Los Angeles Times
By: E. Scott Reckard
August 16, 2012
Payday lenders, which for decades have made high-cost loans from storefronts in lower-income neighborhoods, have drawn plenty of fire from groups like the Center for Responsible Lending and the Pew Charitable Trusts.
California financial regulators chimed in this week with warnings about the industry's burgeoning online sector, saying many of these lenders operate without licenses and evade consumer-protection laws and regulations. Based out of state or even overseas, they can leave consumers little or no recourse when problems arise.
In an alert on its website, the California Department of Corporations said many payday lenders operating over the Internet fail to include an annual percentage rate figure in their ads. The APR, a standard measure of the true cost of a loan, is required by federal and state law.
Payday borrowers repay the loans out of their next paycheck -- or take out another payday loan if they can't afford to repay in full, rolling over the loan in what, according to consumer advocates, often becomes a debt trap.
California law limits a single payday loan to a maximum of $300 with interest of 15%. Someone who borrowed $200 for two weeks would owe $230 when their paycheck arrives. That works out to an annual percentage rate 13 times higher than the most expensive credit cards, the department noted.
Online payday lenders require borrowers to disclose personal data including bank account information. Some operators deposit money in the accounts before the consumers agree to the loans, then siphon money out of the bank for repayment, the regulators said.
In reaction, some consumers have closed their bank accounts, prompting aggressive lenders to take them to small-claims court.
The Department of Corporations has sanctioned nine online payday lenders for abuses in 2012 (see list below). It said consumers who wind up in court against one of these lenders should take a copy of the enforcement order with them to show the judge. Orders may be reviewed and printed at a department website.
The department also recommended that consumers make sure a lender is state-licensed before applying online for a payday loan. Information about licensing of financial institutions is available online.