Recent reports show that there are approximately 2,119 payday lender storefronts in California. Nearly 12.3 million payday loans are taken out each year. In general, Millennial and Generation X populations take out the most payday loans, followed by Generation Z and then Baby Boomers.
There are restrictions and regulations regarding the payday lending industry in California despite the prevalence of the market.
In 2019 the California State Legislature passed the Fair Access to Credit Act. This caps interest at 36% for loans ranging from $2,500 to $10,000. Before this legislation, there was no cap on interest for personal loans in the State of California above $2,500. Percentage rates could frequently reach 100% or more. Loans under $2,500 are capped at 36%.
As of July 2020 lenders are not required to check a borrower’s ability to repay a loan.
California Payday Lending Statutes
In addition to the enactments above, there are other statutes concerning payday loans in California. The Department of Financial Protection and Innovation oversees the regulation of payday loans. California payday lending rules and regulations can be found in two places, Civil Code 1789.30 and Financial Code 23000.
All payday lenders in California are required to have a license from the Department of Business Oversight. Terms of a payday loan must be detailed in a legal contract between the lender and the borrower. The contract should contain the following:
- Loan amount
- Interest rates
- Finance charges
- Terms and conditions
Borrowers are required to provide identification.
Max Loan Amount
In the State of California, a payday loan cannot exceed $300. There is no minimum loan amount specified.
Terms of Repayment
In California, the maximum loan term is 31 days.
An individual is only allowed to take one payday loan at a time. Rollovers of loans are not allowed. Charges for an extension are deemed illegal. A borrower can also not take out an additional loan to repay another loan.
Lenders are strictly prohibited from providing borrowers who have previous unpaid loans with a new loan. However, there is no “cooling off period” required, so lenders can take out a consecutive loan once the first is repaid.
Rates and Charges
Charges and fees are not to exceed 15% of the face value of the amount loaned. Lenders are restricted to charging a maximum of $45 in fees.
APR ranges from 372% on average to a maximum APR of around 460%.
Criminal Action and Charges
No criminal action or charges are allowed to be pursued should a borrower enter into a deferred deposit transaction or fail to pay.
How Does California Compare to Other States?
Arkansas, Arizona, Connecticut, Georgia, Maryland, Massachusetts, Montana, New Jersey, New Hampshire, New York, North Carolina, Pennsylvania, South Dakota, Vermont, and West Virginia have made payday lending illegal.
In the states that do allow payday lending, the state of the industry varies. Each state has different rules and regulations regarding payday loans.
In Delaware, the maximum loan amount is $1000. The maximum loan term cannot exceed 60 days. Delaware does not have any specific caps on finance charges or interest rates. Additional loans are prohibited until the previous loan has been repaid.
APR’s have been found to reach as high as 521%.
Four rollovers are allowed per borrower per loan. A borrower cannot take out more than five loans in a period of twelve months.
Similarly, Illinois has a max loan amount of $1000, or 25% of the borrower’s gross monthly income. The loan term cannot exceed 120 days or be shorter than 13 days. No more than 15.5% can be charged per $100.
APR’s may be as high as 404%.
Rollovers are prohibited and borrowers who have had a loan for 45 days must wait seven days before taking out another loan.
In Oregon, the loan cap is $50,000. The term of the loan must be 31 days at the minimum and cannot exceed 60 days. APR’s are capped at 36%.
Borrowers are allowed two rollovers. However, there are no limits as to how many loans may be applied for. As per the “cooling-off period” rules, there must be seven days between two consecutive loans.
The State of Texas does not have a cap on the maximum loan amount. The minimum loan term is 7 days while the maximum term is 180 days. There are two types of payday loans in the state, single and multiple installment.
The fees and charges are dependent on the loan type and amount, but there is no maximum financing fee. APR’s can be as high as 410%.
There is no cap on the number of rollovers or the number of loans a borrower can have at a single time. Though the state law is very relaxed, over 45 cities in Texas have passed the unified payday loan ordinance which places stricter regulations on the payday industry.