2010 Payday Lending Law Changes FAQs
Answers to frequently asked questions about the changes to the Washington Check Cashers and Sellers Act effective January 1, 2010.
Instructions For Recording 2009 Loans Converted To Installment Plans Into The Database
1) If a small loan was made in 2009 with a due date in 2010 is the borrower eligible for an installment plan?
Yes. The law setting the terms and conditions of the new installment plan became effective January 1, 2010.
2) If I convert a 2009 loan into an installment plan, must I record that loan with its installment plan in the database?
While the new law does not require 2009 loans to be recorded in the database, you can elect to record the 2009 loan with its installment plan in the Veritec database as a historic transaction.
Please note that for each 2009 loan with an installment plan you record as a historic transaction you will be charged the $1 transaction fee.
3) What are my responsibilities if I record a 2009 loan with its installment plan in the database?
If you elect to record a 2009 loan with its installment plan in the database you must:
- Load the transaction using the “Historic Data Entry” function of the Veritec database system found at www.wacheck.com.
- Administratively close all historically loaded 2009 loans with their installment plans as soon as practicable upon payment in full.
4) May I record a 2009 loan in the database as a historic transaction if the loan has not been converted into an installment plan?
No. The only 2009 loans that you may record in the database are loans you have converted into the installment plan.
5) Can I knowingly make a loan to a borrower who has another loan in an installment plan with another lender?
No. Pursuant to RCW 31.45.073(3), you cannot make a loan to a borrower who has a small loan in an installment plan with any lender.
6) How do I determine if the borrower has a small loan in an installment plan if the installment plan is not recorded in the database (because the loan was made prior to January 1, 2010)?
Because the database does not collect data on loans made prior to January 1, 2010, you must ask each borrower if they have an existing installment plan with any lender. You must document their response and keep it with your loan records. The borrower’s response can be verbal and your notation of it can be informal.
7) If we secure our customers’ permission (through power of attorney, etc.), can we enter in existing loan information into the database on January 1? In other words, even though they don’t have a loan originated prior to January 1, 2010, can we put in their information on the 1st?
No. The statute only applies to loans made on or after January 1, 2010. Loans originated prior to then will exist outside the database. You must comply with all other aspects of the law on those loans.
8) When our customers are returning to our store after Jan 1, 2010, may we accept a written declaration of change or no change in their gross monthly income? Our returning customers will have already supplied us with their pay information which is recorded electronically in our system, however some or most may be unaware we will now require a hard copy on file updated every 6 months for verification of that income. We would, of course, obtain the hard copy as soon as possible.
You must verify your borrowers’ income under WAC 208-630-462 as soon as possible beginning January 1, 2010. And yes, be sure to use the declaration requirement of (5) until you get the verification information from the borrowers. Anything you can do now to give your borrowers a heads-up about the income verification may help.
9) How do I calculate the gross monthly income for the different types of pay periods our borrowers have?
- Weekly – multiply the customer’s gross income from their pay stub by 52 (52 weeks in a year) and then divide by 12. For example, if a customer’s gross income on their pay stub is $500 per week, then this method results in a gross monthly income of $2,166.67.
- Bi-weekly – multiply the customer’s gross income from their pay stub by 26 (26 biweekly periods in a year, 52/2 – 26) and divide by 12. For example, if a customer’s gross income on their pay stub is $1,000 every two weeks, then this method results in a gross monthly income of $2,166.67.
- Twice per Month – multiply the customer gross income from their pay stub by 2. For example, if a customer’s gross income on their pay stub is $1,000 twice monthly, then this method results in a gross monthly income of $2,000.
- Monthly – use the gross monthly income from the customer’s pay stub.
- Other – There are going to be very few customers in this category and they will have to be dealt with on a case by case basis. Most likely they will be self-employed and draw income from the business in a random way.
