Thinking of Making a Payday Loan in NYS? Better Reconsider.

Has your employee come to you seeking a loan until the next paycheck?  Are you rendering a service in advance secured by a postdated check which includes a finance fee payable within a short time? If so, you should know that these are clear examples of payday loans.

If you are making these types of loans to New York consumers, you better reconsider.

What is a payday loan?

Loans that are relatively small, lent at a high rate of interest, typically due in two weeks or until the borrower received their next paycheck, secured by a borrower’s post-dated check or access to the borrower’s bank account as collateral.

Payday loans are illegal in New York State.

Yes, payday loans are illegal in New York.

According to the Department of Financial Services payday loans are illegal for the following reasons:

  • Payday loans are designed to trap borrowers in debt. Due to the short term, most borrowers cannot afford to both repay the loan and pay their other important expenses.
  • If the loan cannot be paid back in full at the end of the term, it has to be renewed, extended, or another loan taken out to cover the first loan. Fees are charged for each transaction.
  • The annual percentage rates on payday loans are extremely high, typically around 400% or higher.
  • Lenders ask that borrowers agree to pre-authorized electronic withdrawals from a bank account, then make withdrawals that do not cover the full payment or that cover interest while leaving principal untouched.
  •  If the lender deposits a repayment check and there are insufficient funds in the borrower’s account, the borrower is hit with even more fees for insufficient funds.

Consumer advocates and lawmakers are urging low-income consumers to avoid payday loan” In an attempt to ”Stop Payday Debt Traps” the Consumer Financial Protection Bureau imposed a requirement that  lenders must determine the financial ability of consumers  to repay the loans that require all or most of the debt to be paid back at once.

What if a loan had been made, can a debt collector help collect the loan?

Sorry, in New York the answer is NO.

It is illegal for a debt collector to collect or attempt to collect a payday loan in New York State.

How can you collect on a loan resembling a payday loan?

The law is not favorable to lenders and the mere resemblance of a short-term loan as a payday loan will reflect poorly on the lender. If you believe the loan was not a “payday loan” and have not been paid, it may be best bringing a claim for non-payment in small claims Court.

If you are seeking to collect monies from a non-paying borrower or client and need help or simply need advice, contact FFGN.

We have the experience that pays…………….