Payday Lending FAQs
Answers to frequently asked questions about payday lending in Washington State.
1) 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.
2) 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.
3) WAC 208-630-540 was repealed.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 Because this section was repealed does this mean we no longer have to figure the yearly APR for the installment plan installments?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.
4) 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No. A loan that has been rescinded does not count toward the eight loan limit; nor will you incur a one dollar transaction fee on that loan.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).
5) 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.
6) 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).
7) 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.
8) 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).
9) 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.
10) 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.
11) WAC 208-630-544 says: 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. Here are some related questions:
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?
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?
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.
Revised November 1, 2011.
12) 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.
13) 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.
14) 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.
15) 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.
16) What may I do, and what must I do when a borrower is in an installment plan and misses a payment?
A missed payment usually means you have deposited a scheduled payment check or have accessed the borrower’s account on the due date pursuant to the borrower’s authorization and the check or authorization came back NSF or denied.
- You may deposit the borrower’s check for a scheduled payment on the date as agreed in the installment plan. You do not have to wait an additional ten days.
- You may charge the borrower a $25 default fee if the borrower does not pay the missed payment within ten days of the due date of the payment. If an NSF fee was incurred with the default, you may not charge both a $25 default fee and an NSF fee. You may only charge $25 total.
- You may discontinue the installment plan if the borrower defaults.
- You may accelerate the outstanding balance and collect the amount due as provided in this chapter and in state and federal law if the borrower defaults.
- You must mark the loan as in default in the database if the borrower defaults as described in (b).
- You must continue the installment plan if the borrower pays the missed payment within ten days of the due date of the payment. You may not charge the borrower any fees if the payment is made during the ten days.
- If the borrower goes into default and you accelerate the loan as described in (d), you may not collect or attempt to collect payment for the loan by depositing the borrower’s remaining checks dated and held for future installment plan payments.
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