The convenience provided by the Internet definitely has its pros and cons. While a lot of things have been made easy and within reach due to the power of the World Wide Web, the risks of doing transactions online have also multiplied to the point that a lot of seemingly harmless websites are, in reality, scammers waiting to pounce.
Nowadays, lenders have also taken to the Internet to advertise their loan offers. Payday loans online are usually marketed through e-mail, referrals, paid ads, and through online search. Typically, a prospective borrower either fills out an online application form or faxes an application filled out with personal and employer information, Social Security Numbers, and bank account numbers along with copies of a recent bank statement, a check, and signed paperwork. Once approved, the borrowed amount is directly deposited into the borrower’s checking account. The payment will be electronically withdrawn on the borrower’s next payday. In cases when the borrower cannot pay the loan, just the finance charge will be withdrawn.
While it all seems so easy and simple on paper, a survey done by the Consumer Federation of America (CFA) on one hundred payday loan online sites revealed that small loans involving electronic access to consumers’ checking accounts confer high risks to those who borrow money by communicating personal financial information over the Internet.
According to Jean Ann Fox, CFA’s director of consumer protection, Internet payday loans combine the high costs and collection risks with security risks of sending valuable bank and Social Security Number information over web links to unknown lenders.
Further studies showed that although loans are due on the borrower’s next payday, many sites included in the survey automatically renew the loan by extending the loan for another pay cycle after the finance charge has been withdrawn from the borrower’s bank account. At some lending sites, the borrower’s themselves had to take additional steps to actually repay the loan.
All these contracts are another story in themselves. Some Internet payday lenders offer a range of one-sided terms like mandatory arbitration clauses, and agreements not to file for bankruptcy and not to participate in class action lawsuits. There are those who require loan applicants to agree to keep their accounts open until the loan is completely repaid. Other lenders ask for “voluntary” wage assignments, even when it is not termed legal.
Hence, the Consumer Federation of America advises consumers to avoid borrowing money based on providing post-dated paper checks or allowing electronic access to a bank account as security. Prospective borrowers are also advised to never share bank account number, or other personal financial information on the Internet or by fax to unknown companies. Moreover, consumers should shop around for lower cost credit while comparing both the APR as well as the dollar finance charge in order to get the lowest cost credit available. For additional information as well as assistance with financial problems, the CFA urges consumers to consult credit counseling help or legal assistance.