A payday lending store offers credit to those in financial need who can't borrow from banks or credit unions, or place the debt onto credit cards. In a typical payday lending transaction, the borrower writes a post-dated check for the amount of a loan, plus the lender's fee. The lender deposits the check or takes an automatic withdrawal from the borrower's bank account on the borrower's next payday. The high interest rates represented by payday lending fees violate the usury laws in many states, but not in Texas.
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Disclosures and Cancellations
Texas allows payday lending, but requires licensing and disclosure to customers of the fees and interest rates they'll be charged. In addition, state law mandates a three-day "cooling off" period, during which the borrower has the right to back out of the loan contract. Lenders must attach a cancellation notice to the contract, which the customer can detach and return to notify the lender of his decision.
Loan Terms, Fees and Marketing
Texas sets maximum terms for payday loans that varies with the amount of the loan. For $100 or less, for example, the term can be one month for each $10 borrowed, or six months, whichever is less. State law also limits "acquisition charges," "handling fees" and other charges depending on the loan amount.
State law bars payday
lenders -- also known as credit service organizations -- from making any promise to their customers that they can improve credit scores or "repair" their credit. Nor may a lender make any false statements regarding the customer's actual credit score or true creditworthiness. These sections of the law specifically addresses marketing tactics used by payday lenders in other states.
Local Ordinances on Loan Amounts and Refinancing
In lieu of more restrictive state legislation on payday lending, several Texas cities have adopted local ordinances meant to curb predatory lending. These typically include a limit on payday loans to no more than 20 percent of the borrower's gross monthly income. In addition, they limit the number of installment payments to four, with each paying back at least 25 percent of the principle amount. No refinancing or rollovers of installment loans are permitted in these jurisdictions, and no loan to be repaid in a lump sum can be refinanced more than three times.
Collection Actions and Lawsuits
A borrower who defaults on a payday loan can be subject to collection efforts by the lender, or the lender's collection agency or attorney. The statute of limitations on lawsuits for these debts in Texas is four years. That means that a borrower sued by a lender more than four years after the contract date has grounds to have the suit dismissed.
Category: Payday loans