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Understanding Payday Loans Laws: Protecting Borrowers in Montana

This guide, authored by Marsha A. Goetting and Britta A. Schernthanner, outlines the regulations governing payday loans in Montana, established to protect borrowers. It covers definitions, loan mechanisms, fees, and borrower limitations under the Montana Deferred Deposit Loan Act. Key points include loan limits, finance charges, annual percentage rates (APRs), and borrower eligibility requirements. Understanding these laws helps ensure borrowers make informed decisions when considering payday loans, thus avoiding potential pitfalls associated with high-interest lending practices.

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Understanding Payday Loans Laws: Protecting Borrowers in Montana

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  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

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