Are Payday Loans Allowed in New York?

Payday loans are illegal in New York State. It is a violation of the law to grant payday loans in person, over the phone, or online. It is also illegal for a debt collector to collect, or attempt to collect, a quick loan in New York State. Many quick loans are illegal in New York due to the 25% interest rate limit for small loans.

Anyone trying to apply for a quick loan, in person, online or by phone, could be breaking state law. The New York State Department of Financial Services (DFS) states that payday lenders go unnoticed and offer cash loans to customers who generally have poor credit and cannot get a loan from a bank. Payday loans are illegal in New York because they are designed to trap borrowers in debt. The annual percentage rates on payday loans are extremely high, usually around 400 percent or more.

It is an offense in New York to grant payday loans in person, by phone or online. The cashing of late-dated checks is prohibited in the state; all lending companies must have a license to operate in the state; state laws impose a small lending limit of 25% for any loan. Collecting debts or attempting to collect debts with a payday loan is also considered illegal. If your loan is not paid off in the allotted time, your collateral will be sold, as required by law.

Many payday lenders require borrowers to provide their checking account numbers in order to automatically withdraw payments from borrowers' accounts using the Automated Clearing House (ACH). If you can't pay off the loan in the required time, the lender will transfer you to a new loan and charge you additional fees. If you are a resident of New York and a collection agent is trying to collect a payday loan, you can contact the New York Department of Financial Services, the Consumer Protection Office, or the Federal Trade Commission. In cases where the borrower's accounts lack sufficient funds, the payday lender will continue to attempt to withdraw funds.

You can also send a letter requesting the cessation of communication, commonly called a cessation and withdrawal notice, to the collection agent. Consumer Affairs Tips about Payday Loans describes New York law and offers tips on how to avoid payday loans. If the payday lender (or collection agency, for that matter) can't convince you to pay using standard collection tactics, such as phone calls and letters, they may decide to file a lawsuit against you to obtain a judgment on the balance of the debt. With rates so high and loan terms so short, it's no wonder that borrowers transfer these loans over and over again so that cumulative fees amount to an effective annualized interest rate of 390% to 780%.

To avoid getting into this situation, it is important to understand New York law and be aware of all your options before taking out a loan.

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