10) WAC 208-630-540 was repealed. The section asked: Must a licensee comply with the federal truth in lending act when entering into a payment plan? Because this section was repealed does this mean we no longer have to figure the yearly APR for the installment plan installments?
You do not have to figure the APR for the installment plan for a TILA disclosure because you are not charging a fee for the installment plan.
11) If a borrower rescinds a small loan, does that count against the eight loan limit?
No. A loan that has been rescinded does not count toward the eight loan limit; nor will you incur a one dollar transaction fee on that loan. See WAC 208-630-556(11).
12) If the borrower wants an earlier due date for their small loan, can I have them sign a release statement stating they want it due in a shorter time period?
No. You must set the small loan due date pursuant to WAC 208-630-501(1). If the borrower wants to pay off the small loan earlier, they can do so, at no additional charge or fee.
13) Under the installment plans, does the cut-off amount of $400 include fees?
Yes. To determine if a small loan is eligible for a three month or six month installment plan, use the “loaned amount” which means the outstanding principal balance plus any fees allowed by RCW 31.45.073 which have not been paid by the borrower. See RCW 31.45.010(12) and RCW 31.45.084(1).
14) WAC 208-630-501(2) requires a written agreement to extend a loan term. The large majority of our loan due date extensions result from customers calling on the telephone and asking for them, rather than customers asking for them in person at our stores. Would we meet the written agreement requirement if we use a form to memorialize that a customer has telephoned to request an extension and that the customer has agreed to a stated new loan due date?
Yes. You can use a form to memorialize a telephone conversation with the borrower to extend the term of a loan’s due date. Remember to update the database with the new due date. The borrower’s right to request an installment plan extends to the new date.
15) Can I update the database to indicate a loan is in default when the loan is not actually in default?
No. If prior to the due date the borrower tells you they are not going to pay the loan, or if you receive any kind of notice that makes you think the borrower is not going to pay the loan when it is due, you must not update the database to indicate the loan is in default until the borrower is actually in default. Default means the borrower has failed to repay the small loan in compliance with the terms contained in the small loan agreement or note or the borrower has failed to pay any installment plan payment on an installment plan within ten days after the date upon which the installment was scheduled to be paid. See RCW 31.45.010(9).
16) How do I calculate the number of loans a borrower has in a prior twelve month period to determine if they have reached their loan limit of 8 loans?
When a borrower requests a loan, the only way to know if borrower has reached their loan limit of 8 loans in any twelve month period as prescribed in RCW 31.45.073(4) is to look back twelve months from the date of the loan request. The origination date of the loan is the determining factor of whether a loan is included in the 12 month period.
For example: For a loan request of February 10, 2011, all loans with an origination date of February 11, 2010, or later will be considered in assessing the number of loans.
Revised 12/1/2010.
17) When a borrower comes in and converts their loan to an installment plan, can I demand the first payment under the installment plan on that day?
No. You cannot schedule the first payment on an installment plan on or earlier than seven days from the date of the installment agreement. If the installment plan is entered into on the 10th, the first payment under the plan cannot be due until the 18th.
18) Regarding WAC 208-630-544 (May I allow a borrower to refinance a small loan with another small loan? No. You may not allow a borrower to use a new small loan to pay off an existing small loan by the same lender or an affiliate of the lender. Licensees may not apply the proceeds from any small loan to any other loan from the same lender or affiliate of the lender):
-
If a loan is paid off by the customer in cash, and the loan reported as paid on the data base, may Lender A immediately make a new loan to its customer?
Yes. -
If a loan is paid off by the customer by a money order, and the loan reported as paid on the data base, may Lender A immediately make a new loan to its customer?
Yes. -
If a loan is paid off by the customer by a new check from his/her account, and the loan reported as paid on the data base, may Lender A immediately make a new loan to its customer?
