With credit card companies tightening credit, some may be tempted to turn to payday lenders for help -- a move many consumer advocates say is never a good idea. But using an online payday lender could be even riskier.
Jackee, of Anaheim, California, said she applied for a loan online with 200cash.com, but her request for a loan was turned down. However, she said she still paid.
"My checking account has been charged a fee of $19.00 on 5/21/09 and another $19.00 on 6/25/09, and now on 7/30/09, fee of $19.00," she told ConsumerAffairs.com. "I have called the number listed but receive no person, only a voice saying they will contact me. But how, since I did not talk with anyone and I cannot leave them my telephone number?"
200Cash.com's Web site states that it charges a non-refundable $19 application fee, which applicants pay whether they get a loan or not. The company also charges $30 per $100 borrowed, every two weeks.
That means if you borrowed $100 for two weeks, it would cost $30 -- plus the $19 application fee that you would have been required to pay. Almost half of that $100 would go right back to the lender in the form of fees.
In recent months states have been cracking down on online payday lenders. In Wisconsin last week, Arrowhead Investments LLC agreed to zero-out all loans to Wisconsin consumers and pay $180,000 in restitution to settle charges of consumer law violations. The settlement stemmed from a class-action lawsuit that alleged Arrowhead's loan contracts violated the Wisconsin Consumer Act.
In mid July, the Pennsylvania Commonwealth Court ruled online payday lender Cash America is not authorized to do business in the state. The court ruled in a 4-3 decision that the state Department of Banking can enforce a 2008 statute that focused on lenders that were getting around the state's interest rate regulations by not having a physical presence in Pennsylvania.
"The July 10 Commonwealth Court decision is a solid victory for Pennsylvania consumers," said Pennsylvania Secretary of Banking Steve Kaplan. "The Department of Banking believes Pennsylvanians should be protected by state laws regardless of where the company with which they are doing business is located, whether it is down the street, in another state or on a Web site."
In March, West Virginia sued 12 online payday lenders and their collection agencies, saying it is against West Virginia law for them to do business in the state. West Virginia has a 18 percent APR cap on loans and does not allow payday lenders of any type to operate within its borders.
McGraw says Internet payday loans are the industry's most recent attempt to skirt consumer protection laws. He says the payday lending industry has historically sought to evade state usury laws through a number of ruses, such as partnering with national and state-chartered banks and by offering the loans over the Internet.
Internet payday loans are electronically deposited into consumers' accounts and typically require payment of interest with annual percentage rates ranging from 600 to 800 APR.
"Internet payday loan providers are the loan sharks of today," McGraw said.
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