Borrowing in Massachusetts: What State Law Allows

Why payday loans are illegal here

Massachusetts doesn't name payday lending in a statute, but its rate limits make the product impossible. The Division of Banks says that any company or person engaged in small-dollar lending in Massachusetts must be licensed, and that a payday loan is illegal "due to the high annual percentage rate charged." The Division notes that payday loans average APRs of over 500%.

The same applies to car title loans. No Massachusetts law authorizes them, and a small loan secured by your car must stay within the limits below.

The small loan rate limit

Chapter 140, section 96 of the General Laws requires a small loan license to make loans of $6,000 or less when the interest and expenses exceed 12% a year. The Small Loans Regulatory Board sets the maximum rate, and its regulation, 209 CMR 26.01, allows:

• 23% a year on the unpaid balance of the amount financed;
• plus an administrative fee of $20 when the loan is made, no more than once in any 12 months;
• a returned-payment fee of up to $10, if the agreement allows it;
• no more than 6% a year once a loan is more than a year past its maturity date.

Larger loans have a different backstop. Under the criminal usury statute, chapter 271, section 49, charging more than 20% a year is a crime unless the lender has notified the Attorney General and keeps records open to inspection. A lender that has filed that notice can charge more, so read the APR on any offer rather than assuming it's under 20%.

For short-term cash, a credit union loan or a hardship plan with your creditor usually beats any high-cost option. See payday loan alternatives and how personal loans work.

Six years to sue, and limits on collectors

Massachusetts gives a creditor six years after a contract claim accrues to sue (chapter 260, section 2). That covers credit card debt and personal loans. Read how the statute of limitations works before you pay on an old account.

The Attorney General's debt collection regulations, 940 CMR 7.00, go beyond federal rules:

• A creditor may start no more than two calls, texts or recorded messages in each seven-day period to your home or personal phone for each debt.
• At other places, such as work, the limit is two contacts in each 30 days.
• A creditor collecting a debt it knows or should know is time-barred must tell you, in capital letters, that the debt may be too old for you to be sued on it in court.

For your federal rights under the FDCPA, see debt collectors and your rights.

Wage garnishment protects most of your pay

In Massachusetts, wage garnishment is called trustee process. Chapter 246, section 28 exempts the greater of 85% of your gross wages or 50 times the higher of the federal or state hourly minimum wage for each week. With the state minimum wage at $15 an hour, at least $750 a week is protected. Federal law protects only 75% of disposable earnings, so the state rule is far stronger. Divorce, separate maintenance and child support orders follow federal limits instead.

Checking a lender and filing a complaint

1. 1 Look up the license on NMLS Consumer Access before you apply. Small loan companies and debt collectors are licensed by the Division of Banks.
2. 2 Compare the APR on the disclosure with the 23% limit for loans of $6,000 or less.
3. 3 File a consumer complaint with the Division of Banks, or with the Attorney General's office for unfair collection practices. You can also file with the CFPB.

Common questions