Online Payday Lenders Could Be Worse Than Traditional Payday Lenders

by Ashlee Kieler, Consumerist

BANK generic 357 x 241_ccThe typical outsider’s view of payday lending involves seedy looking storefront shops in strip malls near pawn shops and bail bonds, so the idea of going to a short-term lender with a cleanly designed, professional website might seem more appealing (not to mention convenient). However, a new report finds that online payday loans may wreak more financial havoc than their bricks-and-mortar counterparts.

Most payday lenders use the Automated Clearing House (ACH) network to directly connect to borrowers’ bank accounts, allowing them to deposit and collect funds  electronically as needed.

A new report [PDF] from the Consumer Financial Protection Bureau found that these attempts by lenders to obtain payments directly from borrowers’ accounts often add a steep, hidden cost to online payday loans.

According to the CFPB, half of online payday loan borrowers incur an average of $185 in bank penalties because at least one debit attempt by lenders creates an overdraft or fails completely.

The findings, which are based on data collected over an 18-month period that looked at online payday and certain online installment loans made by more than 330 lenders, shine a light on the ways in which online lenders attempt to recover their money by debiting a consumer’s checking account.

Continue reading on the Consumerist website »

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