A payday loan is a short-term, high-cost loan in exchange for a charge. The borrower writes a check for the whole amount plus the service charge. The lender delivers the borrower the borrowed money and retains the borrower’s check (typically until the following paycheck) before forwarding it to the client’s bank. Check advance loans, payday loans, and cash advances are common names.
This loan is called a “delayed presentment service transaction” since the customer’s check is postponed before being cashed (presented for payment).
Payday loans’ benefits
Payday loans feature long durations and hefty rates. The maximum $100 loan for two weeks will cost $15, or a triple-digit APR (APR). The $15 two-week loan has a 391% APR (APR). Cost excludes eligibility-related expenses.
Payday loans may trap customers who are short on cash and need a second loan to pay off the first. It’s risky. The borrower gets a third loan if they can’t pay back the second. This rollover pattern, which accrues service costs, keeps the consumer in debt.
Payday Loan Process:
The Deferred Presentment Service Transaction Act regulates the number of payday loans a client may have at once, the number of service fees a lender can charge, and the repayment date, which cannot be more than 31 days from the transaction date.
Payday lenders require the borrower’s name, address, social security number, driver’s license or other government-issued ID, loan amount, check number used to repay the payday loan, and payday loan date to complete a loan request.
Customers sign a written contract that explains fees, APR, how to submit a complaint with the payday lender, how to cancel a loan and when they will receive their money back, and that they should only use this service for short-term financial necessities.
Customers may cash loan earnings. Payday lenders must advise customers that they “may be charged extra check cashing or other processing fees” if they pay with a check or money order.
Each consumer is limited to two $600 payday loans, not counting costs. Payday lenders must verify customer eligibility.
How do payday lenders determine delinquent balances?
Celine Jesza Afana, Personal Finance Writer at Ipass, said that payday lenders must verify a state-maintained database before providing a loan. If the borrower has two overdue payday loans, the lender won’t provide another.
If the computerized database is not available, a client must sign a statement stating they do not have a payday loan with the present lender or two with other lenders in the state.
What if I can’t repay the loan?
At the conclusion of the contract, the consumer must repay the loan and fees. If the payday loan and fees aren’t paid on time, the lender might deposit the client’s check. The consumer must pay the check’s face amount, the banking institution’s NSF cost, and the payday lender’s returned check fee if there are insufficient funds. In 2021, the price will adjust according to the Detroit CPI. No criminal procedure may be used to collect the loan, but the payday lender can sue the borrower.
Can I extend my loan?
No payday lender may extend the payback period beyond 31 days from the loan’s date. The legislation doesn’t prolong payday loan repayment timeframes. A payday lender cannot levy a fee or raise the total amount owing for extending a payday loan’s repayment deadline.
Customers who have taken out eight or more payday loans in the last year and can’t pay off their debt might pursue an installment repayment plan. The client must request the repayment plan, pay $17.20 (which will vary in 2021 based on the Detroit consumer price index), then return the debt in three equal payments. Due dates are the client’s next three paydays. During repayment, the borrower can’t get new payday loans.
How can I report a payday lender for breaking the law?
Any consumer who suspects a payday lender has broken the law should alert the lender in writing. The payday lender must reply and notify the borrower within 3 days.
If a payday lender breached the law, the customer’s check and costs must be repaid. The customer must repay the debt. The payday lender must return the customer up to $15 more than the check’s face value for transaction costs. If the lender hasn’t broken the law, it may cash the client’s cheque.
If the customer believes the payday lender broke the law, they should report to the DIFS Commissioner (see address below). DIFS will investigate immediately.
A payday lender that violates the Deferred Presentment Service Transactions Act may be sued for real damages and legal fees.
Payday loans: alternatives?
Alternatives to payday loans include modest loans from friends or family, minor loans from banks or credit unions, and advance payment from your employment.
Celine Jesza Afana, Personal Finance Writer at Ipass
Celine Jesza Afana is a Finance writer at Ipass, an online leader in a payday loan company,
providing fast, easy, and safe payday loans online to its customers. Celine has extensive
experience working in the financial industry, with a specialization in lending and administration
management. She also is proficient in customer service, customer services, and a variety of
payday lending industry functions. She has been working hard in the company's efforts to help
those with jobs that aren't so easy and financial issues get money when they require it the most.