Although they must generally be paid back within a short period of time, payday loans command a high rate of interest. In addition, borrowers who don't pay their loans back on time face steep penalties and additional hikes in the interest rate on their loans. Laws regulating the issuance of payday loans vary between states. Pennsylvania has various laws designed to protect consumers from exorbitant fees.
Interest
In Pennsylvania, a lender cannot charge a borrower an interest rate of more than 20 percent on the first $300 that a borrower loans out. For any amount after that, the lender can only charge 7.5 percent. In addition, the maximum loan a person can have out at any one time is $400. If a person renews a loan, then the interest rate on the first $300 increases to 30 percent.
Fees
One of the ways that payday loan companies make money is by charging individuals fees. These fees can be applied to the original loan and in a number of different ways if the individual is delinquent paying back the loan. For example, the company may apply a fee if the individual's repayment check bounces or if the individual does not make make the required payment on time. However, in Pennsylvania, a person can only face $75 worth of fees at a single time.
Collection Actions
If a person defaults on a payday loan in Pennsylvania, he can expect to face many of the same collection actions that he would face in other states. For example, the company may hire a collection agency. This collection agency may limit its collection actions to contacting the borrower and requesting payment. However, it may also file a civil suit against the individual and seek a garnishment of his wages or a freezing of his bank account.
Criminal Charges
Some payday lenders attempt to bring criminal charges against an individual who has defaulted on a debt. Generally, the lender will charge that the debtor engaged in fraud when he provided a check for repayment that did not clear. Under Pennsylvania law, payday lenders cannot seek criminal charges against a borrower simply for failing to pay back a loan, even if his check bounces.
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