Study says ‘payday’ lenders duck laws
WASHINGTON – Short-term “payday” lenders are increasingly using the Internet to circumvent state laws, charging annual interest rates as high as 780 percent and automatically debiting late fees and other charges from customer bank accounts, according to a new study.
The study released Tuesday by the Consumer Federation of America shows a spike in abuses among payday lenders that have moved their operations online.
Many don’t bother to get licensed in the states in which they operate and fail to comply with state consumer protection laws, according to the CFA’s report on Internet Payday Lending.
Payday loans are small, quick cash loans with high interest rates, designed as an advance against a borrower’s next paycheck when the loan is due in full.
The high fees, typically $15 to $30 per $100 loaned for two weeks, make the industry extremely lucrative.
The CFA estimated that there are approximately 22,000 storefront payday loan outlets in the United States generating roughly $40 billion a year in loans and $6 billion in finance charges.
“Payday lenders entice cash-strapped consumers to write checks without funds on deposit and then use those checks to coerce repeat transactions or collections,” according to the study.
The report found few reliable statistics on Internet-based payday lenders, saying that most state and federal regulators don’t track the industry.
One payday marketer cited by the CFA estimated that more than 70 million consumers took out payday loans over the Internet last year.
Just 33 states and the District of Columbia have enacted laws or regulations that authorize check-based payday lending, generally with restrictions, but not electronic payday lending.
Internet-based payday lenders evade state consumer protections by getting licensed in states with lax laws, operating without a license or by relocating outside the United States, the study found.
CFA said enforcing state licensing rules is difficult because online payday lenders often change their Web addresses and provide little information on the parent company online.