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DFI Notice to Collection Agents and Small Claims Courts

Collection fees are limited

The Department of Financial Institutions (DFI) recently sent a letter to collection agencies throughout Washington reminding them that they need to be careful not to violate the law when collecting debts for payday lenders. Collection agencies often contract with payday lenders without knowing whether the lender is properly licensed and operating in Washington legally. DFI wanted to help the collection agencies understand the recent law that makes loans made by unlicensed payday lenders uncollectible and unenforceable. Unlicensed payday lenders should not be making loans in Washington and cannot collect on bad debts associated with loans made illegally.

DFI also shared the letter with Washington courts pointing out limitations the law places on collections and other fees.

“It is our hope that by sharing this information broadly we will protect consumers from improper collection efforts while helping collection agencies and properly licensed payday lenders to collect bad debts as allowed under the law,” explained Division of Consumer Services Director Deb Bortner.

Key points in the DFI letter -

• The Check Cashers and Sellers Act (chapter 31.45 RCW) limits the fees a payday lender may charge when collecting a delinquent small loan. If a borrower’s check has been returned unpaid by the bank, the payday lender may collect a one-time $25 fee. Only one fee may be collected for a check, even if the check has been re-deposited and returned more than once.
  
  
• If a payday lender pays an unaffiliated third party for a credit report from a recognized credit reporting company, the payday lender and the borrower may agree to the payment of those fees. Those fees may not exceed the actual cost charged by the provider of the credit report.
  
  
• Under the Uniform Commercial Code (Title 62 RCW) payday lenders may take civil action against defaulting borrowers to collect on a dishonored check. If the payday lender takes civil action, it may charge the borrower the costs of collection as allowed under chapter 62A.3-515 RCW but may not collect attorneys’ fees or any other interest or damages. This limit on collection of fees beyond the costs of collection extends to any party to whom the payday lender assigns the dishonored check including collection agencies. DFI views this as an important consumer protection matter.

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