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What are payday loans How does a payday loan work Why are payday


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									         What are payday loans?                      Legitimate lenders, like credit unions and banks,   If you do not repay your loan, the lender may
Payday loans are loans that last for a short         review a borrower’s ability to repay a loan.        ask for and collect only the following:
time (usually 2 weeks) and have very high            Payday lenders do not.                              • the amount you borrowed and did not repay
interest rates. These loans are sometimes                                                                    plus the finance charge
called cash advance loans, check advance             Their business is built on making loans
                                                                                                         • a returned check fee of no more than $30 if
loans, post dated check loans or deferred            borrowers cannot afford to completely repay, so
                                                     that they will keep coming back and getting new         your check bounces, you stop payment on
deposit loans.                                                                                               your check or you close the account
                                                     loans and paying new fees.
                                                                                                         • court costs and attorney fees if the lender
     How does a payday loan work?                        Are there limits on payday loans?                   takes you to court and wins, but only if a
You write a postdated check for the amount                                                                   provision allowing for attorneys fees is
you want to borrow plus a finance charge or          Yes. There are limits under Montana law.                included in the loan agreement
lender’s fee.                                                                                            • Montana law now allows for collection
                                                        •   The maximum amount a payday lender               agencies to seek treble damages or a $500
The lender gives you the amount of the check                can lend a borrower at one time is $300.         bad check fee in collecting the debt.
minus the finance charge and agrees to hold                 The minimum is $50.
the check until your next payday. If you do not         •   The lender may not charge more than                  What information must a
repay the loan before your next payday, the                 25% of the amount on the face of the               payday lender give you when
lender cashes the check.                                    postdated check in finance charges or
                                                            fees.                                                  you take out a loan?
                                                        •   The amount of time you have to pay
          Why are payday loans                              back the loan cannot exceed 31 days          1. A pamphlet that:
        considered “Debt Traps?”                            and can only be extended if no additional    • explains the borrower’s rights and
Payday lenders do not allow partial payments.               finance charges are made.                        repayment responsibilities,
In Montana, lenders may not charge a fee to             •   Payday lenders are prohibited from           • includes a telephone number for the
extend a payday loan’s term, so they use the                charging a fee to renew a loan, but the          Department of Administration Division of
back-to-back method.                                        back-to-back method gives them a way             Banking and Financial Institutions
                                                            around this prohibition.                     • informs the borrower that the above
This method involves a borrower repaying the            •   A lender may not give more than one              department can tell him whether or not the
loan in full when it comes due, but realizing               loan to the same borrower at the same            lender is licensed and give him other legally
after repayment that they do not have enough                time, and the total of the loan must be          available information.
money to last them until their next payday.                 $300 or less.
                                                                                                         2. A written agreement that can be kept by the
This forces him to take out a new loan and pay          •   A lender may not accept repayment of a       borrower that includes:
new fees right after paying back the old loan,              payday loan with proceeds from another
                                                            payday loan that it or its affiliate made.   • the name, address and phone number of
this pulls the person into a cycle of debt that is
                                                                                                             the lender and the initials of person making
very difficult to escape.
                                                      What can a payday lender do to me if I                 loan
                                                      don’t repay my loan? Can I go to jail?             • the name, address and phone number of
A typical bank or credit union loan has an APR
                                                                                                             the borrower
of 10% to 18%. A credit card cash advance
can carry an APR of 25% to 30% on the high           No, a payday lender cannot use or threaten to       • a listing of fees and interest charges to be
end. A payday loan’s APR can be as high as           use the criminal process to collect your loan.          paid by the borrower
•   a clear description of the borrower’s
    payment obligations and directly             MLSA HelpLine: (800) 666-6899                     Montana Legal Services
    before the borrower signature line in    Need legal help? Call the HelpLine
    14 point bold print the words:           Monday-Friday 7:30am to 5:15pm and
                                             Saturday 9:15am to 12:45pm.
You cannot be prosecuted in criminal
court for collection of this loan.           MLSA staff will help you apply over the
                                             telephone. If you qualify, you could:
Failure to provide any of the above                                                                        Payday Lending
information is a violation of Montana law.   •     get an appointment with an MLSA
                                                   advocate, or
What can I do if a payday lender             •     be referred to a free attorney, or
violates the law?                            •     get signed up for a self-help class, or
                                             •     get self-help materials.
If a payday lender violates the law, you
may be able to sue for damages caused                       www.MTLSA.org
to you as a result of the violation,         Find copies of all our brochures online.
statutory damages of up to $1000 per         They are all available for free download!
violation, and court costs and attorneys
fees. Also, consumers may bring class               www.MontanaLawHelp.org
action lawsuits against payday lenders.
                                                   Need legal information? Go online.
What are some cheaper alternatives                  Visit www.MontanaLawHelp.org.
                                                                                                   Providing, protecting, and enhancing
to payday loans?                                                                                            access to justice.
                                                  You can find information about legal
•   A small loan from a credit union or a         problems such as divorce, parenting
    small loan company                           plans, landlord and tenant issues, and
•   Ask your employer for an advance on             public benefits. You can also find
    your paycheck                                 information about getting legal help,
                                                   community resources, and courts.
•   Ask a friend or relative to loan you
    money                                    Can’t find what you want? Use LiveHelp.                            Rev. 09/08
                                             Click on the LiveHelp picture and get help
The following will be cheaper alternatives
                                                  finding the information you need.
in most cases, but always compare
interest rates before you borrow money:             This pamphlet is meant to give basic legal
• A cash advance on a credit card                    information, not legal advice about your
                                                 problem. The law changes often and each case
• Overdraft protection on your checking            is different. This pamphlet may not apply to
    account                                        your problem. You should not rely on it only.
                                                 Please talk to an attorney about your problem.

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