BBB Warns Against Online Payday Lenders Claiming Laws Don’t Apply To Them

March 15, 2010

DAYTON, OHIO, March 3, 2010 - Your Better Business Bureau is warning cash-strapped families to beware of some online payday lenders claiming they’re not obligated to follow 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 lenders who have zero regard for the law," said John North, BBB president and CEO. "Unlike payday loans you might get from local businesses, online payday loans require bank account numbers and, as a result, borrowers are at lenders’ mercy when more money than expected is withdrawn from accounts."

Hundreds of people have complained to your BBB after signing up for payday loans on sites like,, and Complainants state they agreed to what they believed were one-time payday loans — typically a few hundred dollars to be paid off in two weeks. They supplied their bank account information to lenders and the money was promptly deposited.

Complainants state all of their subsequent payments went toward paying off recurring finance charges and never toward principals. As a result, they report paying two and three times the original loan amounts and still having the same amount of principals 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 online lenders weren’t licensed by states and charged interest rates well over what was allowed by their state usury laws. When confronted, lenders typically respond they don’t have to follow state or federal laws — often claiming they’re based in other countries 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 they had evidence to prove the lenders who claimed tribal sovereignty weren’t actually part of tribes, but were merely renting them for purposes of claiming shelters from state and federal laws.

A story on online payday lending in the Los Angeles Times cites 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 is if you’re handing over your bank account information online to get a payday loan without doing your research, you’re setting yourself up to pay hundreds and even thousands of dollars more than you bargained for," John added.

When looking for a payday loan online, your BBB recommends the following:

  • Consider all of your options. Payday loans can be extremely expensive if you’re unable to pay the loan off quickly. The Federal Trade Commission recommends looking into a short term bank loan, 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 lenders that don’t ask you for background information outside of your bank account number.
  • Research lenders with your BBB. Always check online payday lenders’ reliability reports before handing over bank account information. BBB Reliability Reports are available for free online and will tell you how many complaints your BBB has received, how the company responded to complaints and BBB’s overall letter-grade rating. Visit or call (937) 222-5825 or (800) 776-5301.

About Your BBB Serving Dayton and the Miami Valley

Your BBB is an unbiased nonprofit organization that sets and upholds high standards for fair and honest business behavior. Businesses earning BBB Accreditation contractually agree and adhere to the organization’s high standards of ethical business behavior. Your BBB provides objective advice, free business BBB Reliability ReportsTM and charity BBB Wise Giving ReportsTM and educational information on topics affecting marketplace trust. To further promote trust, your BBB also offers complaint and dispute resolution support for consumers and businesses when there is difference in viewpoints. The first BBB was founded in 1912. Today, 126 BBBs serve communities across the U.S. and Canada, evaluating and monitoring nearly 4 million local and national businesses and charities. Your BBB serving Dayton and the Miami Valley serves Montgomery, Greene, Clark, Darke, Miami, Preble, Shelby and northern Warren counties. Please visit for more information about your BBB.