Payday loans. (FE)

Current law does not impose a limit on the interest that a payday loan licensee may charge, before the maturity date, on a payday loan. If a payday loan is not paid in full by the maturity date, current law prohibits a licensee from charging interest after the maturity date in excess of 2.75 percent per month. A payday loan under which a greater rate of interest is charged after the maturity date is not enforceable.

This bill eliminates the foregoing definition of a payday loan and instead defines a payday loan as a loan to which all of the following apply: 1) the loan’s maturity date is not more than six months after the loan’s origination date; and 2) the loan is not secured by real property or other collateral. The bill prohibits a payday lender from making or offering to make a payday loan having a maturity date less than 90 days after the loan’s origination date.

The bill also limits the interest rate that a payday lender may charge, before the maturity date, on a payday loan to an annual percentage rate of 36 percent. A payday loan on which a greater rate of interest is charged is not enforceable.

The bill imposes the following additional restrictions and requirements on payday loans:

1. A payday lender may not make or offer to make a payday loan unless the loan agreement requires the loan to be repaid in substantially equal periodic payments over substantially equal intervals.

2. All payday loans must be precomputed, which is defined as a transaction in which the debt is expressed as a single sum comprised of the amount financed and the finance charge computed in advance.

3. Before entering into a payday loan, a payday lender must undertake a reasonable underwriting process to verify the applicant’s ability to repay the payday loan. The payday lender may not make a payday loan in an amount that exceeds the amount the applicant is capable of repaying, as determined by the payday lender’s underwriting process, or the maximum amount established under current law (as described above), whichever is less.

4. Before entering into a payday loan, a payday lender must disclose to the applicant, in a clear and conspicuous manner, the payment plan and the amount of interest that will be paid over the course of the loan. The payday lender must also disclose to the applicant the availability of a financial literacy course of no more than three hours’ duration that the bill requires the division to develop or make available to the public.