Pennsylvania has several laws which come into play, the Consumer Discount Company Act (CDCA), codified at 7.P.S §§ 6201—6219 and the Loan Interest Protection Law (LIPL), codified at 41 P.S. §§ 101-605.
While the laws actually have to be read in details as they are complex, in a nutshell, the CDCA requires companies lending less than $25,000 to be licensed. 7 P.S. § 6203.A. Licensed companies may charge interest at a rate in excess of the statutory maximum of 6%. 7 P.S. § 6213.E and § 6217.1A. However, unlicensed companies making loans under $50,000 cannot charge more than 6% under the LIPL, 41 P.S. § 201. The borrower is not required to pay interest over and above the statutory rate if the company is unlicensed. 41 P.S. § 501.
So payday loans are legal in Pennsylvania to the extent that the lender is either licensed and makes a loan of less than $25,000 under the CDCA OR the lender is unlicensed and caps interest at the maximum 6% rate specified in the LIPL.
What is good about this is that most payday lenders do not want to be licensed and do not want to cap their interest rates at 6%. While such companies can prey on consumers, if they fail to comply with these requirements, they cannot sue as it would subject them to criminal prosecution, LIPL, 41 P.S. § 505 and CDCA 7 P.S. § 6218, as well as a civil suit by the attorney general, LIPL, 41 P.S. § 506 or individual borrower, LIPL, 41 P.S. § 504. An individual can recover attorney fees. LIPL, 41 P.S. §§ 503-504.
UPDATE: I have learned that the PA Department of Banking is currently involved in litigation concerning Western Sky, a tribal payday lender, and its affiliates. While Western Sky has closed its business, it has assigned some of its outstanding loans to a collection company called Delbert. All of the companies are inter-connected and owned by the same cast of characters. These lenders do not comply with the above PA laws and are probably illegal in the eyes of the PA Banking Department. Stay tuned!
UPDATE 2: The PA Banking Department has just entered into a consent order with Cash Call/Western Sky/Delbert! Read all about it at:
http://www.banking.state.pa.us/portal/server.pt/community/news_and_media/21107
Its the post dated 7/17/2014 entitled “Banking and Securities department Announces Consent Agreement for Unlicensed Lending to Pennsylvanians”
Under the terms of the consent agreement and order, Cash Call/Western Sky/Delbert will:
- Cease and desist from advertising, soliciting or making loans to Pennsylvania residents until properly licensed;
- Not be eligible to be licensed to make loans to Pennsylvania consumers for three years;
- Permanently modify the interest rates to 6 percent annual interest on outstanding loans initiated with Western Sky Financial, LLC, and currently serviced by CashCall, Inc. or one of its affiliates;
- Request to credit reporting agencies the removal of all reports made by CashCall and its affiliates in regard to Pennsylvania consumers; and
- Pay the department $1 million, which will be used to provide restitution to Pennsylvanians who paid in excess of the allowed 6 percent annual interest rate on loans with the companies, as well as to recoup investigation and litigation costs.
Copyright (c) 2014 by Rachel Lea Hunter
www.rachelhunterlaw.com
All rights reserved. No part of this article may be reproduced or utilized in any form, other than for the reader’s sole personal use, without permission in writing from the author.
NOTICE: The information in these articles is provided for general informational purposes only as a public service. You are advised to check for changes to current law and to consult with a qualified attorney in your state of residence on any legal issue. The use of this material does not create an attorney-client relationship with the Rachel Lea Hunter Law Office. The material in this website may be considered advertising under applicable rules.
