Personal Finance: Illegal Online Lenders Plague Payday Loan Industry

September 17, 2013
Sacramento Bee 
payday lending news

Storefront payday lenders in California are getting pushed aside by unlicensed online competitors who are increasingly accused of ripping off consumers. The state's Department of Business Oversight has warned consumers to beware of online lenders located offshore who make enticing offers but may leave borrowers few options if something goes wrong. Payday lenders in California issued a total of $3.28 billion in loans to 1.7 million customers, at an average loan amount of $263. The number of walk-in payday lenders has dwindled in the state, but number of online sites has “mushroomed,” accompanied by a “slow but steady” increase in complaints about them, says Mark Leyes, spokesman for the state Department of Business Oversight.

Figures released last week by consumer group the Center for Responsible Lending (CRL) found that American borrowers pay $3.4 billion in fees every year on payday loans, of which Californians pay $578 million. CRL reported that 82 percent of total annual California payday loan fees come from borrowers taking out a new loan within two weeks of paying off their previous loan. Payday loan reform bill, SB 515, would have capped the number of payday loans allowed per person, but was defeated in April in the state Senate Banking and Financial Institutions Committee. Consumer groups have called on financially stressed individuals to consider alternatives to payday loans, or at least make sure the company is licensed.

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