The state of Minnesota has filed separate lawsuits against five Internet-based payday lenders, accusing them of charging interest rates that violate state limits.
Minnesota Attorney General Lori Swanson said the loans were made to cash-strapped Minnesota borrowers and were were marketed as providing “cash between paydays.” Swanson said the loans carried unlawfully high annual interest rates of up to 782 percent percent and were often illegally extended from paycheck to paycheck, trapping the borrower in a cycle of expensive debt.
The Attorney General warned Minnesotans against taking out loans over the Internet from unlicensed lenders, citing a growing list of complaints to her office from consumers who have done business with such companies.
“Many people are living paycheck to paycheck right now, and unlicensed Internet lenders offer easy credit. This credit comes with a hefty price tag and often leaves a rash of problems in its wake,” Swanson said.
Other headaches
But Swanson said that the problems with these loans is not just the interest rate. In recent months, she says, consumers who have taken out or even just explored the option of short term loans from unlicensed Internet companies have experienced the following types of problems:
- Unauthorized withdrawals. When consumers take out an online loan, they must provide their banking and personal information. Some consumers report that unlicensed lenders made unauthorized withdrawals from their accounts, sometimes of hundreds of dollars.
- Unlawful debt collection tactics. Consumers report that some online lenders and their collectors use illegal debt collection tactics, such as threatening that the consumer will be taken to jail and prosecuted for a financial crime, or attempting to illegally garnish their paycheck.
- Phony collection scam. Some consumers who did not even take out a payday loan, but who only explored the option online, report being hounded by overseas scam artists who threaten to have them arrested if they do not pay, even though the consumer does not owe any money. These scam artists contact the consumers, often impersonating attorneys or law enforcement, demand large payments, and frequently attempt to scare or intimidate consumers into paying with threats of arrest or legal action against them or their families.
The five companies against which the lawsuits were filed are Flobridge Group, LLC of Utah; Integrity Advance of Delaware; Silver Leaf Management of Utah; Sure Advance, LLC of Delaware; Upfront Payday of Utah.
The Internet payday loan industry is estimated to have a total loan volume of $10.8 billion in 2010.
