Can the California sanction payday lenders? Can a borrower sue them? Here is how California deferred deposit transaction law affect the payday loan industry. Note that California has one of the strictest laws when it comes to the regulation of payday loans. According to reports, many lenders don’t even offer payday loans in California because other states are considerably less restrictive.
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What is a Deferred Deposit Transaction?
A deferred deposit transaction is a transaction whereby a person defers depositing a customer’s personal check until a specific date, pursuant to a written agreement, as provided by California Financial Code. Personal check includes the electronic equivalent of a personal check.
What is a Deferred Deposit Originator?
A deferred deposit originator is any individual that provides, originates or makes a deferred deposit transaction, arranges a deferred deposit for a deferred deposit originator, acts as an agent for a deferred deposit originator, or assists a deferred deposit originator in the origination of a deferred deposit.
A deferred deposit originator is required to obtain a License from the Department of Corporations. Licensee can only engage in deferred deposit transaction business at the place of business (address) named in the license. Howbeit, a license is required for the place of business where a licensee conducts deferred deposit transaction business over the Internet.
In California, payday express loans (also known as deferred deposits transaction), are available as a credit product for borrowers who need funding immediately. Payday loans industries differ greatly from one state to another. Each state has the right to regulate its own payday loan industry, and California is one of the most active states in writing legislation for payday loans.
Can the State Sanction Abusive Payday Lenders?
In 2015, the State of California sanctioned more than 9 lenders for abusive practices towards customers. Due to how abusive payday lenders have been in the past, several efforts are now underway in California to further regulate them or hold them accountable for their ill-gotten gains.
Can Borrowers Bring Lawsuits Against Payday Lenders?
First, some borrowers are bringing suit against payday lenders. But that tactic has some flaws. Lawsuits are very costly and take time, which consumers who take out payday loans probably can’t afford. And scam payday lenders often use temporary websites and route the transactions through intermediaries, making it very hard to track down the culprit at all.
So, lawmakers and regulators in California are taking the clue and also stepping into the fight, pressuring both payday lending as a practice and banks as the facilitators of abuse. Likely, this will be the only way such practices can be reined in.
5 Ways California Laws Expediently Affect Payday loans
Even with the restrictive regulations, the industry still feels normal in the state with 2,119 payday lender storefronts and about 12.3 million payday loans taken out as at 2015. Note that all the regulations concerning payday loans are written in the following two documents – the Civil Code 1789.30 et seq. and the Financial Code 23000 et seq.
Also, the state law requires that all the lending companies should have a license from the Department of Business Oversight in order to operate in the state. Note that this measure was taken especially with the aim of taking care of the customers’ rights and protecting them from fraudulent actions.
It is also required that all the transactions between a lender and a borrower must be indicated in a legal contract in detail. Note that this agreement is expected to contain information about the loan amount, terms and conditions, such as interest rates and finance charges. Consumers, in their turn, are required to provide their ID card – or driving license number.
A payday loan contract must be provided in the language that was primarily used in the course of the negotiations with the lender. According to Civil Code 1789.30, here are the most important payday loan restrictions on payday loans in California:
1. Maximum loan amount
In California, the maximum loan amount for a payday loan is set to $300, an amount which is small enough to ensure that the borrower does not borrow too much.
2. Maximum Finance Charges
In addition, California payday loan fees cannot be more than the maximum allowed or total more than 15% of the loan. For instance, a borrower who has a $1,000 check could legally be charged a combination of fees and finance charges equal to $150, no matter how much is borrowed.
3. Maximum Loan Term
Have it in mind that a California payday loan cannot be written to exceed 30 days. Debts which are not offset after 30 days are still rolled over, however, and a new month’s fees, interest, and charges will be added to the balance if it is not paid in full.
4. Annual Interest Rate
Note that the California payday loans come with a cap of 459% on the annual interest rate. This interest rate can also be referred to as the effective annual rate, as it includes all fees, interest, and other charges to the balance. The finance charge for a $100 loan is also capped at $17.65 for 14 – day loans.
5. Consumer Information
In California, no criminal action against a customer who enters into a deferred deposit transaction is allowed; any criminal penalty for the failure to repay is prohibited in the state. In case a check is returned unpaid, an additional maximum fee of $15 for non – sufficient funds (NSF) transaction is established.
In case of the check return due to insufficient funds, a lender is also not allowed to take any criminal action against the borrower. Also note that one person is allowed to take one payday loan at a time and should repay it in full before taking another one.
Rollovers are not allowed and all the charges for extension are considered illegal. Borrowers in the state are also prohibited to take one loan in order to repay another one. Every time the loan is applied the new procedure is initiated and a new agreement signed.
The California Deferred Deposit Transaction Law (“CDDTL”) became effective on January 1, 2003 and became operative on December 31, 2004. On the operative date, the responsibility under the CDDTL for licensing and regulating persons engaged in the business of deferred deposit transactions (i.e. deferred deposit of a personal check) transferred from the Department of Justice to the Department of Corporations.
More information about payday loan laws and regulations in California can be found on the official California Department of Business Oversight (DBO) Division of Corporations page. You can also file a complaint on their website with regards to illegal payday lender actions.