Question

1. A licensee shall not charge a fee in excess of fifteen dollars on the first one hundred dollars on the face amount of a check or more than ten dollars on subsequent one hundred dollar increments on the face amount of the check for services provided by the licensee, or pro rata for any portion of one hundred dollars face value.

(1) Using the information included above, as well as information included in the Payday Lending PPT included in the Module, calculate the maximum fee that a payday lender can charge on a $500 payday loan for a term of 14 days. Once you determine the maximum fee, use the fee to calculate the (2) dollar amount of the fee per day, (3) accompanying interest rate per day, and (4) interest rate per year (APR). This problem uses a simple interest calculation, and the Payday Lending PPT has some examples of this calculation.

Answer 1

Calculate the maximum fee that a payday lender can charge on a $500 payday loan for a term of 14 days

A licensee shall not charge a fee in excess of fifteen dollars on the first one hundred dollars on the face amount of a check or more than ten dollars on subsequent one hundred dollar increments on the face amount of the check for services provided by the licensee.

$ 500 = 100 + 4 subsequent increase of $ 100 each

Maximum fee = $ 15 + $ 10 x 4 = $ 55

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dollar amount of the fee per day = $ 55 / 14 = $ 3.93
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accompanying interest rate per day = $ 3.93 / 500 = 0.7857%
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interest rate per year (APR) = daily interest rate x 365 = 286.79%