Payday Loans: Know Your Rights
What is a “Payday Loan?”
A payday loan is a type of high-interest loan that is typically taken out for a short period of time and comes with a high service fee. The borrower sends a check made out to the lender for the total amount, which includes the interest and any additional fees.
The consumer is given the money that was loaned to them, but the lender keeps the customer’s check in their possession (often until the customer’s next payday) before delivering the check to the customer’s bank as payment for the loan. Payday loans, cash advances, and check advance loans are all possible names for this type of financial product.
Because the customer’s check is held for a certain amount of time (delayed) before it is paid, this particular kind of loan is referred to as a “deferred presentment service transaction” by the state legislation of Michigan (presented for payment).
Payday Loan Disadvantages
Payday loans are characterised by excessive interest rates, in addition to exorbitantly high service fees. A customer who borrows $100 for two weeks at the maximum fee for this loan amount, which is $15, will pay a service fee that is equivalent to a triple-digit annual percentage rate. This is because $15 is the maximum fee for this loan amount (APR). The real cost of the two-week loan is $15, which is equivalent to an APR of 391 percent – and that does not include any additional expenses for validating your eligibility to get the loan.
Even worse, payday loans can create a trap for a customer who is already strapped for cash. If they are unable to repay the loan, they may take out another payday loan in order to pay off the first one. It’s a steep and hazardous descent. When the consumer cannot pay back the second payday loan, the customer takes out a third, and so on and so on. This pattern of rollover results in the accumulation of service costs and places the consumer in a state of ongoing debt.
The Process of Payday Loans in the State of Michigan
Payday loans in Michigan are governed by the Deferred Presentment Service Transaction Act, which places restrictions on the maximum number of outstanding payday loans that a customer can have at any given time, the maximum amount of service fees that a payday lender can charge, and a repayment date that cannot be more than 31 days after the transaction date.
The payday lender will ask for the customer’s name, address, social security number, driver’s licence or other state-issued I.D., amount of the loan requested, the number on the check that will be used to cover the payday loan, and the date of the requested payday loan in order to process a request for a payday loan.
Customers sign a formal agreement, which must contain the following requirements:
- An itemised list of the fees that are required to be paid as well as the equivalent annual percentage rate; a clear description of the process a customer may follow to file a complaint against the payday lender; the procedure and deadline for cancelling the loan and getting a refund of the service fee; and a statement that the customer should only use this service to meet a short-term cash need.
- Customers have the right to get cash instead of a check for the loan proceeds. In addition, payday lenders are required to put up signs that alert consumers of the following information: “If you request the proceeds in the form of a check or money order, you may be charged additional check cashing or other processing fees by others for cashing the check or money order.”
- A consumer is only permitted to have a maximum of two outstanding payday loans at any given time; these loans cannot be held with the same payday lender; and the maximum amount that can be borrowed for each loan is $600 (not including fees). Lenders of payday loans are required to confirm a customer’s eligibility.
How are payday lenders able to determine whether or not a customer has an outstanding payday loan?
Before making a new loan available, payday lenders are required to search a computerised database that is maintained by the state. When a customer already owes money on two different payday loans, the payday lender is not allowed to give them another loan.
If the electronic database cannot be accessed, the customer will be required to sign a statement indicating that they do not have an outstanding payday loan with the current payday lender and that they do not have two outstanding payday loans with any other payday lenders in the state. This statement must be provided in the event that the electronic database cannot be accessed.
How much would the fee be for a payday loan if I get one?
The amount of the loan is used to determine the maximum amount that can be charged as a service fee for a payday loan. Payday lenders can charge up to 15 percent interest on the first $100 borrowed, 14 percent interest on the second $100, 13 percent interest on the third $100, 12 percent interest on the fourth $100, and 11 percent interest on the fifth and sixth $100 borrowed.
What happens if I am unable to repay the loan by the due date?
A client has until the end of the contract period to repay the total amount of the loan as well as any fees that may be applicable. The payday lender has the right to deposit the customer’s check in the event that the payday loan and any applicable fees are not paid on time. In the event that the customer’s checking account does not have enough money to cover the check, the customer will be responsible for paying the face value of the check, as well as any fees charged by the customer’s financial institution for writing a check that does not have sufficient funds and any fees charged by the payday lender for a returned check. The fee is currently set at $28.66, but it is expected to increase in 2021 based on a calculation using the consumer price index in Detroit. The payday lender is allowed to take collection action against the customer, but it is prohibited from employing any criminal process in order to collect on the loan.
Is i’ possible for you to prolong the amount of time I have to pay back the loan?
The law does not give customers of payday loans the right to have the repayment periods of their loans extended; the payday lender is the one who decides whether or not to extend the repayment period, and no repayment period, not even an extended one, can be longer than 31 days from the date the loan was taken out. If a payday lender extends the amount of time that a borrower has to repay a payday loan, the law states that the lender cannot impose a fee for the extension and cannot raise the total amount that is still owed above the initial amount.
Customers who have obtained eight or more payday loans in a period of one year and who are unable to repay their most recent loan have the option of requesting an installment repayment plan for that loan. The customer is required to submit a request for the repayment plan, pay an enrollment fee that is currently $17.20 and will be adjusted in 2021 based on a calculation of the Detroit consumer price index, and repay the loan in three equal installments. The customer will be required to pay the installments on each of the following three dates, which correspond to the days on which they receive their regular wages. During the period in which the loan is being repaid, the customer will be ineligible to receive any more payday loans.
What should I do if I suspect that the payday lender has broken the law?
Any client who has reason to believe that a payday lender has broken the law should make a written complaint to the payday lender, describing the nature of the violation and supplying the lender with all of the information that is necessary to substantiate the complaint. Payday lenders are required to respond to the customer within three business days and inform them of their decision.
If the payday lender discovers that it has in fact broken the law, it is obligated to give the customer their check back together with any service costs that they have already paid. The client is still responsible for making payments on the loan. However, the payday lender will be required to pay the customer an amount that is equal to five times the amount of the fee that was charged in the transaction. This amount, however, cannot be less than $15 or more than the face value of the customer’s check.
The payday lender may cash the customer’s check if it does not believe it has broken any laws in the process of providing payday loans. The customer should register a complaint with the Commissioner of the Department of Insurance and Financial Services (DIFS) if they continue to hold the belief that the payday lender has broken the law (see address below). Complaints will be looked at as quickly as possible by DIFS.
According to the laws of the state of Michigan, a person who has been wronged by a payday lender who is in violation of the Deferred Presentment Service Transactions Act is permitted to initiate a lawsuit in order to recover actual damages as well as reasonable legal expenses.
Exist any options besides getting a loan from a payday lender?
Some alternatives to payday loans that are less expensive include the following:
A modest loan from a close friend or member of the family; a modest loan from a financial institution such as a bank or credit union; requesting an advance on pay from your employer; or making a request to the creditor for additional time to pay back the debt.
Complaints and Frequently Asked Questions Available Through the Department of Insurance and Financial Services (FAQS).
Any company that provides payday loans must obtain a license in the state of Michigan. You can call the Division of Financial Institutions and Services (DFIS) at 877 999 6442 to inquire about the licensing status of a payday lender. Send any complaints you may have regarding a company that provides payday loans to the following address:
Postal Address: Department of Financial and Insurance Services P.O. Box 30220 Lansing, Michigan 48909