Online Payday Lenders
HandelontheLaw.com Staff Writer
Brick-and-mortar payday lenders are notorious for exorbitant interest rates and oppressive collection practices. However, they seem like lambs compared to some online payday lenders.
Brick-and-mortar payday lenders usually lend small amounts of money ($100 - $1,000) to individuals otherwise unable or unwilling to use traditional credit. The borrower usually needs to give only his/her Social Security number, current employment data and a post-dated check. The lender gives the loan for a high fee (usually about $125 for a $500 loan) and cashes the post-dated check on the borrower’s next payday. The $125 fee for a $500 loan amounts to more than 650% annual percentage rate of interest.
Online payday lenders are worse. Rather than using a post-dated check, they obtain access to the borrower’s checking account and periodically withdraw principle and interest, often twice per month. The danger of allowing some online stranger access to your checking account should be fairly obvious and that danger has become an unfortunate reality for borrowers whose bank accounts have been so depleted by online payday lenders that they can no longer pay rent, groceries and other necessities, and incur bad check charges for insufficient funds.
Nevertheless, online payday lenders have grown tremendously in the past decade, probably due to the initial ease of borrowing online. As far as researchers can determine, online payday lenders collected $1.3 billion in 2006 and $4+billion in 2013.
While a number of states severely restrict online payday lenders and 15 states plus the District of Columbia have outlawed online payday lenders, borrowers are not necessarily protected, for several reasons. First, online business can be elusive and difficult to for a state to govern. Secondly, even careful reading of a web site’s fine print can be futile, as some of the online payday lenders are flatly disreputable and will say anything. Third, even if the borrower resides in a state outlawing payday lenders, some payday lenders belong to Native American tribes, which argue that they are sovereign and therefore not subject to state laws. Consequently, even if a borrower seeks help from state agencies, they may be unable to sufficiently help the borrower; several states are currently fighting this sovereignty issue in court.
Federal lawmakers are attempting to address the growing problem of online payday lenders. The Consumer Financial Protection Bureau is now writing the very first federal rules for payday lenders and has authority to regulate brick-and-mortar and online payday lenders. Even so, both enforcement and Native American sovereignty will be ongoing problems.
Clearly, the safest route is complete avoidance of online payday lenders. If you must use a payday lender, use a brick-and-mortar payday lender who must be licensed and regulated by the state in which it is located. Also, check your state’s regulations with Payday Loan Consumer Information here: http://www.paydayloaninfo.org/state-information Also, check your specific payday lender through the Better Business Bureau here: http://www.bbb.org/BBB-Locator/ and by running its name and “rip-off” or “complaint” through Google. Finally, if you are “burned” by a payday lender, seek help from the Consumer Protection Agency here: http://www.usa.gov/topics/consumer/complaint/legal.shtml
DO’S AND DON’TS
DON’T borrow from an online payday lender. Spare yourself a lot of difficulty in the future and just don’t do it.
DO check your state’s regulations with Payday Loan Consumer Information here: http://www.paydayloaninfo.org/state-information
DO deal only with a brick-and-mortar payday lender (if you must use this very expensive form of borrowing).
DO check your specific payday lender through the Better Business Bureau here: http://www.bbb.org/BBB-Locator/
DO check your specific payday lender by running its name and “rip-off” or “complaint” through Google.
DO seek help from the Consumer Protection Agency here: http://www.usa.gov/topics/consumer/complaint/legal.shtml
By Kathy Catanzarite
Note from HandelontheLaw.com: This article is to be used as an educational guide only and should not be interpreted as a legal consultation. Readers of this article are advised to seek an attorney if a legal consultation is needed. Laws may vary by state and are subject to change, thus the accuracy of this information can not be guaranteed. Readers act on this information solely at their own risk. Neither the author, handelonthelaw.com, or any of its affiliates shall have any liability stemming from this article.
CREDIT/COLLECTIONS DOS AND DON'TS