Office of the Commissioner of Financial Regulation

 

"Pay Day" Loans - Publications

 

Download a "Pay Day" Loans brochure (PDF document, 559KB, download Adobe Acrobat for free).

Overview of Protections Under Federal and Maryland Law
Suggestions to Avoid Needing a "Payday"¨ Loan

Think carefully about a consumer loan you may take...

What is a "Payday" Loan?

A "payday loan"” is a term used to describe a small loan, sometimes referred to as a “cash advance,” regardless of whether payment of the loan is linked to a borrower’s payday. In essence, they are short-term, high interest loans. The high cost of these short-term loans can sometimes trap consumers into a cycle of debt. Advertising for this type of loan product is through the radio, television, the internet, and the mail.

A "payday" loan is an extremely expensive type of loan. Businesses that offer "payday" loans suggest that these loans assist consumers with:

  • temporary cash needs;
  • financial emergencies;
  • a need to borrow funds for a short period of time.

Your Protection under Federal Law

Generally, the Federal Truth and Lending Act treats "payday" loans like other types of credit:

  • The lender must disclose the cost of the loan;
  • The lender must disclose the finance charge (a dollar amount);
  • The lender must disclose the annual percentage rate (APR- the cost of the credit on a yearly basis);
  • The lender must put these and other terms of the loan in writing before you sign for or authorize the loan.

If you believe a lender has violated the Truth in Lending Act, file a complaint with the Federal Trade Commission toll free, 1-877-FTC-HELP/ 1-877-382-4357 or use the online complaint form.

Your Protection under MD Law

Under Maryland law, most lenders are required to be licensed by the Commissioner of Financial Regulation (MD Code Annotated Fin. Inst. §11-204). In addition, the interest rate is restricted depending on the loan size.

First $1,000 of a Loan $2,000 or less:
The interest rate a lender may charge for any loan with an original principal balance of $2,000 or less is 2.75 percent interest per month on that part of the unpaid balance not more than $1,000. Therefore, a lender is permitted to charge a maximum annual interest rate of 33 percent on loans up to $1,000 (MD Code Annotated Com. Law §12-306 (a) (6) (i)).

Next $1,000 of a $2,000 Loan:
The interest rate a lender may charge per month on that part of the unpaid principal balance that is more than $1,000 up to $2,000 is 2 percent per month (or a maximum annual interest rate of 24 percent, MD Code Annotated Com. Law §12-306 (a) (6) (i)).

Loans $6,000 or less:
Subject to certain exceptions, under Maryland law, a person is prohibited from lending $6,000 or less if the person charges or receives a greater rate of interest than that authorized by the laws of this State (MD Code Annotated Com. Law §12-314 (a)). For any loan with an original balance of more than $2,000, the maximum rate of interest is 2 percent per month on the unpaid principal balance of the loan. Therefore, the lender is permitted to charge a maximum annual interest rate of 24 percent on loans that are over $2,000 and do not exceed $6,000 (MD Code Annotated Com. Law §12-306 (6) (ii) (2012)).

If you believe a lender has violated the Maryland Consumer Loan Law, file a complaint with the Office of the Commissioner of Financial Regulation.

Consumer Services Unit:
410-230-6077 or toll free 888-784-0136

Additionally, please visit the Office of the Commissioner's website.

I have an inquiry or complaint about a "payday" lender ...

Suggestions to Avoid Needing a "Payday" Loan

  • Build a $500 emergency fund. Although money may be tight, we all need emergency savings for unexpected bills and expenses.
  • Develop a household budget. A house-hold budget is a way to keep track of income and expenses and to determine ways to save.
  • Before you are late in making a payment, speak with your creditor and ask about making payment arrangements. Request to delay payment until your next payday or set up a repayment plan that stretches out payments over time.
  • Delay expensive items until you have cash.
  • Use some of your emergency savings instead of borrowing, but replenish your account.
  • Apply for assistance programs that help families make ends meet in a crisis.

Find Less Expensive Money

The high cost of "payday" loans can eat away at your paychecks and make it likely you will need to borrow again.

  • Shop for a credit offer with the lowest cost.
  • Consider a small loan from a credit union or your local bank.
  • Contact your local consumer credit counseling service if you need help working out a debt repayment plan.
 
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