Payday Loan Lending Laws in Massachusetts
Massachusetts is one of the 13 states in the union that presently prohibits the practice of payday lending within the state. According to the state’s Business Affairs and Regulation Office, loans generally referred to as a “payday loan” are illegal due to the high annual percentage rate charged. Statutory licensing provisions require entities that wish to engage in such small-dollar lending in Massachusetts to obtain a small-loan license from the Division of Banks.
The website added The Division of Banks (Division) requires that any business engaged in making loans in the amount of $6,000 or less at an interest rate greater than 12% obtain a puny loan company license under Massachusetts General Laws. The puny loan maximum annual rate of interest is presently capped at 23% with an annual administrative fee of $20.
What is a payday loan?
Simply put, payday loans are known for high interest rates and relatively effortless application requirements. To apply for a brief term loan in states where they are legal, a potential borrower only needs to be over the age of Eighteen, be a U.S. citizen, and have access to a bank account. Payday loans do not require any collateral from the borrower to apply, and the borrower’s credit history and debt level do not come into play during the application process.
The payback period for a cash advance loan is also brief, usually about two weeks, which coincides with the standard two-week pay period used by most employers. When decently used, a payday loan permits a borrower to address unexpected financial troubles. But when used irresponsibly, it can lead to a debt cycle of further loans. The loans generally permit a borrower to apply for a relatively petite amount of money, which can be anywhere from $100 to $1,000 depending on the state, and do not carry any spending limitations. That is, a borrower does not have to announce what the loan is for, freeing them to use it as they see fit.
Other Loan Options
In June 26, 2006, the Massachusetts Division of Banks clarified its regulatory authority relative to internet-based payday lenders and licensure. The opinion, as listed on the Division’s website, makes clear that a payday loan transaction takes place where the consumer physically applies for the loan, not where the payday lender is physically located. Therefore, a payday lender doing business with Massachusetts consumers is prohibited from doing business without a license.
It is significant to note, however, the decision does not prohibit a Massachusetts resident from searching for loans using online resources. The process operates much the same way the credit card companies operate. For example, a person living in Massachusetts can receive a credit card application from a bank in Delaware. In the same way, current Massachusetts laws do not prohibit a potential borrower from looking for lenders that operate out of the state.
A borrower should keep in mind, however, that applying for any loan does not ensure approval and, regardless of approval status, a potential borrower should also understand the loan terms before agreeing to accept the funds.