“Web loans are becoming more widespread as local governments restrict payday loans”
May 27, 2008 | alternatives | Comments (2)…reports Washington DC’s NBC 4:
Now with tough economic times, many consumers are getting trapped by online web loans that can charge up to 2-thousand percent interest rates. The Consumer Federation of America reports that a typical internet web loan often costs $30-dollars for each $100 borrowed.
It cites an internet payday loan for $183, that carried a 573-percent interest rate, leaving the consumer with a $557 debt one-month later. What’s more, payment is electronically drafted from the borrower’s checking account which is usually drained dry. Consumer advocates say web loans are becoming more widespread as local governments restrict payday and car title loan storefronts.
As the industry has always said, eliminating storefront lending does nothing to address the demand for short-term credit (nobody denies the demand exists). Wouldn’t these customers be better off visiting a regulated, brick and mortar payday lender? What is the DC City Council (who voted to ban regulated, storefront payday lending last fall) going to do about this? Payday Pundit wishes them luck in trying to regulate offshore internet lenders who tend to be headquarterd in places like Costa Rica.
Reads the site of one offshore lender:
All aspects and transactions on this site, will be deemed to have taken place in our office in costa rica, regardless of where you may be viewing or accessing this site.
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573% is $22 per $100 loaned so the fee for a $183 loan would be $40. There’s no way that could become anywhere near a $557 debt one month later. Will these reporters ever do their homework…
It’s interesting that whereas most of the payday loan stores in Oregon closed after the recent legislation was implemented, every CFSA company I know of which makes loans over the Internet still does so in Oregon. That may indicate that Internet loans can be offered cheaper than storefront loans as the process is more automated and there is no rent to pay. Customers may also prefer the convenience and privacy of an Internet loan.
If the Consumer Federation of America wanted to provide a real service they’d simply make people aware that there is a wide range of pricing on the Internet and point out the least expensive sites run by licensed companies. That would have value, whereas making up implausible stories about customers being charged very high fees does no one any good at all.
I should amend my previous comment so as not to accuse CFA of making up false stories when they may not have. Perhaps they, or the reporter, simply got the facts wrong or perhaps it was an unscrupulous website which tried to debit the customer’s bank account multiple times and charged an NSF fee for each time it tried. I don’t know what the legal limit on that is so I guess the $557 figure is not outside the realm of possibility.
Even I sometimes put my foot in my mouth…