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Payday Loans

Payday loans, also referred to as a cash advance, check advance, or deferred deposit loan, are used as a financing tool by many consumers. Such a short-term influx of capital can be indispensable in the event of a sudden and unexpected expense, such as a car accident or medical bill, allowing for payment of expenses at a time when funds are not otherwise available.

How do payday loans work?

A payday loan is a short-term, high-interest loan, generally for an amount of less than $500, which is typically owed within 14 days of receipt. This can sound easily manageable, but many consumers are unable to repay the original loan within in this time frame. As a result, compounding fees and interest over an extended period of time can lead to some payday loan debtors having to take out additional payday loans to pay off their outstanding debts in an attempt to just stave off more rollover fees.

If you’re considering a payday loan:

  • Understand the risks: In exchange for a loan, consumers must give the lender access to their checking account through an Automated Clearing House (ACH) authorization or by writing a check for the amount of the full debt (loan amount and agreed interest) in advance in the event of non-payment.  Be cautious as many payday loan companies are internet-based, providing very little identifying information about themselves, yet requiring access to a debtor’s bank accounts.  This could result in a consumer falling victim to scams and identity theft.
  • Check with the Massachusetts Division of Banks (DOB) if a payday lender is registered to do business in the Commonwealth. Under Massachusetts Law, a lender cannot issue a loan to a consumer for $6,000 or less unless they are licensed as a small loan lender. Licensed small loan lenders are required to comply with the Massachusetts Small Loan Law and the Small Loan Rate Order, which prohibits a small loan lender from charging an annual percentage rate of more than 23 percent. Because of this cap, however, there are very few payday lenders doing business in Massachusetts.

If you need access to cash and don’t want to use a payday lender:

Because of the high expense of taking out a payday loan, consumers should carefully consider several alternative sources of short-term funding:

  • Cash advances or short-term loans from a credit card, local bank or credit union;
  • Borrowing money from friends or family;
  • Asking one’s employer for an advance on a paycheck;
  • Exploring the option of paying an unexpected bill through an installment plan; or
  • Contacting an accredited consumer credit counseling agency in your area such as Consumer Credit Counseling Service at (800) 388-2227 or American Consumer Credit Counseling at (800) 769-3571.

For more information:

Visit the DOB website or call their consumer assistance unit.

The Consumer Financial Protection Bureau also has resources to help consumers decide if a payday loan is an appropriate option for them. Earlier this week, the CFPB released a proposed rule aimed at regulating the payday loan industry. Public comments on the rule are being accepted until September 14, 2016.


If you have additional questions, contact the Office of Consumer Affairs and Business Regulation by calling our Consumer Hotline at (617) 973-8787, or toll-free in MA at (888) 283-3757, Monday through Friday, from 9 am-4:30 pm. Follow us on Facebook and Twitter, @Mass_Consumer. The Baker-Polito Administration’s Office of Consumer Affairs and Business Regulation is committed to protecting consumers through consumer advocacy and education.


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