What is a Payday Loan?
Payday loans are also referred to as “cash advances” or “deferred deposits.” In a payday loan, the borrower writes a check to a lender in exchange for a short-term cash loan. For example, a borrower writes a $300 check, pays the $45 fee, and receives $255 in cash. The lender does not cash the check until the borrower’s next payday, up to 31 days.

What are the fees on a payday loan?
Under California law, the maximum loan amount you can borrow from a payday loan is $300. The maximum fee a payday lender can charge you is 15% of the face amount of the check (up to a maximum of $45).

This fee is often equivalent to an annual percentage rate (APR) of 400% or more. APR is the total interest rate that a borrower pays annually on a loan, including all fees and charges. APR is used to reveal the total cost of borrowing money. By comparison, a loan for a new car may have an APR of 7%.

What happens if you take out a Payday Loan?
Borrow only as much as you can afford to pay back in full when you get your next paycheck. On the loan due date, some borrowers find they cannot afford to pay the loan in full. Often, a borrower will take out a second loan from another payday lender in order to pay off the original loan. This can begin a dangerous cycle of debt that may lead to financial disaster.

How Do California Payday Lending Laws Protect You?

  • In California, all payday lenders must be licensed by the Department of Corporations. Use the Department’s website or call Toll-Free to verify a lender’s license or to file a complaint.
  • A Payday lender may only make you one loan (which cannot exceed $300), and may only charge a maximum fee of 15% of the total amount of the check (up to $45).
  • If your check bounces, the Payday lender may only charge one bounced check fee (up to $15). (Be careful — your bank may charge you additional fees for insufficient funds.)
  • A Payday lender cannot threaten to or take you to court for insufficient funds.
  • A Payday lender cannot make you a new loan to pay off an existing loan.
  • Additional fees cannot be charged if you request an extension of time or payment plan. However, the Payday lender is not legally required to grant your request.
  • A Payday lender cannot make you a new loan while an existing loan with the same lender is outstanding, even if the combined balance of the existing loan and the new loan does not exceed $300.
  • By law, the contract for a payday loan must be provided to you in the language you primarily used to negotiate with the lender.
  • You may also have other legal protection under California Law. If you need help, contact the California Department of Corporations.

What if you have Credit Problems?
If you have missed billed payments or have other credit troubles, you may benefit from the services of a Financial Counselor. Counselors help you review your entire financial situation and help you develop a personalized money management plan. Be careful — just because a debt management agency claims to be “non-profit”, doesn’t guarantee the services are legitimate or affordable.

A reputable agency should send you free information without requiring you to provide any personal details. Look for a range of service including budget counseling, and savings and debt management classes. Avoid any that push a debt management plan as your only option before they analyze your financial situation. Visit the National Foundation for Credit Counseling (NFCC) website, www.nfcc.org or call Toll-Free 1-800-388-2277 for assistance with credit problems and creditors.

What if you are facing Bankruptcy?
Recent Federal Law requires mandatory credit counseling before you can declare bankruptcy. Go to https://www.consumer.ftc.gov/articles/0224-filing-bankruptcy-what-know to download the publication “Before You File for Personal Bankruptcy: Information about Credit Counseling and Debtor Education.” The U.S. Department of Justice Trustee Program approves organizations to provide mandatory counseling before you can declare bankruptcy and mandatory debtor education after you declare bankruptcy. Go to https://www.justice.gov/ust/credit-counseling-debtor-education-information.

How do I avoid future financial problems?
Paying bills and living paycheck to paycheck is never easy. Job loss, unexpected expenses or medical emergencies can be financially devastating. If you are worried about debt, try this:

  • Create a budget (list all sources of income and all expenses, including total owed and monthly minimum payments).
  • Cut all unnecessary expenses; prioritize your debts (pay most expensive interest rates first).
  • Call your creditors and ask to waive late fees, reduce the interest rate, and /or work with you to establish a re-payment schedule that will work for you.
  • Set aside even a small amount per paycheck to build up an emergency fund.