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.
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 lending is illegal in New York
- 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.
- 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. Include your contact information in your request so that the bank or credit union can get in touch with you if necessary.
- Revoke the authorization for the payday lender to withdraw money from your account. Follow the instructions in any paperwork you received from the payday lender, or send the payday lender a written notice with these instructions: “My authorization to withdraw money from my account is revoked.” Include your contact information.
- Then send a copy of this written notice (revoking authorization and stating that the lender’s authority to withdraw payments from your account has been revoked) to your bank or credit union.
- Inform the bank that you would like to contest any prior withdrawals by the payday lender as unauthorized since the payday loan is illegal, void, and unenforceable in New York.
- After you have made a stop payment request, a lender may continue to try to withdraw money from your account, sometimes using multiple payment systems. You should continue to monitor your account closely. If you see a withdrawal from the payday lender, contact your bank and explain that you previously requested to stop payment and that the lender is still trying illegally to withdraw money from your account.
- If you need to contact your bank again, discuss any fees that the bank may charge, and make sure the bank knows that the unauthorized withdrawals are due to the repeated actions of an illegal lender. In some cases, banks may waive stop payment fees.
- In the event that you take the steps set out 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.