Summary of California payday loans
There are 32 states in the USA that have either legalized high-cost payday loans or failed to plug loopholes that are exploited by payday lenders. Among them is the State of California where payday loans are legal. State law calls payday loans deferred deposit transactions. The consumer provides the lender or originator (as the state law calls him) a personal check for the amount of loan. The originator then offers the consumer the loan amount, excluding a fee that is agreed upfront. The lender then holds on to the check for an agreed short period of time. California payday loans are available at most of the cities and online. The biggest cities in California are Los Angeles, San Diego, San Jose, San Francisco, and Fresno.
Applicable law in the state
California Financial Code §§ 23000 to 23106.
Loan amount and loan term
The maximum loan amount, including fees, cannot exceed $300. If the maximum permitted fee of 15% ($45) is charged, the actual loan amount would be $255.
As for the maximum tenure of the loan, it cannot exceed 31 days. Nevertheless, there can be repayment extensions, so lenders may grant borrowers more time to pay up, but they are not allowed to charge any fees for that. However, lenders are not legally required to grant extension requests.
Fees and annual percentage rate requirements
The State law sets a limit on the fees that a lender can charge a borrower – they cannot exceed more than 15% of the amount of the borrower’s personal check. For example, for a $300 check, the maximum fee would be $45. In other words, the borrower would be able to borrow $255.
Another requirement is that lenders are obliged to inform consumers what the loan fees are in terms of its annual percentage rate. Usually, the APR in California exceeds 400%.
In case of a returned check that is not honored and is returned by the bank, the loan originator can charge a maximum of $15. But be aware that the lender’s bank may charge additional fees for insufficient funds.
In addition, the finance charge for a typical 14-day $100 loan is $17.65 and the APR for the same loan amount and time period is 459%.
There are also additional fee restrictions for military service members.
Lender licensing requirement
All lenders in the State of California should be licensed by the state Department of Business Oversight or DBO. Otherwise, they are unable to lawfully provide loans for customers. Therefore, consumers should only borrow California payday loans from licensed lenders. If a consumer borrows from an unlicensed lender, they wouldn’t benefit from the state law consumer protection. This applies to both online and store-front operating California payday loans lenders. The law protects consumers by limiting the dollar amount of loans, fees charged and by requiring obligatory information to be stated in the loan contracts.
DBO has an online list of the licensed lenders that can be found here:
Outstanding loans, rollovers limits and repayment plan
There is a limitation regarding the number of outstanding loans. The deferred deposits are limited to one at a time.
No rollovers are permitted and the loan originator cannot charge any fee for an extension of the loan period. As for the so-called cooling-off period, the law doesn’t require one.
The repayment plan is voluntary, not obligatory. No fees may be charged for the repayment extension.
Obligatory information in the lending contract
Loan originators are obliged to disclose the full fee amount, both as a dollar amount and as APR. Secondly, they have to state all payment obligations and the charge in case of a returned check. They cannot accept any collateral or require their clients to buy other products to take out a loan. They have to clearly state that the consumers cannot be threatened with prosecution or be prosecuted in order to collect repayment. They also have to make known their California license and schedule at every location.
Restrictions on lenders
Loan originators cannot accept collateral for a loan or require the purchase of another product in order to provide a loan. They cannot accept blank checks, provide loans to customers with an outstanding loan even if it’s for repaying the previous. The total amount of both loans should not be no more than $300. They cannot commit any unlawful, unfair or deceptive acts. They are obliged not to make misleading statements.
The right to cancel a payday loan
A California payday loans customer may cancel a deferred presentment service agreement without being asked to pay any cost for any reason if this is done not later than the closing hours of the lending business on the business day that follows the date of the deferred presentment service transaction.
Payday lending regulator
The regulator of lender licensing for the State of California is the Department of Business Oversight. If a customer wishes to file a formal complaint against any payday lenders, they should call the DBO at 1-866-275-2677. They can also complete the online complaint form found on http://www.dbo.ca.gov/Consumers/consumer_services.asp
Customers can check the licensing status of a payday lender as well as whether he has a history of disciplinary action against him.
Financial tips by DBO
To avoid future borrowing, customers are advised to create a budget by listing all sources of monthly income and all expenses. They should also prioritize their debt by paying the most expensive interest rates and by cutting unnecessary expenses. They should build an emergency fund through a savings account with regular deposits. They should also contact their local consumer credit counseling service that can help with managing debt and budget. As for online lenders, DBO advises that consumers check the lender’s license before contracting them. Lenders without a license may illegally collect from the customer’s bank account without his permission and may illegally charge an interest rate that is higher than the lawful limitations. Illegal online lenders may sell personal or financial information. Lenders that operate from a different state or offshore are hard to track for criminal activities. Lastly, when taking out a payday loan, customers should borrow only as much as they can afford to repay.
Customers should be aware that the federal law requires mandatory credit counseling before declaring bankruptcy. The U.S. Department of Justice Trustee Program lets organizations provide mandatory counseling before declaring bankruptcy and mandatory debtor education after declaring bankruptcy.