Illegal Payday Loan

For not knowing much of payday loans and how most of them are illegal in California.I took a loan of $200. and every two weeks they will deduct $89 unless i pay off my loan with the $89 refinance charge. A total of $289. The compnay i took the loan from was from Payday Direct. I called California Department of Corporations to see if they are legit in California and of course they are not. I blocked my checking account so no withdrawals are authorized. They sent me a letter asking for their money. I simply replied that they are not legal in california and i am only entittled to pay the $200. And their response was:
Dear ********,
On October 25,2011 your payment returned for Account Frozen. Your account is due for the original $200 plus the processing fee of $89 that you agreed to when you signed the contract. Unfortunately, you were able to take the money and default on the repayment. Therefore, you are obligated to refund our money.

The only other option we have is for you to send a money order. As stated on your contract our address is:
Payment Direct
The Wells Fargo Center
299 South Maine 13th floor
Salt Lake City, UT 84111

Please inform us when you are going to return our money.
Thank you,
Customer Service

Am i obligated to only pay the $200 right?

You are absolutely right. Since they are illegal, so you are required to pay them only the principal amount i.e $200. Ask them for the refund, as you have paid them more than the principal amount. Illegal lenders won’t be able to take any legal action against you. To know about how to deal with illegal lenders, go through the following link:
http://www.debtconsolidationcare.com...-dealings.html