PAYDAY LENDING IN NEW YORK: WHAT YOU NEED TO KNOW
Payday loans are illegal in New York State. It is a violation of New York State law to make payday loans in-person, by telephone, or over the Internet. It is also illegal for a debt collector to collect, or attempt to collect, on a payday loan in New York State.
To File a Complaint
- File a complaint with the Department of Financial Services at (800) 342-3736 if you believe payday loans are being made in New York or to New York residents, or if a debt collector is seeking to collect on a payday loan in New York.
What is a Payday Loan?
A payday loan is a relatively small, high-cost loan, typically due in two weeks and made with a borrower’s post-dated check or access to the borrower’s bank account as collateral.
- Payday loans are designed to trap borrowers in debt. Due to the short term, most borrowers cannot afford to both repay the loan and pay their other important expenses.
- If the loan cannot be paid back in full at the end of the term, it has to be renewed, extended, or another loan taken out to cover the first loan. Fees are charged for each transaction.
- The annual percentage rates on payday loans are extremely high, typically around 400% or higher.
- Lenders ask that borrowers agree to pre-authorized electronic withdrawals from a bank account, then make withdrawals that do not cover the full payment or that cover interest while leaving principal untouched.
- If the lender deposits a repayment check and there are insufficient funds in the borrower’s account, the borrower is hit with even more fees for insufficient funds.
New Yorkers should steer clear of payday loans. If you are struggling to pay your bill:
- Ask your creditors for more time. Find out what they charge for late payments, finance charges or interest rates since it may be lower than what you might end up paying for a payday loan.
- Work with a community development credit union or a non-profit financial cooperative, which may provide affordable small-dollar loans to eligible members.
- Ask for a salary advance from your employer, or borrow from family or friends.
- Consult social service agencies, they may have programs to help with food, housing and home heating costs.
To stop recurring bank account debits to a payday lender, take the following steps:
- Contact your bank or credit union and provide an oral or written request to stop payment to the payday lender. Your bank or credit union may require written confirmation of your request. Banking rules require that you contact your bank or credit union at least three business days before the next payment is due to effectively stop payment. Include your contact information in your request so the bank or credit union can get in touch with you if necessary.
- Revoke the authorization for the payday lender to debit your account. Either follow the instructions in any paperwork you received from the payday lender, or send the payday lender a written notice saying: “my authorization to debit my account is revoked.”
- Send a copy of your letter revoking authorization to your bank or credit union, indicating that the lender’s authority to debit your account has been cancelled. Keep records for yourself.
- In the event that you take the steps above and your account is still being debited, you may want to consider closing your account and opening a new one.
If you have any problems, including debt collectors contacting you about the transaction, contact DFS at (800) 342-3736 or File a Complaint.