Beware of Risks from Internet Payday Lending

Borrowing money online is especially hazardous. In addition to the high cost and short payment time for payday loans, Internet payday lending involves added security and privacy risks. Consumers can electronically "sign" contracts and receive required disclosures electronically. Clicking "OK" on a web site can bind you to an expensive loan contract. Internet payday loans can also be more costly than loans from store-fronts.

Security and privacy are at risk. To apply for an online payday loan, consumers send their personal identification information, Social Security number and bank account and routing number to the lender, sometimes over unsecured web links.
Every online loan involves giving the lender electronic access to your bank account, both to deliver the loan and to withdraw fees and payment. Identity theft and fraud are real risks when consumers disclose key financial information and authorize unknown lenders to access accounts.

Online payday loans can trap borrowers in debt. Many online payday loans have automatic renewal terms, permitting the lender to withdraw the finance charge every payday without the borrower repaying any principal. Consumers who want to pay in full may have to take extra steps to notify those companies to close out the loan.

Tracking down lenders can be hard to do. Online payday lenders may be located off-shore or provide so little information they are hard to locate. They typically claim to make loans under foreign laws or from states with little or no consumer protections. Although Internet payday lenders are subject to the state law where you get the loan, state regulators have a harder time enforcing state laws against virtual lenders than against store-fronts.

File complaints against Internet payday lenders with your state regulator, your state Attorney General, and the Federal Trade Commission. Regardless of where the Internet lender says it is located, it is subject to your state's credit regulations.