If payday loans are illegal in your state, do you have to pay them back?

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If payday loans are illegal in your state, do you have to pay them back?

I got a payday loan on-line. I live in VT where Payday loans are prohibited. I have paid tons in interest and the cap for VT is 18% per year. I have paid way over that and am now getting harassing (11 calls in 3.5 hours – leaving no message) phone calls because I closed my bank account. Can I get out of this because of state law or does it not matter because the lender isn’t in VT?

Asked on April 20, 2011 under Bankruptcy Law, Vermont

Answers:

M.T.G., Member, New York Bar / FreeAdvice Contributing Attorney

Answered 10 years ago | Contributor

The best thing for you to do is to contact your State Attorney General's Office and speak with someone in the consumer fraud division.   If a loan is issued in Vermont in which the interest rate is found to be in excess of 18 percent, one of two things will occur, depending on the judge hearing the case. One, the loan will be voided, as it is illegal. Or, the lender and the borrower may be required to modify the agreement so that the money is paid back at a lower rate of interest. Although payday loans are technically illegal in Vermont, there is a loophole that lenders can use to charge higher rates of interest. According to Vermont law, an out of state bank is allowed to set up shop in Virginia and charge customers the interest rates of the state where the bank is headquartered. Payday loan companies are technically allowed to purchase charters from these banks and establish "branches" where they charge exorbitant interest rates.  Good luck.



  

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