1. Payday Loans Laws Protecting Montana Borrowers 2002

2. Authors: Marsha A. Goetting MSU Extension Family Economics Specialist Britta A. Schernthanner FCS Intern, MSU

3. MSU Extension MontGuide MT200102HR www.montana.edu/wwwpb/pu bs/mt200102.html

4. Advertisements Quick Money!!! Quick Money!!! No Credit Checks!!! No Credit Checks!!! Fast Cash Loans!!! Fast Cash Loans!!! Payday Advances!!! Payday Advances!!!

5. Payday loan Industry Emerged in response to consumer demand for small loans for short periods of timeEmerged in response to consumer demand for small loans for short periods of time

6. Small Loans Typically not made by traditional lendersTypically not made by traditional lenders $50 to $300 $50 to $300

7. Common Loan Names Cash Advance Cash Advance Payday Payday Post dated Check Post dated Check Delayed Deposit Check Delayed Deposit Check

8. Payday Lenders MT Definition MT Definition Business that provides loans from $50 to $300 for up to 31 days Business that provides loans from $50 to $300 for up to 31 days

9. Montana Division of Banking & Financial Institutions Issues annual licenses Issues annual licenses Conducts annual examinations Conducts annual examinations

10. Montana Licensed Payday Lenders 97 January of 2004

11. How does a payday loan work? Two ways are typical Two ways are typical

12. Method 1 Lender loans money to borrowerLender loans money to borrower Lender accepts check for loan amount plus feesLender accepts check for loan amount plus fees

13. Method 1 (cont’d) Borrower dates check on day written Borrower dates check on day written Lender holds check for agreed number of days of the loan Lender holds check for agreed number of days of the loan

14. Payday Loan Example: Mary has too much month left at the end of the money!Mary has too much month left at the end of the money! Borrows $100 Borrows $100

15. Mary Borrows $100 Writes check for $113 Writes check for $113 $100 plus $13 fee$100 plus $13 fee Dates check on day written, January 22Dates check on day written, January 22

16. Mary’s Payday Loan 7 day loan 7 day loan Payment DuePayment Due January 28January 28 Lender deposits check for $113 Lender deposits check for $113

17. Method 2 Lender loans money Lender loans money Lender accepts post dated check for loan amount plus fees Lender accepts post dated check for loan amount plus fees

18. Method 2 (con’d) Lender holds check until date written on itLender holds check until date written on it Borrower can buy back check with cash Borrower can buy back check with cash

19. Payday Loan Example: Mike has too much month left at the end of the money!!!! Mike has too much month left at the end of the money!!!!

20. Mike Borrows $100 September 10 September 10 writes check for $118writes check for $118 Post dates check Post dates check September 21September 21

21. Mike’s Loan 12 days later 12 days later Lender deposits check for $118 Lender deposits check for $118

22. Montana Deferred Deposit Loan Act October 1, 1999

23. How much money may be borrowed? Maximum Maximum $300 $300 Plus fees Plus fees

24. How much money may be borrowed? Minimum Minimum $50 $50 Plus fees Plus fees

25. Costs for loans Finance Charges Finance Charges Fees Fees

26. Montana Fee Cap Can’t exceed 25% of face value of check Can’t exceed 25% of face value of check

27. Example Fees on $100 4 days = 4 days = 10 days = 10 days = 15 days = 15 days = 20 days = 20 days = 30 days = 30 days = $10.00 $16.00 $22.00 $33.24 $33.25

28. Federal Law Payday lenders must disclose finance charges (fees) as Payday lenders must disclose finance charges (fees) as Annual Percentage Rates APRsAnnual Percentage Rates APRs

29. Shop Around Compare Annual Percentage Rates Compare Annual Percentage Rates APRsAPRs

30. Typical Loan APRs 10% to 18% 10% to 18% Banks, Savings & Loans, Credit Unions Banks, Savings & Loans, Credit Unions

31. Typical Loan APRs 16 to 21%16 to 21% Credit Card Cash Advances Credit Card Cash Advances

32. Payday Loans: Typical APRs 4 days = 4 days = 10 days = 10 days = 15 days = 15 days = 20 days = 20 days = 30 days = 30 days = 913% 584% 535% 607% 406%

