Payday Loans in Delaware: Subprime Report
Compared to the national average of 15.1%, Delaware’s poverty rate is a slightly better 12.4%. While the poverty rate is below the national average, Delaware still sits at about $5.35 billion in debt, with a debt per capita of $5,962. So where do Delaware’s 934,695 consumers turn when they need money in a pinch?
Many might turn to bad credit loans, such as payday loans or title loans for that “quick fix” cash. But with such high APRs and the risk that’s involved with these loans, how can Delaware residents afford to go these routes?
Payday Loans in Delaware
A payday loan is a short-term, small-dollar loan marketed as an emergency loan to people who can’t rely on savings, credit cards, or traditional bank loans. While payday loans are advertised as sound financial solutions, the truth is quite different. Payday loans are predatory products designed to trap borrowers into very troubling cycles of debt. A payday loan’s toxic combination of high APRs (averaging 400%) and short terms (typically by the borrower’s next paycheck) make them exceedingly difficult to repay on-time, which can lead to devastating financial consequences.
Payday loans are traps, plain and simple. But what makes them especially dangerous is how easy it is to find a lender. Like most states, payday lenders in Delaware outnumber McDonald’s restaurants. With 82 payday lenders to 34 McDonald’s—that’s 10.46 lenders per 100,000 people. Delaware has more payday lenders per 100,000 residents than Illinois (5.85 payday lenders per 100,000 residents), California (7.82/100,000) and Texas (8.03/100,000 people), but lags behind Ohio (12.1/100,000) and Utah (19.12/100,000).
Payday loans in Delaware are regulated under the Small Loan Act or Licensing Law, but the statute sets no limits on APRs that lenders can charge. This means that payday lenders can charge interest on a loan at any rate they see fit. In fact, the average APR on a payday loan in Delaware is a staggering 532%.
Number of Payday Lenders: 82
Maximum APR: No limit
The History of Payday Lending in Delaware
In 2012, after a decade of legislative work, Delaware passed HB 289 to protect vulnerable borrowers. The law limits the number of payday loans a consumer can borrow to five over a 12-month period. HB 289 also changed the definition of short-term consumer loans to include loans up to $1,000 rather than the previous $500. This bill also required the establishment of a database to track the number of short-term consumer loans each Delaware individual obtains in a 12-month period. Lastly, the bill instructs the Delaware Banking Commissioner to provide a report on the prevalence and nature of these payday loans to the General Assembly.
About 6,219 short-term consumer loans were taken out between January 2015 and December 2015. The principal on these loans totaled $2.5 million, while cumulative interest and fees reached $520,000.
During this period, an estimated 57% of borrowers opened two or fewer loans, and 28.5% percent of individuals each took out three to five loans.
Delaware Payday Loan Rules and Regulations
The maximum principal of a payday loan in Delaware is $1,000, and no additional loans are allowed until the previous loan is paid (that’s good!). Unfortunately, lenders face no legal limits when setting their fees, finance charges, or interest rates. This means payday lenders have broad latitude to determine how much they will charge borrowers.
In Delaware, the borrower’s signature and thumbprint are required before a payday loan can be executed. The thumbprint requirement was introduced to protect Delaware residents from fraudulent payday lending companies. As of 2010, the thumb print requirement reduced the rate of fraud cases by 60%.
State legislation also does not allow payday lenders to charge additional interest on deferred loans with an outstanding balance 10 weeks after the loan agreement date. In the case of a default, Delaware payday lenders are barred from initiating any criminal proceedings against borrowers.
- Maximum Loan Amount:$1,000
- Loan Term:60 days
- Rollovers Permitted?:Four
- Fees and Finance Charges:Not specified
- Finance Charge on a 14-Day $100 Loan:No limit
- APR on a 14-Day $100 Loan:No limit
- Maximum Number of Outstanding Loans at a Time:A limit of five loans from all licensees in a 12-month period
- Repayment Plan:Voluntary workout agreements with equal installments, a minimum of 90 days, and no fees or interest
- Cooling-Off Period:None provided
- Collection Fees:One fee for non-payment if the contract allows, not to exceed 5% of the payment amount. Attorney fees and court costs.
Final Notes on Payday Loans in Delaware
Despite the legislation in place to protect residents from payday loans in Delaware, payday lenders in Delaware are still dangerous. While borrowers may only take out five payday loans per year in Delaware, payday lenders are free to set whatever exorbitant and predatory interest rates they choose.
Title Loans in Delaware
By now, you might think that there isn’t a financial product worse than a payday loan. Unfortunately, there is. While a payday loan is designed to steal huge percentages of your paycheck, another predatory product is designed to steal your car!
