| Online payday loans: Borrower beware | | |
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Traditional 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."
"What's happening 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 right now."
The growth of online payday lending is presenting
problems for state law enforcement officials and consumer advocates.
Earlier this year, the Massachusetts Office of Consumer Affairs
and Business Regulation ordered 91 companies marketing Internet
payday loans to stop. The companies were reportedly charging annual
percentage rates averaging 300 percent and fees averaging $30. The
state says none of the companies were licensed to offer loans to
residents.
Some of the letters we sent to these companies were
returned when the post office was unable to find the address,"
says David Cotney, senior deputy commissioner at the Massachusetts
Division of Banks. "That reinforces our concern about consumers
handing over personal information. That's one of the reasons licensing
is required; it gives the consumer some recourse."
James Brusselback, enforcement chief at Washington
State Department of Financial Institutions, says his division is
investigating some 10 online payday lenders.
"The difficulty with the online outfits is in
locating them, and then some of them claim that our state law doesn't
apply to them, so we have that issue of trying to bring them under
our state law. I guess part of their argument is that they're not
located in the state and that their home-state law is sufficient
to protect their customers. The requirements in those states --
Nevada and Utah -- are far less than what we require."
Karolyn Klohe, financial legal examiner in Brusselback's
department, says consumers can have a tough time stopping online
payday lenders from taking money out of their accounts.
"A common complaint against online payday lenders
is that the customer is required to give banking information, whereas
if they walk into a payday lender store they give them a postdated
check. But what's happening online is the payday lender uses the
bank information to make unauthorized withdrawals from the consumer's
account. They say they're collecting funds owed to them. They can
make these withdrawals in a way they can't with a postdated check."
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