California Payday Loan Law and Legislation

Are payday loans legal in California?

According to the state law, payday lending is legal in California.

On this page we take a closer look at California payday loan law and legislation to see what you can borrow, the terms allowed, and how California state protects you.

In this state, payday loans are also known as deferred deposit transactions.

How much can you borrow in California?

Although some states have no caps or max out at $1,000, the maximum payday loan amount in California is $300. This is to ensure even the lowest paid employed worker can afford to repay on the agreed date.

Of course, you can borrow less than this, but if you need to borrow more and live in California you will have to seek an alternative like an installment loan that’s repaid in monthly installments or a larger personal loan from the bank.

Payday loans are designed to help tide people over until their next paycheck arrives, so more expensive needs should be handled using a more traditional type of loan or credit card.

There is no legal minimum on the amount that can be borrowed, though most borrowers opt for at least $100.

Note: If the lender charges the highest allowed fee, the total amount you can borrow actually drops to $255.

How long can a payday loan be taken out for in California?

Payday loans are a short-term commitment and are not repaid in installments like traditional personal loans. The amount you borrow is repaid in full, in one lump sum, along with a fee.

In California, repayment must be within 31 days. Depending on the lender, the exact term may be set by them or you might be able to choose the term yourself, but it cannot be over 31 days.

This is because payday loans are designed to be repaid when the borrower next gets paid, and most people are paid monthly, meaning 31 days will usually allow you to get your next round of wages or salary to cover the debt.

What is the maximum interest rate allowed by law in California?

Because payday loans are supposed to be repaid in one lump sum the amount you’re charged is often looked at as a fee rather than a true interest rate, though it may be based on an underlying Annual Percentage Rate (APR) or lenders might combine fees with an interest rate. Either way, the total amount that can be charged on top of the principal (amount borrowed) in California is 15% for every $100 borrowed.

As an APR the maximum that can be charged is 460%, though remember that this means ‘annual’ or per year, and payday loans are only outstanding for a maximum of 31 days unless you fail to make the repayment.

In short, most people who borrow the maximum amount should not be paying more than $45 on top if they make their repayment.

Can you have multiple payday loans in California?

To prevent people shopping around for multiple loans California legislation restricts borrowers to taking out one payday loan at any given time. Furthermore, rollovers are not permitted. This means a lender cannot issue a new loan to cover the existing loan or extend the loan term.

A lender is also not allowed to charge extra interest or fees if the borrower cannot afford to make the repayment on the agreed date. The exception to this is if a check for payment bounces due to insufficient funds, where an additional maximum fee of $15 can be applied.

However, a lot of borrowing is now carried out online and requires the borrower’s bank account details so checks are not used as part of the repayment process.

California citizens are free to take out a new payday loan as soon as they’ve repaid their current one. I.e. there is no ‘cooling off period’ between payday loans.

Consumer Protection

Before a payday loan can be legally binding the borrower must receive a full copy of the terms and conditions of the contract (either physical or digital) before they sign. This will include the loan amount, interest and fees, repayment date, and other terms.

California state law considers payday lending a civil matter and criminal proceedings cannot be taken against a borrower for failing to repay a payday loan. Collateral is also not required, meaning the lender cannot automatically take items of value to cover the cost of the debt.

Standard collection proceedings are usually followed, however, which means emails, letters, phone calls, house visits, and repayment plans can all be used to help lenders recover what is owed.

Regulations to look for

Payday loans in California are governed under the Civil Code 1789.30 et seq. and the Financial Code 23000 et seq. Furthermore, all payday lenders must be fully licensed and accredited under the Department of Business Oversight to operate in any city within the state (including dealing with Californian citizens online).

How to complain

If you believe a payday lender is breaking these laws and regulations in California and wish to make a complaint, you can do so by contacting the California Department of Business Oversight at:

Department of Business Oversight Citizen’s Complaint,
1515 K St #200,
Sacramento, CA 95814

916-327-7585 or 866-275-2677 (toll free)

Federally, you can also contact the Consumer Financial Protection Bureau.

History of payday loans in California

Payday loans first took off in California in the 1990s and are now one of the most popular forms of lending in the state, with all major cities having at least one storefront lender and other 1,600 operating in the state. Millions of loans are issued every year with an increasing amount happening online due to the ease and speed of application.

Laws and regulations regarding payday loans in California may change from time to time, so be sure to check back to this page or read the government sites before taking on a new loan.

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