With many consumers still on shaky financial footing after the Great Recession, some choose to explore payday loans, be it from a brick and mortar store or through an online payday lender. While there are certainly instances where payday loans can help bridge small financial gaps, Better Business Bureau of Minnesota and North Dakota (BBB) is warning consumers that it's important to have a plan in place to pay off such loans quickly and to be sure to research the payday lender before agreeing to such loans.
"Though some payday loan companies are making small steps towards self-regulation, overall it's still a problematic industry," says Dana Badgerow, president and CEO of BBB of Minnesota and North Dakota.
Payday loans are small, short-term unsecured loans, which - ostensibly - are to be repaid when the borrower receives their next paycheck. Historically, in regard to payday loans, exorbitant interest rates have been a problem, with some loans running in excess of 500 percent annual percentage rate (APR). In some cases, borrowers find themselves unable to pay off these loans, leading to added interest and often resulting in a debt spiral that is difficult to stem.
In North Dakota, payday lenders must be registered with the ND Secretary of State's Office and licensed by the North Dakota Department of Financial Institutions. North Dakota statutes state payday lenders cannot provide a loan of more than $500. Fees are capped at 20 percent of the amount of the loan, and that fee may not be deemed interest.
In some cases, desperate individuals seek out loans from online payday lenders that claim they are not beholden to state or federal laws regarding licensing requirements, debt collection practices or caps on interest rates. This can lead to a number of issues for consumers, including:
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• Being subject to exorbitant interest rates and hefty or hidden fees.
• Unauthorized withdrawals from bank accounts.
• Possibly even identity theft.
Better Business Bureau is aware of many situations in recent years where people explored online payday loans before deciding not to go through with them. Still, simply providing some of their personal information online with unscrupulous entities later led to harassing collection calls threatening some individuals - who had ultimately never taken out payday loans - with arrest unless immediate payments were made.
Before seeking out a payday loan, BBB recommends the following:
• Consider all your options. Payday loans can be extremely expensive if you are unable to pay the loan off quickly. The Federal Trade Commission recommends looking into a short term loan from your bank, contacting your current creditors to explore payment options, working with a credit counseling center or at the very least, shopping around for the best interest rate and terms. Because of concerns with some online lenders, try to find a brick and mortar location before settling on a lender.
• Know the facts. Be aware that loans from Sovereign nations may not be subject to state law or loan caps. Make sure you understand all the terms of conditions of any payday loan.
• Look for the red flags. Unscrupulous online lenders are often not forthcoming about their location or contact information. Also be leery of any lender that doesn't ask you for any background information outside of your bank account number.
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• Research the lender with BBB. Always research payday lenders - whether they're brick and mortar locations or online - at bbb.org before you hand over any personal or bank account information. BBB Business Reviews are free and will tell you how many complaints BBB has received, how the company responded to those complaints as well as their overall letter-grade rating.
