Payday lending is legal in Delaware.
Delaware imposes a $1,000 amount limit on payday loans offered in the state. Payday loans can be taken for the period not exceeding 60 days. There are no specified maximum finance charges or interest rates in Delaware.
Payday lending in Delaware has a long history. As a matter of fact, its regulation can be described as very relaxed with evidently more freedom offered to the lenders here than in many other states. Recent attempts to bring more restrictive measures were unsuccessful and, thus, the legislation continues to the same at it has been for years since 2012.
Delaware Payday Lending Statutes
At the present moment, the state law reads that payday loans are permitted in Delaware State under the Small Loan Act or Licensing Law. All the information concerning payday lending in the state of Delaware can be found in 5 Del. C. §978, 5 Del. C. §2227 et seq., and 5 Del. C. §2744.
It is normal in the majority of states to require a borrower’s signature before a loan is granted. A borrower either signs loan documents or an agreement of some sort. This is usual practice of such lending. However, Delaware laws require also thumbprint from a borrower apart from the actual signature. This requirement was introduced with the aim of protecting the residents of the state form the fraudulent actions of dishonest lending companies.
Such a measure did really produce the expected effect – as of 2010, it reduced the rate of fraud cases by 60%, which is quite an indicator. Moreover, such a feature is only characteristic for Delaware state law and it requires thump print from any borrower who applies for a loan by no matter what means – in person, online or by the phone.
Loan Amount in Delaware
- The maximum amount of loan that a lender can give to a borrower is $1000 at a time.
- No additional loans are allowed until the previous one is repaid.
Rates, fees and other charges in Delaware
The statute sets no limitations with regard to APRs that lenders can charge. No limit is set to the amount of the allowed finance charges as well. As a result, payday lenders can charge any interest rates they see appropriate.
“A licensee may charge and collect interest in respect of a loan at such daily, weekly, monthly, annual or other periodic percentage rate or rates as the agreement governing the loan provides or as established in the manner provided in such agreement and may calculate such interest by way of simple interest or such other method as the agreement governing the loan provides. If the interest is precomputed it may be calculated on the assumption that all scheduled payments will be made when due. For purposes hereof, a year may but need not be a calendar year and may be such period of from 360 to 366 days, including or disregarding leap year, as the licensee may determine.”
Real APR for payday loans in Delaware can reach 521% (*According to the Center for Responsible Lending 2019: “Typical APR based on
Maximum term for a payday in Delaware
- In Delaware, the minimum repayment term is 60 days and a lender does not have a right to require the repayment before that term.
- Also, 4 rollovers are allowed for every borrower on each loan.
- Not more than 5 loans per 12-month period are allowed.
- According to the state law, one NSF collection fee not exceeding $25 can be charged.
- In case the loan is not repaid, the amount of the loan plus attorney fees can be recovered through the court trial. However, a collection agency is not allowed to file any actions against a borrower apart from the cases when the checking account of a borrower was closed before the repayment was done.
One more limitation stated by the Delaware state law is the prohibition on splitting the loan into two parts. Such a practice generally allows lending companies getting great profits by charging interest from both parts of the loans and therefore withdrawing more money from a borrower.
More information about payday loan laws and regulations in Delaware can be found on the official website of the Office of State Bank Commissioner (OSBC).
The History of Payday Loans in Delaware
- Before 2012 – Payday loans existed in some from and lenders operated more or less freely. The Delaware Office of the State Bank Commissioner has been regulating the industry since May 16th, 1987.
- 2006 – The Military Lending Act effectively capped payday loans offered to the military at 36% APR. This federal law has no exceptions, thus, no lender in Deraware is now allowed to offer loans to the military at the excess of 36% APR.
- 2012 – Delaware passed H.B. 289 to protect vulnerable borrowers. The set a limit of 5 loans per 12-month period. The definition of short-term loans was altered to include $1,000 loans (instead of $500). A special database to track the number loans taken by customers in Delaware a year was established and the requirement that lenders have to check it prior to lending was introduced. Also, the Delaware Banking Commissioner was requested to provide a yearly report on payday loan industry to the General Assembly. As a matter of fact, these regulations are still in force today.
- 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).
- 2016 – The legislation wanted to pass H.B. 446 that would cap payday and installment loans at 100% APR and prohibit lenders to make repeated attempts at automated withdrawals. However, it seems to never have seen the light: “6/30/16 Reported Out of Committee (HOUSE ADMINISTRATION) in House with 5 On Its Merits“.
(As of April 2019)