Payday Loans

Costly Cash at a High Price
If you’ve ever said that you just need enough cash to tide you over until payday, you’re not alone. Although you may think you’ve found a solution in the ads promoting “fast cash until payday”, you should beware. They refer to payday loans - which can come at a very high price.

Understanding Payday Loans

According to the Indiana Department of Financial Institutions (September, 2007), there are a total of 494 licensed payday loan locations in the state. Check cashers, finance companies and others are making small, short-term, high-rate loans also known as cash advance loans, check advance loans, post-dated check loans or deferred deposit check loans.

Usually, a borrower writes a personal check payable to the lender for the amount he or she wishes to borrow plus a fee. The company gives the borrower the amount of the check minus the fee (finance charge). In Indiana, the finance charge is regulated to 15 percent of the first $250, 13% of the amount between $250 and $400, and 10 percent of any amount between $400 and $550, with a maximum payday loan limit of $550 and a minimum term of 14 days.

A cash advance loan secured by a personal check - such as a payday loan - is very expensive credit. Let's say you write a personal check for $115 to borrow $100 for two weeks. The payday lender agrees to hold the check until your next payday. At that time, depending on the particular plan, the lender deposits the check, or you redeem the check by paying the $115 in cash.  In this example, the cost of the initial loan is $15 for two weeks and a 391 percent Annual Percentage Rate (APR), which is the annualized cost of your loan.   If you payoff your initial loan after two weeks and borrow again immediately and continue this the maximum number of times allowed by the law, you will have taken six loans at $15 per loan, and the finance charge would climb to $90 to borrow the same $100.

Alternatives to Payday Loans

• Consider getting a regular loan from a bank, credit union, or lending company. They may have short-term loans available at less costly rates.
• You could try to borrow money from friends or family members.
• You may also go to your local food bank or Trustee office for food or financial help.
• If you are short on the rent, talk to your landlord to see if the landlord will agree to let you pay late. (Get the agreement in writing if the landlord does agree).

Tips for Pursing Payday Loans

Under the Truth in Lending Act, the cost of payday loans - like other types of credit - must be disclosed. Among other information, you must receive, in writing, the finance charge (a dollar amount) and the annual percentage rate or APR (the cost of credit on a yearly basis).

• It is important to keep all of your loan documents. You have to repay the loan on the scheduled due date.

• You may cancel your payday loan so long as you tell the lender that you want to cancel by the end of the next business day after you get the loan.
• The only fee permitted (in addition to the finance charge) on your small loan is one return item fee (NSF fee) for each returned or dishonored item. This additional charge may be assessed one time regardless of how many times a check or an authorization to debit the borrower’s account may be submitted by the lender and dishonored. The maximum amount of this fee is $25.
• A lender cannot give you a payday loan if the total amount to be paid back is more than 20% of your gross monthly income.
• At the time of your third, fourth, or fifth “consecutive loan” (a consecutive loan is a loan made within seven days after the payoff of a previous loan), the lender must offer you an extended payment plan if you are not in default.
• A lender cannot make you a loan if that loan, combined with a debt you owe to another payday lender, is more than $550. If you have two payday loans out at one time, a payday lender cannot make you a loan regardless of the amount you owe.
• As of July 1, 2007, if you are solicited for a payday loan in Indiana, then the entity must be licensed with the DFI if they are making consumer loans in Indiana whether they have an Indiana presence or not.

Resources

For more information or to submit complaints, visit the Indiana Department of Financial Institutions or call 800-382-4880.

You may also submit complaints to Federal Trade Commission online or by phone: 1-877-FTC-HELP (1-877-382-4357), TTY: 1-866-653-4261. The FTC enters the complaints into Consumer Sentinel, a secure online database available to hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.

The Consumer Protection Division of the Indiana Attorney General’s Office works to safeguard the rights of Indiana citizens every day. If you have questions or complaints regarding identity theft or other consumer issues, contact the Attorney General's Consumer Protection Division at 800-382-5516.

– Current as of 10-1-07 –

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