BBB study finds online lending risky
Researchers said scams are likely with online brokers.
Published Sept. 25, 2009
When it comes to laws regulating the online payday loan industry, Missouri has one of the nation's highest interest rate caps on payday loans at 1,950 percent APR on a two-week loan, according to a Better Business Bureau study.
The BBB said 33 online lenders have received licenses from the state in a process that involves little more than filling out a form and licking a stamp.
"The lender submits an application to the Division of Finance that is a very simple form and a licensing fee, and then the license is issued," Missouri Supervisor of Consumer Credit Joe Crider said.
Online payday lenders simplify the lending process by presenting their Web site's patrons with an online form asking for basic personal information. Once potential borrowers have given their personal and financial information to a lending site, the application is processed and approved and the money is usually dispersed into a checking account within two days. The lender can then automatically withdraw money from the account when the loan is due.
Online Lenders Alliance President and CEO Lisa McGreevy said many people rely on short-term loans.
"Our member companies' customers are hard-working Americans," McGreevy said. "For more than 20 years, they have turned to short-term loans when they are facing difficult economic times and need access to cash to help them to make ends meet."
According to the BBB study, traditional loan operations are risky, but they are not as dangerous as online operations.
"When applying for a payday loan online, you give them all kinds of personal online information, and that exposes you to many, many scams," said researcher Robert Teuscher, who has studied payday loan operations in Missouri.
The study included several examples of such potential pitfalls. Complaints were directed toward an online payday "broker" named Debt Doctors, which the BBB identified as being owned by the same individual as a non-Missouri licensed online lender. The BBB has received a total of 25 complaints against Debt Doctors from 13 states.
If someone is applying for an application and they are turned down, potential borrowers can then choose to have their information sent to a broker, who will try to find another lender willing to extend credit.
Some states have taken legal action against Debt Doctors, and have been able to ban the broker, but the power to do this is limited in Missouri.
"On the Internet lending brokers' sites, there's no law on the books currently about loan brokering, unless it has to do with mortgages," Crider said. "The only Missouri law that has to do with brokering is on mortgages and there's not one for payday or other consumer lending."
McGreevy said consumers should make responsible financial decisions.
"Customers should know who they are dealing with when making any financial transaction," McGreevy said. "Customers need to take appropriate steps to ensure their personal data is kept personal."
Teuscher said those in need of loans should look for other ways to make ends meet.
"Using payday loans is a bad way, if you're already on financial hard times, to come out of it," he said.
10:36 a.m., Sept. 29, 2009
PaydayLendingRep said:
On behalf of the Payday Loan industry, I'd like to address a few points raised in this article. Appropriate state regulations provide strong protections for consumers, while ensuring continued access to choices for short-term credit needs. That same principle should apply in cyberspace. Customers who choose to get a payday advance online should not forfeit any of the protections they would have at a store-front lender. Members of the Community Financial Services Association are required to provide Internet loans in accordance with the laws of the state in which the customer resides, and we are taking an important step toward ensuring that this service is both convenient and safe for consumers.