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Anyone who reads my blogs knows that I am a huge fan of consumer protection, and that I am also an avid critic of the so-called “payday loans.” Don’t get me wrong; I have nothing against someone taking out a short-term loan to get their hands on some emergency cash. I fully support the legal and ethical lending community, and I depend on it all the time as a consumer.
The axe I have to grind is with payday lenders. They often engage in what amounts to predatory lending practices by charging exorbitantly high rates of interest or tack on other unreasonable charges and fees. They are even targeting people who have very limited borrower options.
In many instances unscrupulous payday lenders unfairly prey on the poor, the uneducated, and those who are desperate and just trying to survive through difficult financial circumstances.
Predatory Lending is Rampant With Payday Lenders
The ridiculously high interest rates alone are proof that payday lenders have every intention to take your money however they can get it. In some cases, payday lenders have charged as much as 300%-500%. I have even heard of loans that charged upwards of 800% to 1,200%. That’s during a time when a typical bank loans or credit card charges are no more than 25%, and often as little as just a single-digit APR. Rates such as these make it nearly impossible for the borrower to pay back the loan, especially when they were in a financially difficulty position to start.
These types of behaviors are why payday lenders have landed in court many times as a result of federal investigations or lawsuits filed by state offices of the Attorney General. It has been reported that payday lenders have stolen millions from consumers and further pushed them into debt. Although some corrective actions have been taken to stop this type of business behavior, there is still much concern over how low-income consumers are being taken advantage of by these lenders.
The Recent Lawsuit in a Nutshell
This past September, the Consumer Financial Protection Bureau (CFPB), along with the Federal Trade Commission (FTC), filed lawsuits against various groups of interrelated, interconnected companies involved in allegedly unlawful online payday lending schemes.
The CFPB’s lawsuit resulted in a restraining order that froze the assets of defendants. They are accused of buying sensitive personal data and confidential financial information and then using it to make illegal withdrawals from the accounts of consumers.
In the process of executing the scheme, these parties allegedly violated a number of consumer protection acts, such as the Consumer Financial Protection Act, the Truth in Lending Act, and the Electronic Fund Transfer Act.
How the Alleged Scam Worked
The complaint filed by the feds explains a scheme with a rather unique twist. Normally when people get ripped off by scammers or corrupt lenders, it involves taking money out of your bank account or wallet. In this instance, the CFPB said that loan funds were actually deposited into consumers’ accounts, but without their permission or knowledge of the deposits. Later, the lenders tacked on finance charges and started to withdraw those amounts every two weeks. They allegedly intended to keep taking money out of the accounts in the name of finance charges for an indefinite period of time.
Eventually, consumers began to notice the unauthorized deposits and withdrawals and complained to their banks. To respond to these complaints, the defendants then showed fraudulent documents to the banks.
How to Protect Yourself
Needless to say, if you have any loan, credit card, or bank account it is important that you read through your monthly statements carefully. Scan the documents for any charges you do not understand or did not expect. If you think they could be mistaken or illegitimate, bring that to the attention of the bank or lender.
If you want more consumer information about payday loans or other forms of lending, check out the free resources offered by the U.S. government. Those include consumer portals at the FTC, CFPB, and your state’s own Attorney General will also have similar information at their website.
Here at Compare Wallet, we offer numerous articles on topics like how to avoid credit card fraud and who offers temporary authorization numbers. All of our resources are available free of charge and can help you protect your finances, avoid payday schemes and other criminal activity.
*The content in this article is accurate at the publishing date, and may be subject to changes per the card issuer.