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When an individual is in need of a short-term or emergency loan, and has no other source of credit, he can turn to payday lending. When you apply for a payday loan, the lender requires information about your job and your wages. You repay the money through an automatic withdrawal direct from your bank account on the date of your next paycheck. A typical payday loan carries a high interest rate, as well as fees that further increase the cost to the borrower. Taken together, these charges usually reach the maximum interest permitted by state law: 75 percent in Missouri, for example. If the borrower fails to repay the loan, the lender may roll it over for an additional term, and charge more fees and interest. Some states, including Pennsylvania, curtail payday lending by strictly limiting the interest rate that a lender can charge.
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Usury Laws in Pennsylvania
In Pennsylvania, strict usury (lending) laws limit interest rates on most consumer loans to 6 percent, making payday lending effectively illegal in the state. There are some exceptions, however. For example, licensed short-term lenders, which offer unsecured installment loans, can charge up to 24 percent per year, though this
rate doesn't cover costs for high-risk payday lending operations. Revolving credit accounts can charge 1 percent per month. Federal agencies such as the Federal Housing Administration can also levy higher interest, which can also be charged on business loans of more than $10,000 and unsecured loans of more than $35,000. The Pennsylvania statutes allow criminal prosecution for violation of the usury laws, which is considered a third-degree misdemeanor.
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A borrower who fails to repay a payday loan, or any other type of loan, is in default. However, if a state law bans the terms of a contract, that agreement is unenforceable. If the lender files suit against the borrower, the latter would have a defense against the claim and can request the court to dismiss it. The borrower could also pursue a counterclaim and request the awarding of triple the loan amount as damages, as well as attorney's fees. If the two parties made the agreement in another state that permitted the loan, however, and the borrower later moved to Pennsylvania, the lender could domesticate (transfer) the case to the new jurisdiction and pursue a judgment. The legal interest rate of 6 percent also applies to judgments in Pennsylvania.
Category: Payday loans