The Huffington Post
By: Catherine New
May 4, 2012
A new online comparison site may be serving as a gateway to dangerous lending practices.
The newly launched Payday Hound website advertises itself as offering "impartial and informed" reviews, comparing the rates and fees of dozens of online loan shops, including so-called payday lenders, pawn shops and other short-term lenders. But much of the site's information raises alarms about the security of taking out online loans, consumer advocates said.
Of the dozens of sites listed on the Payday Hound, at least one has been charged by the Federal Trade Commission for illegal behavior. The site, 500FastCash, was sued by the FTC in early April for allegedly adding undisclosed and inflated fees, and collecting loans illegally by threatening borrowers with arrest and lawsuits. Though the Payday Hound gives 500Fast Cash a poor review, the Payday Hound still links to 500FastCash's loan application. 500FastCash did not return a call for comment on Thursday.
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"This website is listing a lender that is subject to FTC enforcement action," noted Jean Ann Fox, director of financial services for the Consumer Federation of America, which has been critical of payday lenders.
The Payday Hound appears to make money through referral traffic from desperate borrowers seeking fast cash. At the bottom of the site, a disclosure states, "The Payday Hound may be compensated if consumers choose to utilize the links located throughout the content on this site and generate sales for the said merchant."
The site is owned by a holding company called Contigo Limited LLC, based in Henderson, Nev., and the owner is listed as Con Way Ling, whose LinkedIn profile states his work experience includes three years serving as an officer at Signet Bank/Capital One. The company did not respond to multiple phone or email requests for comment.
Lead-generation websites masked as consumer-comparison guides are not new or illegal. Dozens of similar sites claim to help guide consumers in choosing credit cards. The Payday Hound appears to be one of the first comprehensive sites seeking to do the same for online payday lenders.
Payday loans and similar high-cost short-term installment loans -- whether offered online or at a storefront shop -- typically require steep origination costs, annualized interest rates from 300 percent to 900 percent, and high fees for refinancing the loan (if a borrower cannot pay it back under the original terms). Borrowers can often get a same-day loan with only a bank account number and basic employment information.
But what makes such online loans potentially more treacherous for borrowers than their brick-and-mortar counterparts is that the lenders involved have direct access to borrowers' bank accounts -- which the borrower must provide to get the instant loan -- and their default payment structure typically requires the consumer to pay only interest in the first payments, Fox said.
"The hazard here is that you grant lender access to your bank account and you don't know how much you will pay back by the time you are done," Fox said. Borrowers think they are paying down principal, when in fact they are just paying interest. "Many of [these lenders] require you to manually set it up to make a principal payment."
Also the personal data sent via the Internet -- a bank account number or Social Security number -- is not necessarily protected so it won't land in the hands of crooks intent on scamming consumers. Some online lenders collect only loan applications and then sell that consumer information to the highest bidders, including other lenders and possibly other third parties. A completed loan application with a potential borrower's data can sell for as much as $110, according to the Consumer Federation of America.
"It can raise problems where somehow information gets into hands of a third party, who could try and collect on debt the consumer doesn't owe them," said Malini Mithal, assistant director for the FTC's division of financial practices.
The government agency has been cracking down on fake debt collectors who try to scam payday borrowers into paying false debts. Some California residents recently reported being harassed by fake debt collectors who had retrieved their information via online payday loan sites. It is unclear how these third parties get their hands on the information.
Consumer advocates have railed against payday loans as being predatory for the poorest borrowers because of excessively high interest rates and fees. So far, 17 states have taken actions to close or clamp down on payday lenders. But supporters of payday lending say these kinds of loans provide a much needed source of funds for borrowers who can't get an emergency loan anywhere else.
State regulations are hard to enforce on online operators since many are headquartered offshore or on Native American reservations in an attempt to skirt U.S. regulations altogether. Many of these are listed on the Payday Hound site.
Other operators listed on the Payday Hound have associated brick-and-mortar storefronts in states where this is legal, like CashNetUSA, the online affiliate for payday lender Cash America. CashNetUSA received a five-star rating on the Payday Hound, but this lender was in the spotlight last week in Pennsylvania after a 51-year-old borrower said that he had answered an email ad for a loan -- he borrowed $250 -- and ended up paying nearly $2,000 in finance charges. He compared the loan to "jumping on a treadmill with no off button."
CORRECTION: This story has been updated to reflect the fact that the Federal Trade Commission has charged at least one of the dozens of sites listed on the Payday Hound with illegal behavior -- not criminal behavior.