It all started with three parking tickets.
Robert Bradley, from Jamaica, Queens, a 64-year-old hospital worker, had run out of money and neglected to pay the first ticket, then the second – and he soon feared his car would be towed. “I took out a payday loan thinking it would solve the problem,” he says. He started with a single loan of $ 300 from PDL Loans, also known as Piggy Bank Cash Loans. The company’s address is in Nevis, West Indies, but Bradley easily found it on the Internet. Then, like today, the site promised quick approval – and money in its checking account within hours.
That was in June 2010. As is often the case with payday borrowers, Bradley’s finances were already fragile. He was focused on the money he needed then, not the consequences he would face later. He paid off the first loan on July 9 – $ 390 for a loan of $ 300 – and took out another $ 350 on July 28 from the same lender. This time, PDL appeared to withdraw payments from his account at random, and never enough to repay the loan. As the costs of this loan skyrocketed, he needed more money. He took out a third loan in August, which led to two more in September. As of December, he had taken out a total of 11 loans from 10 different online lenders.
Bradley believed every loan would be easy. “It was supposed to be a one-time deal,” he says. “I got the money in one shot, I’m going to pay it off in one shot. It wasn’t supposed to go on month after month. Bradley, who received his paycheck by direct deposit, expected to which each lender electronically deducts their total loan balance from their checking account two weeks after the loan was granted. But by their account, based on a review of their bank records, each lender withdrew less than the amount total of the loan, making successive deductions that were never enough to bring his balances to zero. fees, penalties and interest were piling up.
“They just took the interest and then they come back and do the same [again], “he said.” They haven’t touched the principle. “
One by one, as he was falling behind, the calls started coming in: he had paid $ 880 on a $ 300 loan from AmeriLoan Credit, but the lender said he still owed $ 550. He had paid $ 1,225 on a $ 500 loan from Advance Me Today, which had a PO box in San Jose, Costa Rica – its website no longer lists one – but the lender claimed it had to $ 550 additional.
In January 2011, US Fast Cash Credit, owned by AMG Services Inc., a Miami Tribe licensed company of Oklahoma, wanted $ 250 more after they had already paid $ 945 on a $ 400 loan. GECC Loan (also doing business as Cash Direct Express), CCS Loan Disbursment (also doing business as Community Credit Services), Sure Advance Loan, Tior Capital, Loan Shop and My Cash Now all called it at home and at work, however, he never reached anyone who could answer questions on his accounts. By February, he had borrowed a total of $ 4,445 and repaid $ 8,240. In total, his lenders said he still owed $ 4,134.
By the time Bradley sought help escaping his snowballing financial disaster, he had closed his checking account, destroying a 20-year relationship with his bank. “I had nothing against the bank,” he says. “I just wanted to stop these electronic withdrawals that weren’t going to pay off the loan. And the bank charged a fee when loan repayments weren’t made.
It was a paralegal with the Neighborhood Economic Development Advocacy Project (NEDAP) in Manhattan, an advocacy group that opposes predatory lending, who ultimately told Bradley that none of those lenders should have been able to charge Bradley such high rates or to take the money in his bank account. Payday loans are illegal in New York State.
An elusive industry for regulators
According to the Consumer Federation of America, only 18 states prohibit or strictly regulate payday loans. The New York ban is one of the toughest in the country. Whether made online or in a mall, loans with triple-digit APRs (annual percentage rates) violate the 1976 State Usury Act, which capped rates at 16%. The state does not have the power to regulate commercial banks – such as Bank of America, Chase, and Wells Fargo – which are federally supervised and authorized to charge 29% or more on credit cards. But payday lenders are considered non-banks, so licensing and regulation rests with states. Any non-bank lender who charges more than 16% interest in New York City is subject to civil action; charges greater than 25% may subject lenders to criminal penalties. First degree criminal usury is a Class C felony with a maximum penalty of 15 years.
In 2004, when Elliot Spitzer, then Attorney General, discovered that lenders were circumventing state law by lending online, he sued one of the lenders, Las Vegas-based Cashback Payday Loans, and shut down the state servers that had been setting up payday loan websites, forcing Cashback to repay customers. In 2009, a year before Bradley got his first internet payday loan, then-general attorney Andrew Cuomo struck a deal with County Bank in Rehoboth Beach, Delaware that allowed Pennsylvania-based Internet payday lenders, Telecash and Cashnet, to use its banking charter to effect Internet payday loans. At New York. A settlement of $ 5.2 million was distributed to more than 14,000 New Yorkers who had taken out their loans online, with some burnt borrowers receiving more than $ 4,000.
Despite successive lawsuits, Internet payday loan companies have never stopped lending to New Yorkers. Consumer advocates and state regulators say Robert Bradley’s experience is not unique. “Using the Internet to evade New York’s strong consumer protections against payday loans and its sky-high interest rates is a serious concern,” said Benjamin Lawsky, the state’s superintendent of financial services. “Payday lenders should be aware that providing loans to New Yorkers puts them at risk of legal action and that they have no legal right to collect the loans they make here. ”
Payday loans, whether made through storefronts or on the Internet, are defined by their relatively low dollar amounts and excessive Annual Percentage Rates (APRs), which are typically three and four digits. Bradley’s first loan, for example, with a $ 90 fee on a $ 300 two-week loan, was the equivalent of an APR of 782, according to payday loan interest calculators.
Payday lenders first appeared in Southern and Midwestern check-cashing stores about two decades ago, and remained regional businesses through the 1990s.
In 2003, there were only about 3,000 payday windows nationwide. Today, they are around 20,000.
The number of Internet lenders is smaller, but again, a single website can reach a lot more people than a storefront. In a January 2012 report, Kyle Joseph, an analyst at San Francisco-based JMP Securities, an industry expert, put the number in the hundreds. Jean Ann Fox, director of consumer protection at the Consumer Federation of America, says estimates range from 150 to 250 Internet payday lenders operating nationwide. Peter Barden, spokesperson for the Online Lenders Alliance, an Alexandria, Va.-Based trade organization that represents Internet lenders, says his organization has over 100 members and that “a reliable industry estimate. Out of the number of lenders is 150.
John Hecht, in a January report for San Francisco-based investment bank JMP Securities, found that 35 percent of all payday loans were made over the Internet in 2010. Hecht, now an analyst at the bank Little Rock Stephens Inc. investment, estimates that this market share will likely reach 60% by 2016.
Like in-store lenders, online lenders make it clear that they do not check credit scores, which is part of a strategy for marketing to those with poor credit. PDL Loans, for example, Bradley’s premier lender, proclaims, “Bad or no credit ok” ; another of Bradley’s lenders, US Fast Cash, states: “Even bankruptcy, bad checks, write-offs and other credit problems don’t stop you from getting the cash advance you need! ”
And lenders usually tout the speed at which loans are closed. AmeriLoan, another of Bradley’s lenders, says: “It’s easy to get the funds you need in seconds” ; PDL loans offers a “3 minute request” and “instant approval”. Virtually all of them promise to deposit the loan into your checking account the next business day.
Places where payday lending is prohibited or severely restricted – Arizona, Arkansas, Colorado, Connecticut, Georgia, Maine, Maryland, Massachusetts, Montana, New Hampshire, New Jersey, New York, North Carolina, Ohio, Oregon, Pennsylvania, Vermont, Washington, DC, and West Virginia – are home to some 60 million people who are old enough to get a payday loan, a market internet lenders seem to believe is worth tapping into. Advance America, the largest publicly traded payday lender, and Cash America, the second largest, both offer payday loans online. While opening a store in a pay-off state is too visible to be practical, the internet is a good place to hide.