A crackdown on Web-based payday lenders
continues in Massachusetts. The State has barred two more of these
businesses from offering loans to consumers in the Bay State.
Two
more Internet based payday lenders that were selling high interest
loans to Massachusetts consumers will be barred from doing business
in the state under separate settlements filed by Attorney General
Martha Coakley's Office.
The two separate settlements prevent payday lenders Nationwide Cash and Paragon Funding ("Paragon") from offering high-interest "payday" loans to Massachusetts consumers and require the lenders to return to consumers all interest charges and fees paid by Massachusetts consumers beyond the principal loan amount.
Nationwide Cash and Paragon are also required to forgive all outstanding balances on the illegal loans.
Attorney General Martha Coakley's office has already identified more than $24,000 in fees and interest owed to consumers by Nationwide Cash and Paragon, and the two lenders have agreed to pay any additional borrowers identified by the Attorney General who are entitled to restitution.
Nationwide Cash will also pay $10,000 to the Commonwealth; Paragon, which made fewer loans in Massachusetts, will make a payment of $5,000 to the Commonwealth.
The payday lenders will also cease all collection efforts, insist that credit reporting agencies remove these transactions from consumer credit records, and will not distribute promotional and marketing materials to Massachusetts consumers.
"Payday lenders often prey on residents who are already under a great deal of financial stress, and who may have no idea that these interest rates violate Massachusetts law," Coakley said. "These loans can have a devastating impact on an individual's bank account and credit report in a very short amount of time. Massachusetts has strong laws in place to protect consumers from high-interest loans. Lenders cannot hide behind the guise of an out-of-state website to break the law."
Nationwide Cash, a Delaware-based lender, and Paragon, a Nevada-based lender, use the Internet to offer small, short-term loans (known as "payday" loans) to consumers. The loans, generally granted for a few hundred dollars or less, must be repaid within two to four weeks, and the lenders used consumers' bank accounts to secure repayment of the amount borrowed.
If consumers were unable to repay the loan principal, fees, and interest, Nationwide Cash and Paragon extended the loans, and added additional fees to the consumer debt, Coakley charged. According to the settlement, both lenders charged an unfair interest rate on these loans, which rose as high as 1095 percent annually in the case of Paragon and was frequently more than 700 percent annually for Nationwide Cash borrowers. The excessive interest rates charged by Nationwide Cash and Paragon are in violation of state law which provides that unlicensed lenders of small loans may only charge 12 percent interest.
The agreements reached with Nationwide Cash and Paragon are part of an ongoing investigation by the Attorney General's Office into payday lenders that are circumventing Massachusetts loan laws by using the Internet to make illegal loans to Massachusetts consumers. In addition to the high interest rates, Coakley says Internet payday lending requires consumers to provide significant personal information, such as bank account numbers, social security numbers, personal references and employer contact information.
Consumers should be advised that in addition to potential threats to their financial privacy and security, the payday lender then has direct access to the consumer's bank account from which to withdraw fees and interest, and sometimes will contact employers, friends or family members in later efforts to collect on any unpaid loan amounts.
