CONSUMER FINANCIAL PROTECTION BUREAU
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maximum allowable fees. A fee of $15 per $100 is quite common for a storefront payday loan,
and would yield an APR of 391% on a typical 14-day loan.
Eligibility. Many states set a limit on payday loan size; for example, $500 is a common loan
limit. In order for a consumer to obtain a payday loan, a lender generally requires the consumer
to present identification and documentation of income, and have a personal deposit account.
Lenders generally do not consider a consumer’s other financial obligations or credit score when
determining eligibility; however, some lenders use specialty credit reporting firms to check for
previous defaults on payday loans and perform other due diligence such as identity and deposit
account verification. No collateral (other than the check or electronic debit authorization) is held
for the loan.
Repayment. Storefront payday loan contracts generally require borrowers to return to the
storefront to pay the loan and associated fee by the due date. If a borrower is unable to repay the
full amount, the lender may give her the option to roll over the loan balance by paying a fee,
usually equal to the original finance charge, in order to extend the loan until her next payday. If
the lender is unwilling or—because of restrictions in state law—unable to directly roll over a
loan, the borrower may instead repay the full amount due and then quickly take out a new loan.
Limits on Sustained Use. Historically, payday lending has been largely governed by state law,
often through specific legislation that modifies a state usury law in order to permit payday
lending. Hence, payday lenders are required to comply with varying laws in each state in which
they are located. In states in which payday lending is permitted, laws often include provisions
that attempt to limit sustained use, such as: (1) restrictions on the number of times a loan can
be rolled over, (2) requirements to offer extended payment plans, (3) cooling-off periods
between loans that are triggered after a period of time indebted or number of transactions
conducted, (4) limits on loan size based on monthly income, and (5) limits on the number of
loans that can be taken over a certain period of time. Individual lenders and trade associations
may also adopt their own policies and best practices.
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For example, one trade association whose membership includes storefront payday lenders, the Community
Financial Services Association (CFSA), has adopted a set of best practices that include limits on roll overs and the
availability of an extended payment plan. See CFSA Member Best Practices, available at
http://cfsaa.com/cfsa-
member-best-practices.aspx. Another trade association that also serves storefront payday lenders, the Financial
Service Centers of America (FISCA), has adopted a similar code of conduct for extending credit. See FISCA Code of