Better Business Bureau 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 Kelvin Collins, President and CEO of the BBB of Central Georgia & the CSRA. “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bank account number and, as a result, the borrower is at the mercy of the lender as more money than they counted on is withdrawn from his or her account.”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 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. 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 Collins.
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. Remember that it is illegal in Georgia to issue a pay day loan.
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 online 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.
For more information, please visit BBB.org.
BBB, the leader in advancing marketplace trust, is an unbiased non-profit organization that sets and upholds high standards for fair and honest business behavior. Businesses that earn BBB accreditation contractually agree and adhere to the organization’s high standards of ethical business behavior. BBB provides objective advice, free business BBB Reliability Reports® and charity BBB Wise Giving Reports®, and educational information on topics affecting marketplace trust. To further promote trust, BBB offers complaint and dispute resolution support for consumers and businesses when there is a difference in viewpoints. The organization is also a recognized leader in developing and administering self-regulation programs for the business community, and, with respect to the advertising industry, does that through a joint venture in conjunction with National Advertising Review Council partners. The first BBB was founded in 1912. Today, 123 BBBs serve communities across the U.S. and Canada, evaluating and monitoring more than four million local and national businesses and charities. Visit www.bbb.org for more information.