Payday Lenders and Check Cashers

Payday loans are short-term cash loans based on personal checks held for future deposit or on electronic access to the borrower's bank account.  Borrowers write a personal check for the amount borrowed plus an expensive finance charge and receive cash.  Lenders hold the check until the next payday when payment is due.  Borrowers can redeem the check for cash, or allow the check to be deposited.  In California, the lender is not supposed to allow the borrower to pay a finance charge to roll the loan over for another pay period.  While this is against the law, many lenders violate it.

In California, a fee for a payday loan cannot exceed 15 percent of the face amount of the check or $17.65 to borrow $100.  The maximum amount of the check used to get a loan is $300, which includes the $45 finance charge.  This means that the most that a borrower can attain in a single loan offering is $255. 

What you Pay

Scenario 1
•    You write a check for $100
•    You get $85
•    In 2 weeks the lender cashes your check
•    APR is 459% and you paid $15 to use $85.

Scenario 2
•    You write a check for $200
•    You get $170
•    In 2 weeks the lender cashes your check
•    APR is 459% and you paid $30 to use $170.

Scenario 3
•    You write a check for $300
•    You get $255
•    In 2 weeks the lender cashes your check
•    APR is 459% and you paid $45 to use $255.

Payday loans are made by storefront lenders, check cashers, pawnshops and over the internet. 

Consumers take out an average of 10 to 13 loans per year at a single lender.

If a borrower does not have enough money in their account to repay the payday lender, their check will not clear the bank.  The borrower then accrues a bounced check fee from both the lender and their bank.  In California, the payday lender cannot legally charge the borrower more than $15 for a bounced check.

Payday lenders cannot send a borrower to jail for bouncing a check.  They are not even allowed to threaten.

For a payday lender in California to loan over $300, they will “rent-a-bank” so that they can broker loans for an out-of-state bank that is not bound by California law.

Check-Cashing Transactions

A fee to cash a check at a check casher depends upon what kind of check it is and whether the customer has identification. ("Checks" can include money orders, drafts or other commercial paper serving the same purpose.) If the check is a payroll or government check, the check-cashing service can charge a fee of up to 3 percent of the face-value of the check with acceptable identification, and 3 1/2 percent without identification. Or the check casher can charge a flat $3 fee, whichever is greater. But if the check is a personal check, the customer may have to pay up to 12 percent of the face value of the check.

By law, check cashers have to conspicuously post the fee schedule and the required identification for the transaction. Valid identification for cashing a check is limited by law to a California driver's license or identification card, or a valid U.S. military identification card.  The check casher may also set up an initial account and issue an optional identification card for the customer to use in the future.  The service may cost as much as $10. If the customer loses the card, it may cost a maximum of $5 for a replacement.  Check cashers are required by law to provide a receipt for each transaction.
For Complaints

If you believe that a payday lender has violated ANY of your rights, please contact the Department of Corporations Consumer Service Center at
1-866-275-2677 or 1-866-ASK-CORP.

If you believe that a check casher has violated ANY of your rights, please contact the Department of Justice at 1-800-952-5225 or go to their website:  www.caag.state.ca.us