CFA Warns Consumers against Online Payday Loan Sites ScamsBy Turjo, Gaea News Network
Monday, October 18, 2010
NEW YORK (GaeaTimes.com) — The Payday loan system, despite of it’s simplicity, poses a serious threat to it’s consumers. Not only the high interest rate effects the financial conditions of a borrower, but some of the online lenders are exploiting their customers in broad daylight. Recently Consumer Federation of America (CFA) has warned people to exercise extreme caution while using internet payday loan sites.
According to a recent survey, CFA has found that several payday loan providing sites which are currently used by many users, poses a serious threat to cyber security. In case of online money lending, a borrower has to send all his/her personal details, band account numbers, social security numbers and several signed documents to the site which is offering the payday loan. The loan is directly deposited into the consumer’s checking account and loan payment or the finance charge is electronically withdrawn on the borrower’s next payday. As the lender has complete knowledge of the customers checking account, it poses a serious threat to his financial security. In many cases CFA has found that although loans are due on borrower’s next payday, many sites automatically renew the loan. They withdraw the finance charges form the borrower’s bank account and extends the loan for another pay cycle. Several of the lending sites disclose their rate of interest only after the borrower has completed the application process. The most frequently quoted APR (annual interest rate) is 652%, followed by 780%.
Many of the contracts of the internet payday lenders often include several mandatory arbitration clauses. For example, agreements not to participate in class action lawsuits, agreements not to file for bankruptcy etc. Some lenders force their borrower to keep their bank account open till the loan is repaid. Others ask for “voluntary” wage assignments even in states where wage assignments are not legal.
These kind of websites markets themselves through e-mail, online search, paint ads and referrals. CFA has advised consumers not to borrow money based on giving a post-dated paper check or electronic access to a bank account as security. They are also telling consumers not to transmit private informations like bank account numbers, social security number or any other personal financial information via the internet or by fax to unknown companies. If possible, customers should go for lower cost credit, comparing both the dollar finance charge and the APR to get the lowest cost credit available. For help with financial problems, CFA urges consumers to seek credit counseling help or legal assistance.
Tags: CFA, Consumer Federation of America, Payday loan