payday loans: Borrower beware|
It's a tempting alternative to
walking into the check-cashing store on the corner. Online payday lenders are
popping up on the Internet, offering fast, short-term loans to cash-strapped consumers,
in the anonymous comfort of cyberspace.
But if you borrow from these businesses, you might
have more to worry about than the astronomical interest rates traditionally associated
with payday lenders in general.
For starters, you'll provide
an amazing amount of personal data -- Social Security number, driver's
license number, mother's maiden name and, of course, your name, address and employment
information -- to the Web site.
You'll also give
your checking account number and bank routing number, so the lender will have
access to your account. The lender will deposit your loan into your checking account
and dip into your account to extract interest, fees and the principal. Some require
that you fax them your latest pay stub, most recent bank statement, photo ID and
a voided check.
But to whom are you giving this information?
More than likely you won't have a clue. Many Web sites that pop up when you do
a search for something such as "payday loans" aren't lenders at all. Take Advance
Cash Loans, which states at the bottom of its home page, "Advance Cash Loans is
not an online provider of online payday cash advances. We simply connect people
seeking fast cash advances with online providers of instant cash advances so they
can get the advance cash that they need, as soon as possible."
Consumer Federation of America (CFA) survey, of 100 online payday lenders and
referrals sites, found that many are run from outside the United States and, perhaps,
out of reach of American laws.
"You don't know where your information
is going," says Jean Ann Fox, director of consumer protection at CFA.
times you can't find who the domain is registered to. There are Internet payday
lenders outside the country, in Canada and on islands in the Caribbean that you
can't find with a magnifying glass. It's like handing a stranger a blank check."
tried to contact three payday lenders. Only one could be contacted, and no one
there would answer questions or return calls.
Are these businesses
fly-by-night scammers that will steal your identity, trap you into budget-busting,
long-term borrowing habits, or illegally siphon money out of your bank account?
Nope, not necessarily. But you should think long and hard before sending your
information to companies that are so stingy about their own information, Fox says.
"If you borrow from them, you're not seen in line at the corner
payday lender, so there's privacy and that might be a selling point. But I hope
it's offset by sending all that personal information over the Internet. It's a
financial strip search. They want every piece of your financial information. People
should be afraid to provide that information. I wouldn't want to give that to
someone over the counter, much less over the Internet."
payday lenders -- the so-called brick-and-mortar shops --
are represented by Community Financial Services of America, a trade association.
Online payday lenders have no such organization and, therefore, have no one to
represent them. But Andy Jacob, CEO of Leadpile.com, a company that seeks leads
for salespeople in the cash-advance business and other industries, calls the growth
in online payday lending "explosive."
in online is happening fast and furious. The major players are trying to position
themselves to be the leader online. It's a bifurcated space right now. There are
many players that are lead generators that aren't in the payday loan space and
they're attempting to secure the lead to themselves. Many payday-loan companies
are late to the game. It's challenging to figure out which company is doing what