You may have some familiarity with the concept of payday loans, especially if you are not a native Connecticut resident and come from a state where payday loans are legal. State laws restrict payday lending to protect you and other consumers from the egregious abuses that often accompany such loans. However, as previous posts on our blog have explained, there are other ways that vulnerable consumers can be victimized by predatory lending.
You may be interested in learning about the state’s small loan law, which restricts payday lending, as the Connecticut General Assembly explains. The law works in the following ways:
- The law prohibits the assignment of wages as loan collateral.
- A small loan lender must be licensed with the Banking Department.
- Interest rates on a small loan may be higher than traditional loans but are often significantly lower than astronomical payday loan rates.
- Lenders, including credit unions, banks and pawnbrokers, can offer up to $15,000 for a small consumer loan.
In these ways, you can see how payday loans won’t work in Connecticut, although they are not specifically prohibited. This can be good news for you, as it can be easy to fall into the cycle of payday lending. It’s important to understand the basics of what makes a reputable loan, as well as how to avoid borrowing pitfalls. Since the topic of borrowing after financial challenges can be complex, the information in this blog is meant to educate you and should not replace the advice of a lawyer.