Interest free payday loan
One-third of online borrowers had loans structured to automatically renew.
by David Kravets - Oct 6, 2014 5:35 pm UTC
Online payday loan operators threaten their customers, promote loans designed for long-term indebtedness, and charge exorbitant interest rates, according to a study by the Pew Charitable Trusts.
"Lump-sum loans online typically cost $25 per $100 borrowed per pay period—an approximately 650 percent annual percentage rate," Pew said .
The report, "Fraud and Abuse Online: Harmful Practices in Internet Payday Lending ," (PDF) comes a month after the Federal Trade Commission halted an only payday scheme that the government said "allegedly bilked consumers out of tens of millions of dollars by trapping them into loans they never authorized and then using the supposed 'loans' as a pretext to take money from their bank accounts ."
Payday loans usually are small loans given in advance of a paycheck. Lump-sum or balloon-payment loans are due in full upon the next payday. Other types of payday loans are of the installment variety, repayable over time.
The report, which surveyed more than 700 borrowers, found that one-third of borrowers said that their loans were structured to withdraw fees from their bank accounts without reducing the principal on a loan. About 30 percent of those surveyed were threatened by loan companies who said they would inform their employers or friends about delinquent loans. Sometimes borrowers were even threatened with arrest, the report said.
“Generally, lenders can’t
call you up and threaten to have you arrested," said Nick Bourke, a trust director.
Thursday's report also found that the top five payday companies spent $277 million on television and radio advertising between June 2012 and May 2013. They also spend big for online advertising, from $4.91 to $12.77 per click on keyword-search-linked ads. "Search activity for payday loans is highest in the months before and after Christmas," the report found.
Among the report's findings:
- 46 percent of online borrowers report that lenders made withdrawals that overdrew their checking accounts, twice the rate of storefront borrowers.
- 39 percent report that their personal or financial information was sold to a third party without their knowledge.
- 32 percent report experiencing an unauthorized withdrawal in connection with an online payday loan.
- 22 percent report closing a bank account or having one closed by their bank in connection with an online payday loan.
Lisa McGreevy, president of the Online Lender's Alliance, said in a statement that the trade group's "best practices specifically prohibit abusive debt collection practices, unauthorized withdrawals, and many of the other unethical practices cited in the Pew Study."
She acknowledged that while there are "bad actors" that should be driven out of business, "OLA and its members are working to ensure consumers are treated fairly and use the lending products responsibly, including providing assistance, such as a repayment plan, when consumers are unable to repay their loans."Source: arstechnica.com
Category: Payday loans