California Payday Loan Law and Legislation

California Payday Loan Regulations
Legal Status
Legal
Interest Rate (APR)
460%*
Maximum Loan Amount
$300
Minimum Loan Term
Not Specified
Maximum Loan Term
31 days
Finance Charges
15% of the amount advanced

Payday loans in California are called “deferred deposit transactions“. Despite quite restrictive regulations, the industry still feels ok in the state with 2,119 payday lender storefronts and about 12.3 million payday loans taken out in 2015.

California Payday Lending Statutes

All the regulations concerning payday loans are written in the following two documents – the Civil Code 1789.30 et seq. and the Financial Code 23000 et seq.

Also, the state law requires that all the lending companies should have a license from the Department of Business Oversight in order to operate in the state. Such a measure was taken especially with the aim of taking care of the customers’ rights and protecting them from fraudulent actions.

Moreover, it is also required that all the transactions between a lender and a borrower must be indicated in a legal contract in detail. This agreement should contain information about the loan amount, terms and conditions, such as interest rates and finance charges. Consumers, in their turn, are required to provide their ID card- or driving license number.

A payday loan contract must be provided in the language that was primarily used in the course of the negotiations with the lender.

Loan Amount in California

California state law allows payday lending in the amount not exceeding $300. (Financial Code 23000 et seq.)

Rates, fees and other charges in California

  • Finance charges and fees should not exceed 15% for every $100 of the amount advanced.
  • According to the law, additional interest is not allowed, if a lender willingly agrees to prolong the payment.

“Any person who violates any provision of §987 of Title 10 of the U.S. Code, as amended by 126 Stat. 1785 (Public Law 112-239), or any provision of Part 232 (commencing with §232.1) of Subchapter M of Chapter I of Subtitle A of Title 32 of the Code of Federal Regulations, as published on July 22, 2015, on page 43560 in Number 140 of Volume 80 of the Federal Register, violates this division.” (Financial Code 23000 et seq.)

  • APR equals 460% (*According to the Center for Responsible Lending 2019: “Typical APR based on average rate for a $300 loan advertised by largest payday chains or as determined by state regulator, where applicable.”).

Maximum term for a payday in California

  • A licensee may defer the deposit of a customer’s personal check for up to 31 days, pursuant to the provisions of this section.” (Financial Code 23000 et seq.)
  • No minimum loan amount is specified.

Consumer Information

  • No criminal action against a customer who enters into a deferred deposit transaction is allowed, any criminal penalty for the failure to repay are prohibited in California.
  • In case a check is returned unpaid, an additional maximum fee of $15 for non-sufficient funds (NSF) transaction is established.
  • In case of the check return due to insufficient funds, a lender is also not allowed to take any criminal action against the borrower.
  • One person is allowed to take one payday loan at a time and should repay it in full before taking another one. Rollovers are not allowed and all the charges for extension are considered illegal.
  • Borrowers are also prohibited to take one loan in order to repay another one. Every time the loan is applied the new procedure is initiated and a new agreement signed.
  • Lenders in California are strictly prohibited to give extra loans to customers who haven’t repaid the previous ones. It is pretty difficult to monitor the actions of a borrower but it is not advised to take out a new loan before the old one is not yet resolved as long as it is fraught with never-ending indebtedness.

More information about payday loan laws and regulations in California can be found on the official California Department of Business Oversight (DBO) Division of Corporations page.

You can also file a complaint on their website with regard to illegal payday lender actions.

The History of Payday Loans in California

California’s payday lending regulatory structure is considered one of the most unfavorable when it comes to consumer protection. Pretty much the same laws govern payday loans in California for years.

  • 1990’s – Payday lending started as an industry in California as an extension of the check cashing industry. At that time there wasn’t any special state law that explicitly authorized or prohibited check cashers from offering high-interest payday loans and they were not specifically regulated by the California Finance Lenders Law. Thus, they worked freely. (Report on the Status of Payday Lending in California)
  • 1996 – “SB 1959 (C. Calderon, Statutes of 1996) authorized and established requirements for payday loans in California law”. The bill exempted check cashers from the California Finance Lenders Law, which officially allowed payday lenders to charge excessive interest rates. (California Budget Project Chartbook 2008) The loan terms set by this law haven’t changed much for almost 20 years:  15% limit on fees, ~400% APR, $300 max loan amount. (Report on the Status of Payday Lending in California)
  • 2002 – The California Deferred Deposit Transaction Law was introduced. It is now considered as one of the most ambiguous laws that do not take into account the consumers’ interests. It “established both licensure and regulation of persons making deferred deposit transactions” by imposing licensing obligations and disclosure all the lending terms among other things. Loan terms, however, didn’t become more restrictive.
  • 2000s – nowadays All the bills that came before the Legislature to regulate payday lending industry in the state, unfortunately, died. Among many failed attempts were:
    • SB 365 (2011, died in committee) aimed at creating a payday loan database.
    • SB 515 (2014, died in committee) aimed to extend the minimum payday loan term and require lenders to offer installments.
    • AB 2953 (2018, died in the Senate) proposed a 36% interest rate cap on auto-title loans.
    • AB 2500 (2018, died on the Assembly floor) proposed a 36% interest rate cap on installment loans.
    • AB 3010 (2018, died) aimed to restrict payday loans to 1 at a time and proposed creating a database where lenders would record all loan transactions.
  • June 2, 2016 – The Consumer Financial Protection Bureau (CFPB) proposed a Payday Loan Rule that hasn’t yet fully come into effect (expected in November 2020).
  • The only federal changes to California payday lending law include the Military Lending Act (2006), the law regarding advertising reporting: “On or before March 15 of each year, beginning March 2006, each licensee shall file an annual report with the commissioner pursuant to procedures that the commissioner shall establish.” (AB 2156, 2003-2004 Leg. Sess. (Cal. 2004); Cal. Fin. Code § 23057.), and the law that exempts auto dealers from coverage (AB 634, 2007-2008 Leg. Sess. (Cal. 2008); Cal. Fin. Code § 23001.) (Report on the Status of Payday Lending in California).
  • Though consumer advocates have urged California lawmakers to impose more regulations on payday loans for years, the situation still stays the same.
  • Also, Internet payday lending has been thriving. Online operations have become possible as payday lenders claim to be owned by Indian tribes in Oklahoma or Nebraska and thus not subject to state law.

(As of April 2019)

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