Claudia Buck

Payday loans thwart regulators


Borrowing money at an annual interest rate of 2,320 percent? Hard to believe, but that’s what state officials say was charged to one California consumer who took out an online payday loan last year.

Charging excessive interest is just one of numerous illegal loan practices perpetrated by unscrupulous online payday lenders, who pop up almost as quickly as state officials try to squash them.

This week, the state Department of Business Oversight announced it had pounced on 18 payday-loan companies in 2014, accusing them of violations that include operating without a license, making loans that exceed the state’s legal limit and charging customers “outrageous” fees. All but three were online lenders, who typically operate beyond the state’s reach.

“It’s an ongoing problem we continue to battle,” said DBO spokesman Tom Dresslar. “They’re charging outrageous fees. They pop up out of nowhere.”

Some online payday lenders operate from as far away as Costa Rica, the West Indies and Malta. Given their elusive online presence, Dresslar said, it’s a problem “that’s really tough to suppress.”

That’s why the DBO is urging borrowers to think twice before answering the enticing online ads from unlicensed payday lenders. They lure distressed consumers with catchy names like,, or, and with promises of “instant cash” and easy access: “Bad Credit OK, Apply Now!”

“Payday borrowers are in dire straits. They’re just trying to get over a hump. It’s a significant consumer-protection problem,” Dresslar said.

Online payday loans can be extremely costly and risky. Because the lenders require debit access to your bank account, they can illegally withdraw funds without permission. And some may sell or steal your personal financial information, says the DBO.

The DBO says most consumers are unaware that a payday loan in California cannot exceed $300 and that fees cannot be more than 15 percent of the principal amount. That means on a $300 loan, consumers cannot be charged more than $45 for a loan that’s typically due in two weeks’ time.

Jacquie McCarley, 33, a Bay Area tech recruiter, said she filed numerous complaints after taking out two payday loans from Cloud 9 Marketing LLC, an online company based in Wilmington, Del. The first time, in 2012, she took out “a super-short loan, literally to float me through the weekend” and paid it back in less than a week. According to McCarley and the DBO’s investigation, she was charged $30 for every $100, a rate that is double the state’s legal maximum. A few months later, she took out a second payday loan and agreed to extend the payments over two months. She said she was charged numerous late fees, which the law prohibits. Ultimately, McCarley owed more in fees – $600 – than the actual loan amount of $200.

“It made me very angry they’re preying upon at-risk people,” McCarley said.

Cloud 9 is one of the online lenders that the DBO ordered last year to stop making loans and repay borrowers. The DBO was unable to serve its order because the company doesn’t have a physical office.

Last August, Dresslar said, the DBO sent letters to eight of the country’s top online search engines, including Google, AOL, Yahoo and Bing, asking them to block from their sites a list of 31 online lenders that are not licensed in California.

The response? “Underwhelming,” Dresslar said. Only one – Yahoo – responded, and it deferred any action to its parent company.

The DBO is making the appeal again, Dresslar said. It’s also revising state regulations that govern the payday loan industry.

Last year, the DBO went after 18 payday lenders with varied sanctions. In some cases, it levied fines or ordered companies to repay fees to borrowers. One company, Quick Cashing Inc. based in Los Angeles, was ordered to pay $30,000 in penalties, void all transactions, return principal and “disgorge” fees back to consumers. A hearing in the case is set for Monday.

As for the loan with the whopping 2,320 percent APR, the DBO said it was issued by Brighton FNL, an unlicensed online lender operating from Salt Lake City. It did did not specify how much the borrower actually paid.

Problem payday lenders – the online variety – have bedeviled state authorities for years. In 2013, DBO spokesman Mark Leyes likened it to “whack-a-mole,” because online companies get shut down, only to change their name and pop back up.

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

Call The Bee’s Claudia Buck at (916) 321-1968 or read her Personal Finance columns at

Payday Loans

at a Glance

What they are: Short-term, small-amount, high-cost loans that use a paycheck as collateral. They’re also called cash-advance loans, 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 or her bank account instead of a paper check.) Typically, full repayment is due in two weeks – or from your next paycheck.

The 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: The average California payday-loan borrower takes out six to seven loans in one year.

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: or call (866) 275-2677. (Use the same number to report an unlicensed lender or file a complaint.)