Consumers Warned of Online Payday Loan Sites

Posted on November 7, 2009
Filed Under Payday Loan | Comments Off

Consumer Federation of America (CFA) warns consumers to be especially careful when using Internet payday loan sites, loans payable, when the next payday, can borrow up to $ 30 per $ 100 and usually costs borrowers face annual interest rates (APRS ) 650%.

According to the survey of one hundred Internet CFA Payday Loans Sites to which small loans, electronic access to current account customers a high risk for the consumer to send the money to lend personal financial information over the Internet.

"Internet payday loans are free loan up to $ 30 per $ 100 and must be repaid or funded by the borrower's next payday," said Jean Ann Fox, CFA director of consumer protection. "If payday in two weeks, the borrowing costs of $ 500,150 USD and $ 650 will be electronically withdrawn from the account of the borrower."

Many surveyed lenders automatically renew loans by electronically pulling the financial costs of consumer checking account each payday. If consumers do not have enough cash to deposit, the financial costs or the payment of back, good payday loan and the bank will be sufficient funds to cover fees.

Online payday loans are marketed by e-mail, online search, paid ads, and referrals. Typically, consumers fill out an online registration form or fax a complete application that requests personal information, account numbers, social security numbers and employer information. Borrowers fax copies of checks, bank statements, and recently signed a document. That loan is directly deposited to the account of the consumer and loan payment or the finance charge electronically withdrawn on the borrower's next payday.

"Internet payday loans are dangerous for low-income consumers," said Mrs. Fox. "They combine a high cost and credit risk-based check collection charge of security risks in sending account numbers and Social Security numbers on web links to unknown lenders."

CFA survey of 100 Internet payday loan sites showed that loans of $ 200 and $ 2,500 are available, with $ 500 of the most frequently offered. Finance charges ranged from $ 10 per $ 100 borrowed to $ 30 per $ 100. The most common level is $ 25 per $ 100, or 650% annual interest rate (April), if loan repaid within two weeks. Usually, the loan on the next payday lenders that can intervene at short notice.

Only 38 sites disclosed the annual interest rate for credit customers before the end of a submission, while 57 sites quoted the financial costs. The most frequently posted April was 652%, followed by 780%.

Although the loan will be due on the next payday of the borrower, many surveyed sites automatically renew loans, withdrawals from the bank account of the financial costs and extend the loan to another borrower to pay cycle. Sixty-five of the surveyed sites permit the extension of the loan without reducing the capital. At some lenders, consumers have to pay back further steps for the fact the loan. After several renewals, some lenders require borrowers to provide the principal of each extension reduced.

collect orders from the internet lenders includes various terms of the one part, such as mandatory arbitration clauses, agreements not to participate in class actions, and not sign an agreement for bankruptcy. Some lenders require applicants to agree to open bank accounts, loans to be repaid. Others ask for a "voluntary" wage assignment, even in countries where wages are not legal obligations.

CFA advised consumers not about money by postdated checks in paper form or electronic access to your account as collateral to borrow. Payday loans are too expensive and too difficult to return to the next payday. CFA advised consumers not to bank account numbers, social security numbers or other personal financial data via the Internet or by fax to unknown companies. Consumers should be for lower credit costs, both financial and April store comparing the cost of dollar to the lowest cost credit available to get. For help with financial problems, CFA urges consumers to credit counseling help or to seek legal aid.