Payday Loans: Not All States Allow the Collection of Payday Loans
Members are reminded to review with their counsel the various state requirements on payday loans.
Recently, the Massachusetts Office of Consumer Affairs and the Division of Banks ordered a cease in collections on payday loans to a series of collection agencies. Massachusetts law prohibits types of loans often given by payday lenders. Massachusetts issued 408 letters to companies licensed in Massachusetts to debt collectors warning that they could only collect loans on behalf of licensed creditors. Many of the unlicensed lenders named in the Massachusetts press release were unlicensed or were Internet-based lenders without licenses.
This Spring, Governor Andrew Cuomo of New York issued a warning to payday lenders and collectors that collecting against New York consumers on payday loans is illegal in New York. Governor Cuomo’s press release indicated that the New York State Department of Financial Services sent letters to all debt collectors in New York stating that it is illegal to attempt to collect a debt on a payday loan since such loans are illegal in New York. “Today’s notification will remind debt collectors in the state that such practices are illegal in New York,” Governor Cuomo said. “Studies clearly show that payday loans are not a solution for people with low incomes, but rather a high cost debt trap. That’s why they are illegal in New York, and the State will continue to protect consumers from these misleading loans.” New York Superintendent of Financial Services Benjamin M. Lawsky said, “All debt collectors in New York should know that it is illegal to try to collect payday loan debts. We will aggressively enforce the law to protect all New Yorkers and especially low income individuals who are all too often abused by unscrupulous lenders and debt collectors.”
Certain number of the unlicensed lenders named in these releases were Internet-based lenders. Debt Buyers should review their portfolios along with state laws to insure that Internet loans are legally collectible.
Each state that has payday lending laws has a maximum loan amount, a maximum finance charge, licensing requirements, and other state-by-state requirements.