Consumer Fraud Task Force Warns: Online Payday Loans Can Trap Consumers In Cycle Of Debt, Despairby Nick LaFleur on Apr. 22, 2011, under alert, Life, scam, Tips
Online payday loans are marketed as a quick solution for short-term cash flow problems. The loans can trap consumers in the same cycle of debt and despair as brick-and-mortar lenders but with less protection from regulators.
Some consider payday lenders to be today’s loan sharks. They reel customers in with websites promising easy money, then hook them into short-term high-interest loans that customers roll over to new loans when they can’t pay.
Many online lenders fail to obtain licenses, making it hard for regulators to have any control over them. Some are based abroad, which makes it impossible for authorities to enforce state lending laws or punish lenders that violate the laws. With hundreds of illegal lenders online, the only protection is to avoid borrowing from them in the first place.
Recently, applicants for online payday lenders complained that they were enrolled in discount clubs, which then debited consumers’ bank accounts without their knowledge. One club had more than 500 complaints filed against it, none of which were resolved. Consumers complained that the unexpected debits caused them to incur overdraft fees in addition to the loss of their money.
Consumers also have been asked for payment on loans they never received. In some cases, they applied for loans but were turned down or declined the loan. They then received multiple abusive or threatening phone calls seeking to collect the money.
The calls came from overseas, and the callers had consumers’ private information, such as Social Security numbers, addresses or sources of income. Authorities could not determine how the callers obtained the information, except that consumers had applied online for loans.
The Task Force recommends that consumers look for other means of meeting a short-term cash crisis before turning to payday loans as a last resort. An employer may be willing to give an advance on a worker’s pay, or a credit card may be used to tide a family over until payday, though that, too, can be a trap. Other tips:
- Never pay an advance fee in exchange for a promise of a loan. These are almost always scams and, once you have paid, you likely will never hear from the thieves again. The fees may be disguised as mandatory insurance or some other product the lender says is needed to obtain the loan.
- Be extremely cautious when giving out any personal information online, such as Social Security and bank account numbers. Be alert for websites that force you to give that information before even telling you whether you qualify for a loan.
- Read all information on the site very carefully, searching for hidden fees or disclaimers. Often, a company’s “terms and conditions” can be several pages long and contain critical information for consumers. Some consumers have had difficulty printing the conditions because of how the site is set up. That’s a red flag.
- Understand that many disreputable companies exaggerate or entirely fabricate testimonials. Be suspicious of testimonials and ask for references you can call and speak with.