BBB Warns Against Online Payday Lenders That Claim the Laws Don’t Apply to Themby Nick LaFleur on Mar. 03, 2010, under Life, scam, Tips
Better Business Bureau of Southern Arizona is warning cash-strapped families to beware of some online payday lenders that claim they are not beholden to state or federal laws regarding licensing requirements, debt collection practices or caps on interest rates.
“Desperate times are leading people to the Internet to apply for payday loans and many are falling deeper into debt after getting tangled up with a lender who has zero regard for the law,” said Kim States, President and CEO of the Council of Better Business Bureaus. “Unlike a payday loan that you might get from a local business, online payday loans require your bank account number and, as a result, the borrower is at the mercy of the lender as more money than they counted on is withdrawn from his or her account.”
Hundreds of people, including at least one Tucson consumer, have complained to BBB after signing up for a payday loan on sites like OnceClickCash.com, 500Fastcash.com, rbtloans.com and Ameriloan.com. Complainants state that they agreed to what they believed was a one-time payday loan — typically a few hundred dollars to be paid off in two weeks. They supplied their bank account information to the lender and the money was promptly deposited.
The arrangement quickly turns into a debt spiral. Complainants state all of their subsequent payments went toward paying off recurring finance charges and never toward the principal. As a result, they report paying two and three times the amount of the original loan and still having the same amount of principal to pay off.
Sherry Hinojosa, of Tucson, told BBB she was forced to cancel her bank account after taking out a $300 loan with PDL Ventures, which operates multiple online payday lenders. The company, she said, continued to withdraw money from her account, even after she had thought the original loan was paid off.
“They virtually wouldn’t let me pay it off, and they wouldn’t tell me what my balance was,” Hinojosa said. “They just kept taking more money out each week.”
Eventually Hinojosa took her case to her bank and was able to place a “stop payment” on the reoccurring charges, but initially even that proved inadequate in preventing the company from gaining access to her account.
“When the bank put a “stop payment” on the account, they (PDL Ventures) changed their name, the amount they charged me, and continued withdrawing money,” Hinojosa told BBB.
Hinojosa’s experience closely mirrors the experience consumers around the country have had with online payday lenders. One Massachusetts woman who received a loan from Ace Cash Services stated she made over $1,700 in payments to pay off a $225 loan. A borrower in Pennsylvania claimed to be subjected to a 547 percent interest rate on a $300 loan by a lender called United Cash Loans.
Many complainants were surprised to learn that the online lender was not licensed by the state and charged interest rates well over what was allowed by their state usury laws. When confronted, the lender typically responds that they don’t have to follow state or federal laws — often claiming that they are based in another country or on Native American reservations and are sovereign nations.
Following an investigation and lawsuit by the West Virginia Attorney General against online payday lenders, officials stated that they had evidence to prove the lenders who claimed tribal sovereignty were not actually part of the tribe but were merely “renting” it for the purposes of claiming shelter from state and federal laws.
A story on online payday lending in the Los Angeles Times cites that state officials and consumer advocates find it impossible to track this unregulated industry but, “suspect that it involves thousands of Web sites generating billions of dollars in revenue nationwide.”
“The bottom line here is that if you are handing over your bank account information online to get a payday loan without doing your research, you are setting yourself up to pay hundreds and even thousands of dollars more than you bargained for,” added States.
When looking for a payday loan online BBB recommends the following:
Consider all of your options. Payday loans can be extremely expensive if you are unable to pay the loan off quickly. The Federal Trade Commission recommends looking into a short term loan from your bank, contacting your current creditors quickly to explore payment options, working with a credit counseling center or at the very least, shopping around for the best interest rate and terms. Because of concerns with online lenders, try to find a brick and mortar location before settling on a lender.
Look for the red flags. Unscrupulous online lenders often wave the same red flags including not being forthcoming about their location or contact information. Also be cautious of any lender that doesn’t ask you for any background information outside of your bank account number.
Research the lender with BBB. Always check an online payday lender’s reliability report by visiting www.tucson.bbb.org, before you hand over any bank account information. BBB Reliability Reports are available for free online and will tell you how many complaints BBB has received, how the company responded to complaints and BBB’s overall letter-grade rating.