By the Division of Banks
CONSUMER ADVISORY: PAYDAY LOANS
The Massachusetts Division of Banks Strongly Advises Consumers to Avoid Payday Loans
What is a Payday Loan?
A payday loan is a small loan that has to be repaid in a short period of time at a high interest rate. Repayment of the full amount, along with any fees charged by the payday lender, is usually due within 14 days. These lenders frequently solicit payday loans via the internet and a face-to-face transaction may not ever occur. When the payday loan is granted, a consumer provides the payday lender with authority to debit their bank account to repay the loan. If a consumer cannot repay the full amount when it becomes due, the payday loan can be refinanced for an additional period of time and for an additional fee. Because these loans are short term at a high interest rate, the cost of a payday loan to a consumer can be extremely high. Many payday lenders automatically refinance the loan which can trap a consumer in a cycle of debt.
Why Should Consumers Avoid These Loans?
Many consumers obtain a payday loan when they need quick access to funds and they are most vulnerable. Payday lenders target these loans to consumers that have financial emergencies and appeal to consumers when they need to borrow funds to meet an imminent need. Payday lenders often charge annual percentage rates has high as 500% percent and fees are sometimes as high as $500 upfront to obtain the loan. These costs are much higher than other borrowing options such as bank loans, credit cards or lines of credit. In addition, there may be an elevated risk of identity theft, as these entities collect numerous amounts of sensitive personal information.
How are Consumers Protected?
Under Massachusetts Law, a lender cannot issue a loan to a consumer for $6,000 or less unless they are licensed as a small loan lender by the Division of Banks (Division). Licensed small loan lenders are required to comply with the Massachusetts Small Loan Law (Massachusetts General Law chapter 140, section 96) and the Small Loan Rate Order. Under the Small Loan Rate Order, a small loan lender cannot charge an annual percentage rate of more than 23 percent or fees greater than $20.
The Division of Banks works to protect consumers from payday lenders illegally offering loans to Massachusetts consumers. Since January 1, 2012, the Division has issued approximately eighty (80) cease letters against unlicensed entities.
Companies to Avoid
The Division of Banks has become aware of companies that may continue to advertise predatory payday loans via the internet. The Division wants to make consumers aware of these unlicensed lenders that include:
- 500 Fast Cash
- American Web Loan
- Castle Payday
- Great Plains Lending, LLC
- Island Finance d/b/a White Hills Cash, LLC
- My Cash Now
- US Fast Cash
What Alternatives Are There?
Because payday loans are so expensive, consumers should seek other options including:
- Obtain a cash advance on a credit card or see if your local bank or credit union provides short-term loans. While there are still costs associated with these alternatives, the costs are typically much lower than a payday loan.
- Ask to borrow money from a friend or relative.
- Explore alternative payment arrangements for non-interest bills to lower overall expenses.
- Ask your existing creditors for more time to pay your bills or a modification to your payment terms; find out if there is a charge for this service.
If you ultimately choose to obtain a small loan, ensure the lender is properly licensed by the Division of Banks by going to www.nmlsconsumeraccess.org.
Need Help or More Information?
Consumers who have a complaint or concern about a payday lender may contact the Division's Consumer Hotline at 1-800-495-BANK (2265), ext. 501 or file a complaint with the Division. A complaint form may be found on the Division’s website at www.mass.gov/dob.