violation.

Taking Legal Action Against Payday Lenders

If you have been the victim of predatory payday lending practices, you may be able to take legal action against the lender. You can file a lawsuit for breach of contract, deceptive lending practices, or other violations of the law.

To file a lawsuit, you will need to contact an attorney. An attorney can help you determine if you have a case and can represent you in court.

Potential Remedies:

• Rescission of the loan: If a court finds that a payday lender has violated the law, the court may order the lender to rescind the loan. This means that the borrower will not have to repay the loan.
• Recovery of fees and interest paid: If a court finds that a payday lender has violated the law, the court may order the lender to refund the borrower all of the fees and interest that they have paid.
• Damages: If a court finds that a payday lender has violated the law, the court may order the lender to pay damages to the borrower. These damages can include compensation for the borrower's financial losses, as well as emotional distress.

There are a number of legal protections available to borrowers of payday loans. These protections include federal laws, such as TILA and the CFPB regulations, as well as state laws that govern payday lending. If you have been the victim of predatory payday lending practices, you may have legal recourse. You can file a complaint with regulatory agencies, such as the CFPB or your state's attorney general's office. You can also take legal action against payday lenders, such as filing a lawsuit for breach of contract or deceptive lending practices.

It is important to understand your rights as a borrower and to exercise them when necessary. If you are considering taking out a payday loan, be sure to shop around and compare interest rates. You should also read the loan agreement carefully before you sign it. If you have any questions about the loan, be sure to ask the lender before you sign the agreement.