Yes. But you take the risk that the check may be returned NSF. You would then go into the database and mark the loan as unpaid, in default, and assess the $25.00 NSF. If DFI sees a pattern of lending to borrowers whose immediately preceding loan goes into default by reason of NSF just prior to the most recent loan and then being paid off right after the default, ostensibly by that most recent loan, we would be concerned that you are effecting an illegal rollover of the loans in violation of the act. Your other option is to not loan until you know the check will or has cleared. This applies only to loans not in an installment plan. -
If a loan is paid off by depositing the customer’s original post-dated check, and the loan reported as paid on the data base, how long before Lender A can make the customer another loan?
No waiting required. But see the caution in C above. -
The rule needs to be more specific about the meaning of the last sentence of the rule and how it will be interpreted and applied.
More information forthcoming.
19) If I make a loan to a borrower in the form of a check, can I charge a fee to cash the check for them?
No. The CLA does not allow you or your affiliates to charge the borrower a fee for cashing a check that is the proceeds of a loan you made to the borrower. If you also hold a licensee under the Check Cashers and Sellers Act, that act also prohibits you from charging the borrower a fee to cash the check you gave them for the small loan. See WAC 208-630-551.
20) WAC 208-630-462 lists types of documentation acceptable as proof of a borrower’s gross monthly income. What additional types of documentation are acceptable for borrowers with alternative types of income?
- For self-employed persons. Acceptable forms of verification are a copy of the individual’s business license plus bank statements showing deposit history, copies of invoices the person has, copies of receipts, or copies of quarterly state tax returns or annual federal tax returns.
- For people paid by commission. Verified employment status plus three months of bank statements showing deposit history. Average the deposits as the income.
- Bank statements showing regular deposits. One or more bank statements in the borrower’s name that shows regular deposits in similar amounts consistent with the regular source of income claimed by the borrower. The deposits should reflect a steady income source.
- W-2 Combined with Employment Status Verification. A recent W-2 showing wages, tips and other compensation from employment plus confirmation that the customer remains employed by the same employer.
21) If a borrower presents a benefits award letter as their income documentation and no deductions are indicated in the award letter, what dollar amount is entered into the database as the borrower’s gross monthly income?
If the borrower’s benefit award letter shows no deductions, the amount you must enter into the database is the dollar amount indicated in the award letter. You must not make any adjustments to the amount in the award letter based on an assumed tax deduction or any other assumed deductions.
22) WAC 208-630-501(1) says the earliest due date for repayment is on or after the borrower's next pay date unless the pay date is within seven days of the date of the small loan. Does the phrase “within seven days” include the seventh day?
Yes. “Within” is inclusive. A date that is the seventh day, or days before the seventh day, would trigger the requirement to go out to the borrower’s next occurring pay date. A borrower with pay dates on the 5th and 20th of each month has a small loan with a loan origination date of February 1. February 1 is day zero. February 8 is day seven. The borrower’s pay date of February 5th is “within” seven days from loan’s origination date. So the first due date will have to be on or after the borrower’s next occurring pay date, February 20th.
23) When a borrower is in an installment plan and fails to make a scheduled payment, can I cash the check held for that payment, or a check held for the entire remaining amount due, or access the ACH transfer for the same purpose, the day of or after the missed payment or must I wait ten days?
You must not cash the check for that payment, or cash a check for the remaining loaned amount, or access the borrower’s account via an ACH transfer for the same purpose, until ten days after the scheduled payment date. The borrower is allowed that ten day period to cure the default and continue with the installment plan. See the definition of default in RCW 31.45.010(9).
24) If a borrower in an installment plan defaults on a payment and does not cure that default with the ten days can I end the installment plan and proceed to collect the small loan?
Yes. Once the borrower has defaulted on an installment plan payment and fails to cure the default within the ten days, you can mark the loan as in default in the database, attach the $25 default fee and proceed to collect the debt.
* This document is a PDF file, and you will need Adobe Acrobat Reader to view it. If you don't already have Acrobat Reader installed on your computer, you may download it for free from Adobe.
[Top]
