BBB Warns Against Online Payday Lenders that Claim the Laws Don’t Apply to Them
April 12, 2010
The Better Business Bureau (BBB) is warning cash-strapped families to beware of some online payday lenders that claim they are not subject 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 that has no regard for the law,” said Bill Moak, President /CEO of the BBB Serving Mississippi. “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account number and, as a result, the borrowers are at the mercy of the lender as more money than they counted on is withdrawn from their accounts.”
People across the country have complained to the BBB after signing up for a payday loan on sites such as 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.
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 under their state’s usury laws.
“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 possibly thousands of dollars more than you bargained for,” added Moak.
When looking for a payday loan online, the 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. 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 the BBB. Always check an online payday lender’s Reliability Report before you hand over any bank account information. BBB Reliability Reports are available online (ms.bbb.org) or by calling 800-987-8280. These will tell you how many complaints BBB has received, how the company responded to complaints and the BBB’s overall letter-grade rating.