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 North Carolina, payday loans are illegal under state law. The North Carolina General Statutes 53-281 and the North Carolina Consumer Finance Act N.C. Gen. Stat. 53-173 prohibit payday lending since 2001, and more recent legislation has tightened the regulations on payday lenders even further. Lenders cannot charge APRs over the state's usury cap, which is 36% for most small loans. This effectively makes payday lending unprofitable in the state. As for car title loans, these are also illegal in North Carolina. The state's laws on small loans and usury prevent car title lenders from operating within the state. Despite these prohibitions, residents should be cautious of lenders operating from outside the state or online who may not be following North Carolina law. At the federal level, the Federal Trade Commission (FTC) enforces various consumer protection laws against payday and car title lenders for deceptive and unfair practices. However, due to the state's stringent regulations, these types of loans are not a legal option for residents of North Carolina.