Predatory payday loan companies and fraudsters thrive amid unequal laws and stolen data

As consumers have lost their jobs and struggled to make ends meet during the COVID-19 pandemic, many have turned to payday loans and other short-term solutions, with offers increasing in line. This has not only allowed predatory lenders to thrive as many borrowers continue to face exorbitant interest rates and hidden fees, but it has also created a fertile environment for scammers, according to new investigative research. from the Better Business Bureau (BBB).

Payday loan laws are managed from state to state among the 32 states in which they are available, and a complex web of regulations makes the impact of the industry in the United States and Canada difficult to understand. follow. The BBB study finds a common thread, however, with the triple-digit interest rates that many of these loans carry – camouflaged by interest compounded weekly or monthly, rather than annually, as well as significant rollover fees.

From 2019 to July 2022, BBBs received nearly 3,000 customer complaints about payday loan companies, with a disputed dollar amount of nearly $3 million. In addition, over 117,000 complaints have been filed against debt collection companies at BBB. Complainants often said they felt ill-informed about the terms of their loans.

Many have fallen into what consumer advocates call a “debt trap” of racking up interest and fees that can force customers to pay double the amount originally borrowed. A St. Louis, Missouri woman recently told BBB that over the course of her $300 loan, she paid over $1,200 and still owed an additional $1,500.

The scammers haven’t missed an opportunity to take advantage of consumers either, with BBB Scam Tracker receiving over 7,000 reports of loan and debt collection scams representing around $4.1 million in losses.

Posing as payday loan companies and debt collectors, scammers use stolen information to trick consumers into handing over banking information and cash. In one case, BBB discovered that hackers had stolen and released detailed personal and financial data for more than 200,000 consumers. News reports indicate that this is not an isolated incident.

A woman from Fond Du Lac, Wisconsin said she recently received a phone call from a supposed debt collector stating that legal action was pending against her over overdue payday loan debt. . Fearing legal trouble, she eventually sent the scammer $500 and her credit card information. Over the course of several months, her card was topped up until she canceled it.

Regulators at the federal level have passed tougher laws to combat predatory lending, but those regulations have been rolled back in recent years, leaving states to set their own rules on interest rate caps and other aspects of lending. on salary. More than a dozen states introduced legislation last year to regulate payday loans, but the landscape of legally operating payday lenders remains inconsistent across states.

Currently, payday loans are not allowed in 18 states, including Georgia, according to Pew Charitable Trust. Additionally, the Military Loans Act sets a rate of 36% on certain military payday loans.

Payday loans are permitted in Tennessee and lenders must be licensed. The state has a payday loan limit of $500 and a maximum loan term of 31 days. Consumers usually present a post-dated check, and if the check does not clear when deposited, the lender may charge 15% of the amount of the check. This does not represent the annual percentage rate (APR), which could reach 460%.

One of the most important rules for Tennessee payday lenders is that they must provide each customer with a clear, written explanation of the fees charged along with the date the post-dated check will be deposited. Additionally, borrowers cannot have more than two checks outstanding with a lender at any one time and the value of those checks cannot exceed the $500 maximum.

When it comes to fraudulent behavior, law enforcement is limited in what they can do to prosecute payday loan scams and it’s easy for scammers to appear quickly and disappear just as quickly after obtained personal information and/or funds from consumers who were deceived by their schemes. . Some legal payday lenders have attempted to prevent scams by educating consumers about the ways in which they will or will not contact borrowers.

The BBB study advises consumers to thoroughly research all of their borrowing options — as well as the terms of a payday loan — before signing anything for a short-term loan. Check that a payday lender is properly licensed in Tennessee before entering into a deal and verify companies with BBB at bbb.org.

You can report a payday loan scam or file a complaint with your BBB and state and federal regulators at:

* BBB.org/ScamTracker

* Federal Trade Commission (FTC): ReportFraud.ftc.gov

* Tennessee Attorney General’s Office: tn.gov/attorneygeneral

*Georgia Attorney General’s Office: consumer.georgia.gov

If you have an overdue payment on a payday loan, the Consumer Financial Protection Bureau may have resources to help you establish a payment plan.

Michele Mason is president of the Better Business Bureau in Chattanooga.