How does this work? Payday loans are secured against a check that you write the lender. If you can’t pay, they cash your paycheck. A title loan is a loan that is secured against the title of your car. This means that if you fail to pay on time, the lender is legally allowed to take possession of your vehicle.
As is the case with Delaware payday loans, under Delaware law, title lenders can charge whatever interest rate they choose. Typically, interest rates on title loans are about 25% per month, which comes out to a 300% APR. Think of it this way—if a person with bad credit gets a “not-so-good” credit card, they will pay an APR of about 25%, which is considered extremely high in the credit card world. Now look at title loans—25% interest per month, or 300% APR. That’s twelve times the amount of that “not-so-good” credit card! Title loans should definitely be viewed with caution.
History of Title Loans in Delaware
In a 2017 report by the Center for Responsible Lending, it was reported that Delaware consumers face $29,803,284 in annual car title loan fees. These fees are even more excessive when compared to the $520,000 in annual payday fees charged to Delaware consumers.
Delaware has one title lender per 10,000 to 20,000 residents, which means that each store handles a lot of loans. In 2013, Delaware only had 56 title lenders, and these Delaware lenders serviced 12,712 title loans, with a total volume of $13,245,904 during that time.
While the number of title lenders in Delaware remains low today, it doesn’t prevent borrowers from seeking out title loans in Delaware. Consumers will seek out loans, even when provided with fewer options. Look at New Hampshire: with only 43 stores, borrowers still took out $10,170,962 total loans in 2013. This is the same for Delaware—borrowers still managed to take out $13,245,904 in title loans with only 56 stores in 2013.
Delaware Title Loan Restrictions
Before a borrower signs a title loan agreement in Delaware, the title lender is required to provide certain disclosures to the consumer (see below). These disclosures must be clear and concise for easy understanding and, per 77 Del. Laws, c. 164, § 1; § 2252 Disclosures, the seven disclosures must read as follows:
- “The loan you are considering entering into is strictly for short-term cash, and is not a solution for long-term financial problems.”
- “You, as borrower, are not compelled to complete the loan agreement merely because you have received any disclosures.”
- “If you sign the title loan agreement, the title loan lender will obtain a security interest in your motor vehicle, and if you fail to meet the obligations of the title loan agreement, the lender can take possession of your motor vehicle and sell it.”
- “If the lender takes possession of your motor vehicle, you may lose equity in that vehicle.”
- “You have a right to rescind the title loan agreement for any reason, at no cost to you, at any time up to the end of the business day following the day in which the loan proceeds of the title loan were disbursed to you by returning the full amount of the loan proceeds to the title lender.”
- “You have the right to receive information about credit counseling services from the Office of the State Bank Commissioner.”
- “You may file a complaint with the Office of the State Bank Commissioner if you believe your lender has violated any law regarding your title loan.”
Per Delaware law, a workout agreement is not equal to a default. The lender can’t take the car unless the borrower defaults on the workout agreement.
If a Delaware title lender fails to provide these disclosures, the borrower can rescind the loan at any time for up to 1 year from the final payment date on the original loan agreement. At that point, the borrower is only responsible for the outstanding principal. If the fees and interest paid exceed the unpaid proceeds of the loan, the lender must refund the amount.
If the workout agreement defaults, and the borrower’s vehicle is repossessed, the Delaware title lender can no longer charge interest on the loan. It’s sad to say that many lenders will often continue to charge interest until the car is sold at auction. Once the car is sold, however, the lender has to notify the borrower that the car was sold, let the consumer know whether there was a deficit or surplus of funds, and provide notice that the sale has satisfied all of the outstanding proceeds of the title loan.
When the title lender sells the car, the borrower’s title loan woes will be over. However, was it worth all that hassle for $300?
Final Notes on Title Loans in Delaware
Delaware attempts to protect borrowers from the predatory ways of title lenders, but the current regulations still allow title lenders to take advantage of consumers. At the end of the day, title lenders in Delaware still want one thing: your money. For a $1,000 title loan, borrowers can end up paying $4,000 and possibly lose their vehicles in the process.
The moral to the story: Find alternative options before resorting to a title loan in Delaware.
Regulating Payday and Title Loans in Delaware
Payday loans and title loans in Delaware are marketed to financially vulnerable families and individuals as short-term financial solutions. The reality is that these loans drain hundreds of dollars from bank accounts in amounts well over the original loan amount. Many times, borrowers are paying thousands of dollars just for a one-time, small-dollar loan. It’s never worth the risk, expense, or stress.
Unfortunately, many residents in Delaware don’t realize the predatory effects of payday and title lenders until it’s too late. So, if you’ve already taken the blind leap and taken out a payday or title loan in Delaware, there are things you can do to protect yourself.
