Payday Loans
Many consumers who need cash quickly turn to payday loans—short-term, high interest loans that are generally due on the consumer’s next payday after the loan is taken out. The annual percentage rate of these loans is usually very high—sometimes 390% or more. In recent years, the availability of payday loans via the internet has increased significantly. Unfortunately, some payday lending operations have employed deception and other illegal conduct to take advantage of financially distressed consumers seeking these loans.
The Federal Trade Commission (FTC) enforces a variety of laws to protect consumers in this area. The agency has filed many law enforcement actions against payday lenders for, among other things, engaging in deceptive or unfair advertising and billing practices in violation of Section 5 of the FTC Act; failing to comply with the disclosure requirements of the Truth In Lending Act; violating the Credit Practices Rule’s prohibition against wage assignment clauses in contracts; conditioning credit on the preauthorization of electronic fund transfers in violation of the Electronic Fund Transfer Act; and employing unfair, deceptive, and abusive debt collection practices.
The FTC has also filed recent actions against scammers that contact consumers in an attempt to collect fake or phantom payday loan debts that consumers do not owe. Further, the FTC has filed actions against companies that locate themselves on Native American reservations in an attempt to evade state and federal consumer protection laws.
Car Title Loans
A car title loan is also a loan made for a short period of time—often for only 30 days. To get a car title loan, you must give the lender the title to your vehicle. The lender gives you cash and keeps the title to your vehicle. When it is time to repay the loan, you must pay the lender the amount you borrowed, plus a substantial fee—25% of the amount you borrowed, for example.
If you borrow $1,000 for 30 days, and the lender’s fee is 25%, you must repay the lender $1,250 30 days later. And if you are not able to repay the money when it is due, the lender may take or seize your car and sell it to satisfy the loan. This can be devastating for someone who relies on their car to get to work or to the grocery store.
In Delaware, payday loans are legal, but the state has implemented regulations to protect consumers from the high-interest rates and fees associated with these loans. Delaware's law limits borrowers to taking out five payday loans of $1,000 or less in any 12-month period, including loan rollovers or refinancing. The maximum loan term is 60 days, and lenders are prohibited from requiring a repayment plan to be less than 60 days. The annual percentage rate (APR) for payday loans in Delaware can be very high, but state law caps the interest that a lender can charge at no more than 5% over the Federal Reserve discount rate. Additionally, lenders must provide full disclosure of the loan terms to the borrower. As for car title loans, Delaware law also permits them but imposes certain restrictions, such as requiring a written agreement that includes specific terms of the loan. The lender must also provide the borrower with a pamphlet that describes the rights and responsibilities of both parties. If a borrower defaults on a car title loan, the lender may repossess and sell the vehicle to recover the debt, but there are certain procedures they must follow. At the federal level, the Federal Trade Commission (FTC) enforces laws to protect consumers from deceptive and unfair practices by payday and car title lenders, as described in the topic.