33. Table 1: Page 5 Examples Examples Fee Amounts Fee Amounts APRs, & APRs, & Fee Rates per $100 Fee Rates per $100

34. Table 1: Page 5 Fees, APR, Fee Rates per $100

35. Montana Deferred Deposit Loan Act Additional Rules

36. Payday loan cannot exceed 25% of monthly net income of borrower 25% of monthly net income of borrower

37. Example 1 $1,110 $1,110 x.25 x.25 $ 275 limit on loan $ 275 limit on loan

38. Example 2 $1,500 $1,500 x.25 x.25 $ 375 but loan limit is $300 $ 375 but loan limit is $300

39. Borrower cannot Have more than 2 loans outstanding at any one time with single payday lender Have more than 2 loans outstanding at any one time with single payday lender

40. Limitation Total of two loans with same lender can’t exceed $300 limit Total of two loans with same lender can’t exceed $300 limit

41. Can loan be extended ? NO Lenders prohibited from refinancing a payday loan with proceeds of another payday loan to same borrower Lenders prohibited from refinancing a payday loan with proceeds of another payday loan to same borrower

42. What does lender require from borrower? Photo ID Photo ID Checking Account Checking Account Payroll Stub Payroll Stub Physical Address Physical Address

43. What does lender have to provide to borrower?

44. Two items 1. Pamphlet 2.Written Loan agreement

45. Pamphlet Explains borrower’s rights & responsibilities for payday loan Explains borrower’s rights & responsibilities for payday loan

46. Pamphlet Telephone number for Montana Department of CommerceTelephone number for Montana Department of Commerce 406-444-2091406-444-2091

47. Pamphlet Informs borrower that MT Dept of Commerce provides info about lender’s licenseInforms borrower that MT Dept of Commerce provides info about lender’s license

48. What does lender have to provide to borrower? Two items Two items Pamphlet Pamphlet Written Loan agreementWritten Loan agreement

49. Requirements Written Loan agreement Written Loan agreement

50. Loan Agreement Name, address & phone number of lenderName, address & phone number of lender

51. Loan Agreement Means of identifying employee who signs agreement Means of identifying employee who signs agreement

52. Loan Agreement List of fees & interest charges to be paid by borrower List of fees & interest charges to be paid by borrower

53. Loan Agreement Description of borrower’s payment obligations Description of borrower’s payment obligations

54. Statement “You cannot be prosecuted in criminal court for collection of this loan” “You cannot be prosecuted in criminal court for collection of this loan”

55. But…..If loan not paid Lender can sue in Civil Court Lender can sue in Civil Court

56. Civil Court Can assess borrower Can assess borrower Court fees Court fees Attorney’s fees Attorney’s fees

57. Civil Court Garnish borrower’s wages Garnish borrower’s wages

58. Civil Court Place lien on home or other asset Place lien on home or other asset

59. Alternatives to Payday Loans

60. Alternatives Check cost of loan from bank, credit union, or savings & loan institution Check cost of loan from bank, credit union, or savings & loan institution

61. Alternatives Ask employer for advance on paycheck Ask employer for advance on paycheck

62. Alternatives Ask family or friends for a short-term loan Ask family or friends for a short-term loan

63. Alternatives Is APR on credit card cash advance lower than APR on a payday loan? Is APR on credit card cash advance lower than APR on a payday loan?

64. Alternatives Use credit card to make purchases & pay total when dueUse credit card to make purchases & pay total when due

65. Alternatives Use credit card to make purchases & make monthly payments Use credit card to make purchases & make monthly payments

66. Alternatives Ask creditors for more time to pay bills Ask creditors for more time to pay bills

67. Alternatives Obtain overdraft protection on checking accountObtain overdraft protection on checking account

68. How to avoid needing a Payday loan? Better management of money Better management of money

69. Track Income & Expenses Use info to develop spending plan

70. Establish Emergency Fund Use these funds instead of payday loan Use these funds instead of payday loan

71. Avoid these rates 4 days = 4 days = 10 days = 10 days = 15 days = 15 days = 20 days = 20 days = 30 days = 30 days = 913% 584% 535% 607% 406%

72. Payday Loans Laws Protecting Montana Borrowers 2002