According to a recent warning issued by CFPB industry, consumers should take caution in responding to ads that appear on related websites. A large number of these websites offer payday loans online at an interest rate of 650%. So, if you have taken 100$ loan, your interest would be $30. A survey done by CFA says – that consumers which provide sensitive financial information over online servers are at more risk zone as banks can misuse this information and its security is not assured with a private lending company. Jean Ann Fox, the director of consumer protection believes that payday loans are a costly choice for people looking to ease their financial burden through their payday check.
If a payday loan repayment is after two weeks of receiving the loan, the interest for $500 loan would be $150, so automatically $650 would be withdrawn from the borrower’s account. As part of this survey, many payday lenders were found automatically renewing the loans when the borrower’s bank account had insufficient funds. In some cases, lenders and banks, both impose an additional charge in the name of ‘insufficient funds’ on the borrowers. The online payday loans advertise their services through emails, online search, paid ads and referrals.
Generally, these lenders request information like, social security number, bank account number, employer information and sensitive personal information through an online application. The signed paperwork is deposited into the lender’s office along with proof of recent pay cheque.
“The payday loans are a risky financial decision as these require sending sensitive financial information to unknown lenders over an insecure internet connection” – told Ms. Fox. The payday loan is a dangerous choice for consumers already facing scarcity of cash. On doing a survey of 100 internet payday lenders, CFA found that loans as high as $25,000 were available with the minimum amount being $500. The most frequently used interest rate was $25 on $100.
The time for repaying the loan is borrower’s next payday, which can also be shorter than two weeks making the interest rate rise up to 650% annual. Only 38 internet loan providers declared the annual interest rates to prospective borrowers before filling and submitting the application form. Many lenders were found guilty of automatically renewing loans without client’s consent. After many such renewals, borrowers cannot simply repay their pending loan amount without taking some extra measures. CFA has urged borrowers to seek credit counselling and legal assistance in specific payday loan cases.