Are payday loan companies in New York legal? I have several that I am unable to pay back and they're in a way overwhelming. What can you do? I'm a NY state resident. I took out a few online payday loans in February. I have paid hundreds of dollars more than the principal amount. I'm not sure if can afford these loans any more. Are you able to give me any suggestions on how I can pay for it? Askbill More Show less These loans are called "cash advance loan", "check advanced loans," and "deferred deposit check loans", are often a problem for consumers. For an average loan of $300, a cost between $15 and $30 per $100 borrowed is paid. If a loan is $300 the borrower is required to present the lender a post-dated cheque. The lender will use this to transfer electronically the amount or the entire amount the loan from the borrower account. One of the most egregious practices is to withdraw a partial payment from the account to be used as a "customer service." The partial amount becomes a perpetual installment that continues regardless of the borrowers' best efforts to stop it. Because the rates are so high and the terms of these loans so short, it is not surprising that a lot of them are returned again and again by the borrower. This leads to an annualized interest rate of between 390% to 780% based on how many times the principal is transferred. One fun fact about payday loans: Wikipedia.org is the most viewed online Encyclopedia. They have payday loans listed under Loan Shark. This means that "if the high rates of interest involved and a credit product that entices debtors are the main factors that make loan-sharking illegal" The label definitely applies. Quick Tip New York law makes payday loans illegal. A debt collector is not allowed to collect any New York resident's payday loan. The New York State Dept. Financial Services to inform debt collectors in New York that payday loan collection is against the law. You can file a formal complaint with the Dept. of Financial Services if a you are a New York resident and a collection agent tries to take a payday loan from you. The Federal Trade Commission offers great information about payday loans alternatives. Payday loans and consumer rights A payday lender might attempt to collect the full amount owed. The payday lender can transfer the loan to a collection agency in the event that the borrower defaults. We will discuss this in the future. If you're unable to persuade the payday lender (or collection agency) to pay off the remainder of your debt, they may bring a lawsuit against you to get a judgment. The lender could pursue you for a judgment against your case. The payday lender will then have the authority to make the judgment executable in civil court as permitted by law of the state. The most popular methods of applying a judgment is wage garnishment and bank account levies and property lien. Also, you should know that these enforcement actions do not include calling your employer, contacting neighbors, or getting a warrant to arrest you. Refusing to repay a debt is a civil however, it is not a criminal offense. Payday lenders are often warned of arrest for fraud on checks. This is a false threat since the payday lender has to be able to prove that the borrower did not intend on repaying the payday loan. Proving that is very difficult. It is important to remember that nobody has been detained or arrested for debt in the United States since the Civil War. If a payday lender sells their account to a collection company the borrower is obliged to pay the remaining balance. Editor's Note Comments on this page are closed. See Payday Loans to learn how to manage payday loan collection. Check out the Bills.com resources for payday loans in California, Florida. Illinois. Massachusetts. Missouri. New York. Texas. For more information on payday lending laws in those states, visit this page. A federal law known as the Fair Debt Collections Practices Act(FDCPA) states that third party collection agents must stop calling and you have to notify them in writing. California, New York, Texas, and Texas extend many of these laws in the FDCPA to include the original creditors. For advice on how to respond to the collection agency that is who is harassing you, read Advice if You're being Harassed by a Collection Agent. If the payday loan company chooses to transfer the account to a collection company, the debtor may stop calls by sending a cease communication demand letter (also known as a cease-and-desist notice) to the agent. For examples of cease and desist letters, go to the Bills.com Debt Help Center. How Can I Handle Payday Loan Collections? Payday loan collectors often use intimidation to scare borrowers. However, the fact that someone is in debt doesn't mean they are losing their rights as a consumer. As mentioned above the majority of payday lenders ask borrowers to provide their checking account numbers to ensure that the payments are withdrawn from borrowers' accounts automatically using the Automated Clearing House (ACH). The payday lender can continue to attempt withdrawals even when the borrower's bank account is not sufficient. The borrower may incur fees for overdrafts and, when the procedure is repeated repeatedly enough the bank might close the account. The borrower may close one account with a bank and then open another to stop payday lenders who are constantly withdrawing funds. This is effective unless the bank connects all transactions made in the previous account with the new. When the payday lender withdraws funds, the bank will simply reach into the new account and pull the money out. This is why it's essential to make sure the bank does not allow withdrawals via electronic means from an old account to be transferred automatically to the new account. Learn more about the rights you have as a New York as a resident by studying the Bills.com article New York Collection Laws. Payday Loan in New York New York has several laws which ban payday loans. The civil usury limit is 16% under the New York General Obligations Law which is SS 5-501. The criminal usury cap is 25percent under New York Penal Law SS 190.40, 190.40. New York law prohibits check cashers from cashing delayed checks. Payday lenders aren't allowed to operate in New York because it is illegal for them to operate in the state. Certain New York payday lenders partnering with banks located in deregulated states. These lenders make loans using electronic funds transfer. They say that the local storefront is brokering loans for the bank, which is exporting its state's interest rates and other terms to New York. This is known as rent-a-bank lending. The New York City Dept. Consumer Affairs Tips about Payday Loans in New York State outlines New York law and gives tips on how to avoid payday loan. Also see New York State's Avoiding Predatory or dangerous loan Lending. More Payday Loan Information Read the Bills.com article on Debt Negotiation and Resolution Advice to learn more about strategies, tactics and ways to negotiate efficiently with creditors. Bills.com provides additional information on their Payday Loan Information page. They also address questions from customers about payday loans in California and Florida, Illinois, Massachusetts and Missouri. If you don't pay back a payday loan, the payday loan company offers a variety of legal remedies such as the possibility of wage garnishment, levy and lien. Check out the Bills.com Resource Collections Advice to learn more about the rights of creditors as well as debtors. 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