Question: Are payday loans legal in California? I heard about one company being sanctioned for giving illegal loans there. Lots of places advertise them, but are they all breaking the law? --metro
Answer: Payday loans are legal in California, though they're regulated and need to be licensed to do business in the state. Several companies have been sanctioned by the Department of Corporations for not being licensed or otherwise violating regulations within the state, but there are plenty of lenders operating legally, following state regulations. To see if a company has been subject to an enforcement action or order within California, you can look for their name here: www.corp.ca.gov/ENF/
To see whether a lender is licensed in the state, see the Department of Corporation's website at www.corp.ca.gov/FSD/Licensees or by phone at 1-866-ASK-CORP.
Payday loans, or "deferred deposit transactions" as they're defined by law, are limited to a total amount of $300 under California law. The maximum fee that can be charged is 15%, so you can receive at most $255, and pay back $300 on your next payday. The length of the loan can be up to 30 days.
Unlike in some other states, you can't roll over a payday loan by paying the minimum fee when it's due. You either need to pay it in full, or work out a voluntary repayment plan if the lender allows, but the lender may not charge extra for extended repayment.
Both online lenders and store-front ones are required to be registered in California if they want to do business with residents of the state. Online applications are quick and easy, and the money can be deposited electronically in your checking account usually by the next business day, but before agreeing to an online loan, make sure the company is licensed to do business in California.
Payday loans are designed to offer emergency help for those with poor credit, who may not qualify for other loans. They're quick and easy to apply for, and acceptance is almost guaranteed for those who meet the minimum requirements, since there's often no credit check. As long as you have a regular source of income, a checking account, and aren't in default on similar loans, you can generally be approved, if you're a legal resident of the state over 18.
A fee of 15% works out to be very expensive on an annualized basis, so it pays to consider other options that may be available. Those with low income, who have chronic problems meeting financial obligations, may find foodstamps or housing aid useful. There are also food banks, used clothing assistance and other aid from charitable organizations. If you need money to pay a one-time bill, you may be able to contact your creditor and work out a payment plan directly with them. Credit unions may be willing to loan money to those with less-than-perfect credit scores. Pawn shops and car title loans are another option, but they're almost as expensive as payday loans.
If you need cash quickly and have decided that a payday loan is your best option, an online loan can be an easy solution. However, online lenders can more easily avoid California's regulations than storefront ones. Make sure the company is licensed to do business in the state, as described above, before proceeding.
With all the new websites springing up, you really do need to be careful. The ones that follow the rules and are honest and convenient, get lost amid the ones that don't care about being licensed. --Ship99
It's good to see the state crack down on these illegal companies. When people are in desperate straits, they don't need predatory lenders overcharging them or taking advantage of them. The California laws are supposed to at least limit the problem somewhat by putting caps on what can be charged, but it doesn't do any good if companies just skirt around the laws. --Mix
Fifteen percent is about what places charge for late fees or bounced checks, so paying that much for a loan that'll keep you from paying a late fee and having a late payment marked on your credit report isn't a bad deal. --Janie55