Can You Get a Refund on a Payday Loan?

Inside Subprime: Oct 22, 2018

By Jessica Easto

Payday loans are often marketed as small-dollar loans for short periods of time—a quick solution for when you need cash in an emergency. However, with their extremely high interest rates and stringent terms that are often impossible to meet, borrowers are often left with no choice but to “rollover” their debt, leading to a debt cycle that is difficult to get out of.

In most states payday lending isn’t illegal—as long as lenders follow state laws and regulation. In this case, it is unlikely that you would be able to get a refund or take successful legal action against the lender for a payday loan, even if you are having difficulty repaying the debt.

However, payday loans often fall into what’s called predatory lending, which means lenders take advantage of borrowers in a way that is against the law, usually with high interest rates and misleading terms. One common way predatory lenders mislead borrowers is by obscuring or withholding information, which can violate the Truth in Lending Act (TILA). According to TILA, lenders must disclose in writing certain information to the borrower before they sign, such the full cost of the loan (the dollar amount and the annual percentage rate, or APR) and a Notice of Recession. A Notice of Recession tells the borrower that they have a right to rescind the loan within a certain amount of time, usually three days.

If your lender failed to be transparent about certain information, it may be in violation of TILA or another law that regulates payday lending, which means you could take legal action against the lender in hopes of winning a lawsuit or getting a settlement for the cost of the loan.

You can also submit a complaint to the Consumer Financial Protection Bureau (CFPB). According to the CFPB, you can submit a complaint regarding:

  • Unexpected fees or interest
  • Unauthorized or incorrect charges to your bank account
  • Payments not being credited to your loan
  • Problems contacting your lender
  • Receiving a loan you did not apply for
  • Not receiving money after you applied for a loan

If claims of deceptive payday lending are widespread, the Federal Trade Commission (FTC)—the governmental body that oversees the enforcement of laws related to payday lending—may get involved. Take, for example, the record-breaking lawsuit against Scott A. Tucker and his Kansas City–based umbrella corporation, a payday loan provider that was sued by the FTC for fraud. After a $1.3 billion judgment against Tucker, the FTC announced that it would be returning $505 million to more than 1 million parties affected by the scam, making it the largest refund program in FTC history.

In the Tucker case, the lender crossed the legal line with hidden fees and high APRs—even by payday lending standards, which typically have APRs up to 400%. In some cases, Tucker’s company was charging 1,000% APR on loans, according to officials. It also used the “rent-a-tribe” loophole in which lenders attempt to set up shop on Native American reservations in hopes of evading certain regulations.

For information on predatory payday loans, check out all of our Subprime Reports.