1. Payday Loans Laws Protecting Montana Borrowers 2002

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

3. MSU Extension MontGuideMT200102HRwww.montana.edu/wwwpb/pubs/mt200102.html

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

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

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

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

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

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

10. Montana Licensed Payday Lenders • 97 • January of 2004

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

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

13. Method 1 (cont’d) • Borrower dates check on day written • 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! • Borrows $100

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

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

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

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

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

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

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

22. Montana Deferred Deposit Loan Act October 1, 1999

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

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

25. Costs for loans • Finance Charges • Fees

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

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

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

29. Shop Around • Compare Annual Percentage Rates • APRs

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

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

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

33. Table 1: Page 5 • Examples • Fee Amounts • APRs, & • 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

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

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

39. Borrower cannot • 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

41. Can loan be extended? NO • 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 • Checking Account • Payroll Stub • Physical Address

43. What does lender have to provide to borrower?

44. Two items • Pamphlet • Written Loan agreement

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

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

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

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

49. Requirements • Written Loan agreement

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