CALIFORNIA PAYDAY LOANS:
WHAT CONSUMERS NEED TO KNOW
Lender Licensing Requirement
Lenders must be licensed by the California Department of Business Oversight (DBO) to lawfully conduct business in the state. To find out if a lender is licensed, search by name here.
Consumers should obtain payday loans only from licensed lenders.
When consumers do business with unlicensed lenders, whether operating online or in storefronts, they’re less likely to benefit from the protections provided borrowers by state law. Those protections include limits on the dollar amount of payday loans and the fees consumers can be charged, as well as requirements that lenders provide borrowers important information about loans.
How Payday Loans Work
In a payday loan – formally called a deferred deposit transaction – the consumer provides the lender (called an originator under state law) a personal check for the amount of money desired. The lender provides the consumer the money, minus an agreed-upon fee. The lender then defers depositing the consumer’s check for a specific, short period of time.
The consumer’s personal check for a payday loan cannot exceed $300.
The most lenders can charge to provide a payday loan is 15% of the amount of the consumer’s personal check. Multiply the amount of your personal check by .15, and the result will tell you what the maximum fee is for your loan.
For example, if you give the lender a $300 check, and they charge you the maximum 15 percent, the fee for your loan will be $45. That means you actually will be able to borrow only $255 with a $300 check ($300 minus $45 fee).
Annual Percentage Rate Equivalent of Fees
Lenders must tell consumers what the loan fees equal in terms of annual percentage rate (APR). For a typical California payday loan, the APR works out to more than 400 percent.
Maximum Length of Loan
A payday loan cannot exceed 31 days.
Lenders can give borrowers an extension of time to repay loans, but cannot charge any additional fees for the extension.
Fees on Returned Checks
Lenders can charge a maximum $15 when a consumer’s check is not honored and is returned by the bank.
What the Lender Must Tell Consumers
- The full fee amount, stated both as a dollar amount and APR.
- The payment obligations.
- The charge for returned checks.
- That lenders cannot accept collateral and cannot require consumers to buy another product in order to obtain a payday loan.
- That the consumer cannot be prosecuted or threatened with prosecution in order to collect payment on the loan.
What Lenders Cannot Do
- Accept collateral on a loan.
- Require borrowers to purchase another product, such as credit insurance, as a condition of providing a loan.
- Take blank checks.
- Provide a loan to a borrower who already has an outstanding payday loan.
- Commit any unlawful, unfair or deceptive act, or make any misleading statements.
Filing a Complaint
To file a complaint against a payday lender, call the DBO at 1-866-275-2677, or complete our online complaint form (recommended) here. http://www.dbo.ca.gov/Consumers/consumer_services.asp