Payday loans are illegal in the state of New York, explains the New York State Department of Financial Services. It is also illegal for a lender to collect on a payday loan in the state.
A payday loan is generally a loan for a small amount of money that comes with a high-cost and is usually due within two weeks. The payment is made through collateral of the borrower's postdated check or access to the borrower's bank account, according to the New York State Department of Financial Services.
Payday loans are illegal for a few different reasons as they are set up to trap borrowers into debt. Because payday loans are a short-term loan, most borrowers cannot afford to pay the loan while paying other important expenses. If the loan is not paid back when due, the loan is renewed, and fees are charged for each transaction. Annual percentage rates on a payday loan could be as high as 400 percent, notes the New York State Department of Financial Services. It is illegal for anyone to make a payday loan by way of the Internet, phone or in person in New York. Anyone who believes loans are being made or a debt collector is seeking to collect on a payday loan should call the Department of Financial Services at (800) 342-3736.