California cracks down on illegal online lending

Published: Tuesday, Sep. 4, 2012 - 12:00 am | Page 5B

At least nine Internet payday lenders, including a Folsom-based company, have been cited by state officials for illegally offering "quick-cash" loans online and being overly aggressive in collecting from borrowers.

The state Department of Corporations issued a "consumer alert" warning about unlicensed lenders who advertise online, with such promises as up to $1,000 "cash in your account in as little as 1 hour!" Many of the companies advertise on Facebook or online sites like

"These loans are a last resort for some people, particularly if they have unusual or unexpected expenses," said state Department of Corporations spokesman Mark Leyes.

Payday loans are high-cost, short-term loans, usually borrowed against a person's next paycheck and repaid within two weeks. In California, the loan amounts are limited to $300, with fees up to $15 per every $100 borrowed. On a $300 loan, for instance, the borrower would receive $255, once the lender's fees were debited.

Unlike a walk-in payday center where a consumer can put down a post-dated check and walk out with cash, online lenders require borrowers to provide access to their bank account, where funds are automatically deposited - and repayment is debited.

Some unlicensed online lenders who skirt the law are "gouging consumers," said Leyes, by charging excessive interest rates and finance fees or attempting debits that rack up multiple overdraft fees.

"If you give out your bank account information online, they've got their hooks in you," said Leyes. "They can get in there anytime they want."

Since the start of January, the state Department of Corporations has issued nine complaints against online payday lenders, which is "far higher" than usual, said Leyes.

One of those companies, TIOR Capital LLC, which is registered in Folsom and Las Vegas, was ordered to "desist and refrain" making loans and to return all funds to borrowers. Leyes said TIOR made an estimated 5,000 payday loans to Californians.

In its complaint, the state cited an example where a $300 payday loan with a $90 finance fee was issued, due in two weeks. When the loan was not repaid on time, it was automatically "refinanced" for an additional $90 fee. On an annual basis, the interest rate charged was 782.14 percent, according to the state's complaint.

One of TIOR's listed owners, Brian Bergfalk of Granite Bay, was contacted Friday by phone but said he had "no comment."

Leyes advises consumers to check first to be sure a company is licensed and in good standing with the state.

To report a problem or to check if a payday lender is licensed by the Department of Corporations, call (866) ASK-CORP (275-2677) or go to:

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Read more articles by Claudia Buck

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