How to Report a Predatory Lender in Delaware
If your payday or title lender in Delaware is violating the law (they’re misleading, harassing, or overcharging), you need to speak up. By reporting predatory lenders who continue to break the law in Delaware, you can help protect yourself and other potential victims. There are resources available in Delaware, but it is also important to remember:
- Regulators will first have you attempt to resolve the issues on your own.
- Document everything the lender does—the more evidence, the better your case
- Payday and title lending are legal in Delaware, but certain restrictions remain in place to protect borrowers (know what the laws are)
Report any violation of state payday loans and title loans legislation to the Office of State Bank Commissioner (OSBC) by calling (302) 577-6722 (from New Castle County) or (302) 739-4235, or by sending a complaint to 555 East Loockerman Street, Dover, DE 19901. You can also e-mail the Office of the State Bank Commissioner at email@example.com.
Outside Help for Payday and Title Loans in Delaware
Aside from the Delaware Office of the State Bank Commissioner, you can reach out to the National Community Reinvestment Coalition (NCRC) for further guidance. NCRC member, Delaware Community Reinvestment Action Council (DCRAC), is winning victories in the backyard of payday loan companies in Delaware. By breaking the cycle of predatory lending in Delaware, the DCRAC works to continue to protect residents from the predatory ways of payday and title lenders in the state.
Consumer Protection in Delaware
Delaware lawmakers continue to look for ways to further protect residents from falling prey to predatory lenders. Through the help of different lawmakers and legislatures, Delaware has helped keep its consumers safe.
To help Delaware continue their battle against payday and title lenders, reach out to your local representative. With more information, lawmakers can continue to fight for new legislations. And, by understanding the warning signs, the state’s payday and title loan laws, and where to report a lender or seek outside legal guidance, you can help set new laws and legislations into action. Yes, it won’t change overnight, but it is a battle worth fighting for the protection of Delaware residents.
Guides to Payday and Title Lending in Delaware Cities
Payday and title loans are a big issue for Delaware residents. And it gets even more complicated at the city level. Check out these payday and title loan guides to the following cities in Delaware:
- “Delaware” United States Census Bureau. Accessed February 13, 2017. https://www.census.gov/quickfacts/table/PST045216/10
- “Experian’s 2016 State of Credit Report” Experian. Accessed June 5, 2018. LiveCreditSmart.com
- “2012-2016 American Community Survey 5-Year Estimates, Housing: Selected Housing Characteristics” U.S. Census Bureau. Accessed June 5, 2018. https://factfinder.census.gov
- “State Debt” Ballotpedia. Accessed February 13, 2017. https://ballotpedia.org/State_debt
- “McDonalds’ vs. Payday Lenders” California State University Northridge. Accessed February 13, 2017. http://www.csun.edu/~sg4002/research/mcdonalds_by_state.htm
- “Payday Loan Consumer Information” CFA. Accessed February 13, 2017. http://www.paydayloaninfo.org/state-information/15
- “Lawmakers eye caps on changing payday lending industry” The News Journal. Accessed February 23, 2017. http://www.delawareonline.com/story/news/local/2016/08/26/lawmakers-eye-caps-changing-payday-lending-industry/87632062/
- “State of Delaware Short-Term Consumer Loan Program” Office of the State Bank Commissioner. Accessed February 23, 2017. http://banking.delaware.gov/pdfs/annual/Short_Term_Consumer_Loan_Database_2015_Operations_Report.pdf
- “Delaware Payday Loan Law and Legislation” UStatesLoans.org. Accessed February 23, 2017. http://www.ustatesloans.org/state-de.html
- “Payday Lending State Statutes” National Conference of State Legislatures. Accessed February 23, 2017. http://www.ncsl.org/research/financial-services-and-commerce/payday-lending-state-statutes.aspx
- “Title Loans in Delaware” Drive-Safely.net. Accessed February 27, 2017. http://www.drive-safely.net/title-loans-in-delaware-everything-you-need-to-know/
- “Payday and Car Title Lenders Drain $8 Billion in Fees Every Year” Center for Responsible Lending. Accessed February 15, 2017. http://responsiblelending.org/sites/default/files/nodes/files/research-publication/crl_statebystate_fee_drain_may2016_0.pdf
- “Car-Title Lending” Center for Responsible Lending. Accessed February 27, 2017. http://www.responsiblelending.org/state-of-lending/reports/7-Car-Title-Loans.pdf
- “Title 5: Other Businesses Under Jurisdiction of State Banking Department” State of Delaware. Accessed February 27, 2017. http://delcode.delaware.gov/title5/c022/sc05/index.shtml