Most people know what a payday loan is. Payday loans, technically known as deferred presentment lending, involve a lender making an advance payment on a borrower’s post-dated check. In return for cash, the borrower provides this check typically dated as of the date of the borrower’s next paycheck. Most attorneys and consumer advocates warn against using payday loans because of the enormously high-interest rates and fees charged by payday lenders.
The repayment check includes the principal and interest, which constitutes the fee for the loan owed to the payday lender and permitted costs. The lender agrees to deposit this check on the date of the borrower’s signed check.
Florida Payday Loan Laws
Although legal in Florida, Florida state law, specifically Fla.Stat. § 560.402, strictly limits and regulates payday lending. Florida law places limits on the:
- loan amount;
- number of outstanding loans a borrower may have;
- length of the term of the loan;
- fees and costs charged for the loan; and
- lender’s collection procedure options if the loan is not repaid.
Payday loans in Florida law require a written agreement signed by both parties on the date of the payday loan. A payday loan agreement must contain:
- the lender’s name and address;
- the name of the employee who signed the agreement on behalf of the lender; and
- the amount, date, and term of the loan, and any applicable transaction identification number.
In Florida, payday loans may not exceed $500 with absolutely no exceptions. A borrower may only have one outstanding payday loan at any time and is subject to a 24-hour moratorium period for a new payday loan following repayment of a loan. To keep track of borrowers’ loans, Florida uses a central database.
The repayment period for a payday loan may exceed 31 days or be less than 7 days. Florida law does not permit borrowers and lenders agreeing to roll over a loan. If a 14-day payday loan is obtained, a lender is not permitted to renew (rollover) the loan and charge new fees, for an additional 14 days, despite the fact that the total term of the loan would still be less than 31 days.
How Payday Loans Can Be Predatory
Payday loans often are shown through convincing advertisements and commercials that make it seem like they are convenient and easy to retain and repay. However, in most cases, this type of loan is actually provided by a lender who is trying to prey on vulnerable individuals in order to take more of their money.
What exactly is a predatory lender? A predatory lender is a person or organization that supplies money to individuals in need, but loans this money at unreasonable and extremely high expenses for the person borrowing the money. These types of lenders target those who are more susceptible to fall for this type of scam, such as retired people, minorities, those with credit issues, unemployed people, low-income employees, military personnel, and those who need cash fast because of an emergency.
One sign that you may be dealing with a predatory lender is that they may offer you a loan without requiring a credit check. This is why so many individuals who are in need of cash fast for a payment that is due or past due fall for these types of loans.
The predatory lender will not be upfront on exactly how much the loan is going to cost the borrower in the end. They also make the paperwork confusing with a ton of legal jargon, so that it is difficult for the average individual to fully understand what they are signing. There are often extraordinary annual percentage rates, typically over 100%, which makes it very hard for the borrower to repay the loan. When the borrower is unable to repay the loan or make a payment on time, the lender then offers to roll over the loan or offers a new loan to repay the old one. This traps the borrower into a long-term, ongoing cycle that is very difficult to get out of.
There are other alternatives that can be much better options for those in need of cash – including credit card cash advances and personal loans.
Payday Loan Statistics
Some alarming payday loan trends and statistics that confirm the red flags associated with these types of loans include:
- If you borrow an initial $375, you are looking at an average of $520 in fees.
- $55 per two-week loan is the average fee that a payday lender charges a borrower.
- The average payday loan usually entails about 36% of the borrower’s gross pay from their next paycheck – typically around $430.
- About 75% of payday loans are taken out by individuals who have already used a payday loan in the past year.
- About 80% of payday loans are taken out within two weeks of a borrower paying off a previous payday loan.