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  • Payday Loans at a Glance

    What they are: Short-term, small-amount, high-cost loans that use your paycheck as collateral. They’re also called cash-advance loans, payday advances, post-dated check loans or deferred-deposit loans.

    How they work: With a walk-in payday lender, you take out a loan for $300 and hand over a post-dated check. (With an online payday loan, a borrower provides debit access to his/her bank account, instead of providing a paper check.) Typically, full repayment is due in two weeks – or your next paycheck.

    What are fees: In California, the loan fee is $15 per $100. For a $300 loan – the maximum allowed – you receive $255 in cash ($300 minus $45 in fees). On an annual basis, the APR on a $300, two-week loan in California is 459 percent.

    Typical borrower: Average California payday loan borrower takes out six to seven payday loans in one year, according to state and consumer lending groups.

    How regulated: In California, the state Department of Business Oversight licenses payday lenders. There is no federal licensing of payday lenders. To check if a lender is licensed, go to: www.dbo.ca.gov/FSD/Licensees/ or call (866) 275-2677. (To report an unlicensed lender or file a complaint, call the same number.)

    Alternatives to payday loans

    1) Contact your creditors – credit card, utility companies and others – and request more time to pay your bill or ask for reduced payment schedules.

    2) Seek out a small consumer loan from a local bank or credit union. Even a 25 percent interest rate is better than 300 to 400 APR charged by some payday lenders.

    3) Seek financial help from friends and family.

    4) Ask your employer for an advance on your next paycheck. In cases of financial emergencies, some companies will give employees an early paycheck.

    5) Consider selling or pawning items to raise needed cash.

    6) Look into pilot programs, like California’s small-dollar loan program, which offer small loans up to $2,500 with interest rates capped at 36 percent. There are three companies licensed under the state program: LendUp (LendUp.com), Progreso Financerio (www.progressfin.com) and FairLoan (www.fairloanfinancial.com).

    7) Sit down with a consumer credit counseling agency to draw up a spending/saving plan that you can live with.

Personal Finance: Illegal online lenders plague payday loan industry

Published: Sunday, Sep. 15, 2013 - 12:00 am

Payday lenders have been around for years, offering quick-but-pricey loans to distressed borrowers. From hundreds of walk-in storefront offices, they loan out small amounts – up to $300 in California – to be paid back from the borrower’s next paycheck.

Today, they’re getting elbowed aside by a growing cadre of online competitors who aren’t licensed and who increasingly are accused of ripping off consumers. Last month, the state Department of Business Oversight warned Californians to beware of rogue online lenders – often located offshore or overseas – who offer enticing come-ons from splashy websites but who may leave borrowers little recourse if something goes wrong.

“It’s like whack-a-mole,” said Mark Leyes, spokesman for the state Department of Business Oversight (formerly Department of Corporations). “We’re trying to compile a list of unlicensed companies, but they change their company name from one week to the next.”

Payday lending is no small-change industry. In 2011, the most recent year for state data, payday lenders in California doled out a total of $3.28 billion in loans to 1.7 million customers. The average amount of those individual loans: $263.

And while the number of walk-in payday loan locations has dwindled statewide in recent years, the number of online sites has “mushroomed,” along with a “slow but steady” increase in complaints about web-based lenders, Leyes said.

“It’s a problem. The risks are high,” he said. “If it’s a storefront payday lender, you walk in and look someone in the eye. But when you go online, you don’t know who you’re dealing with, where they’re located or what their intentions are.”

Since January 2013, the DBO says it has taken action against 11 illegal online lenders operating here and overseas, including in Belize, Costa Rica, Malta and the United Kingdom. The DBO’s website also posts consumer alerts against U.S.-based online payday lenders with names like EZ Cash, Cash Express Loan and Mobiloans, which are operating without state-required licensing.

In dealing with online lenders, “We can issue sanctions, but they’re very difficult to enforce,” Leyes said.

The California Financial Service Providers Association, which represents about 1,470 walk-in payday loan locations statewide, says the unscrupulous online guys are a problem.

“We are very concerned about unlicensed, unregulated Internet lending,” said CFSPA spokesperson Greg Larsen. “If you type in ‘payday lending’ (on a search engine), you instantly get hundreds of thousands of hits. But who knows how many of those are offshore … out of the reach of state licensing?”

Taking a loan from an unlicensed payday lender puts consumers at bigger risk of financial trouble, the DBO says. Among them: higher interest rates than allowed under California law; funds siphoned from your bank account without permission; personal financial data sold or pirated by the lender, even if a loan hasn’t been formalized; losing the ability to track down, prosecute and recover lost funds.

The FTC notes that filling out a payday loan form online – even if you don’t hit “submit” – can put you at risk for bank account fraud. In some cases, consumers who never officially took out a payday loan still had their funds stolen from their accounts.

Enforcement actions against illegal payday lenders have stepped up recently. A week ago, the Federal Trade Commission announced it shut down a Tampa, Fla.-based payday loan broker accused of pilfering $5 million from U.S. consumers. The company, operating under multiple names such as Loan Tree Advances and Your Loan Funding, said it represented a network of 120 payday lenders and promised to help consumers obtain loans in “as little as one hour.” Instead, according to the FTC’s complaint, it sucked funds from the bank accounts of tens of thousands of customers. The company’s two owners allegedly used the money to support a lavish lifestyle that included a 2012 Maserati, a 2011 Rolls Royce Ghost and a 2006 Ferrari 430.

On other fronts, state officials in New York have cracked down on payday lenders that elude state scrutiny by affiliating with U.S. Indian tribes, which operate outside the jurisdiction of state and local governments. And the Consumer Financial Protection Bureau recently warned against illegal payday lenders.

Given the number of cash-stressed borrowers, demand for payday loans is not going to go away, said industry spokesman Larsen.

A payday loan is “not always the right answer, but at times it may be the least expensive option for people to turn to,” he said. “For example, if you have two bills for $50 and $75 that are going to be late, those late fees are $35 each. That’s $70.” Instead, a consumer takes out a $125 payday loan to pay off those bills and the fee is only $21.25, or 15 percent of the loan amount. “They make an absolute, short-term, dollar-and-cents choice,” Larsen said. “That’s how people look at it.”

The problem, critics say, is that a payday loan’s short turnaround – typically two weeks – leaves many low-income borrowers unable to repay the full amount and still cover their other household expenses, such as rent, utilities, food, etc. That traps many on a so-called “debt treadmill” –where they continue to take out new payday loans to cover their bills.

According to new numbers released last week by the Center for Responsible Lending, a consumer group that opposes payday loans, American borrowers pay $3.4 billion in fees every year on payday loans. Of that, Californians’ share of payday loan fees is $578 million.

According to the Center for Responsible Lending, 82 percent of total annual California payday loan fees – $474 million – come from borrowers taking out a new loan within two weeks of paying off their last loan.

In April, a payday loan reform bill, SB 515, was defeated in the state Senate Banking and Financial Institutions Committee. Among its provisions, it would have capped the number of payday loans allowed per person to six in one year.

Consumer groups urge financially stressed individuals to consider alternatives to payday loans. And state officials are simply trying to get the word out: Before you take out a payday loan, check to be sure the company is licensed.

“If they’re licensed, it doesn’t mean it’s a good economic decision (to take out a payday loan). But at least there’s some recourse,” said DBO spokesman Leyes. When dealing with an unlicensed online lender, “you’re at their mercy. ... Be very cautious.”


Call The Bee’s Claudia Buck at (916) 321-1968.

Read more articles by CLAUDIA BUCK





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