Published: November 22, 2009 04:49 am      

Fight against Internet payday lenders continues

FAIRMONT — The Office of West Virginia Attorney General Darrell McGraw is continuing its fight against Internet payday lenders.

Last week, the office’s Consumer Protection Division filed two lawsuits against several Internet payday lenders and collection agencies that have been taking advantage of consumers in the state.

“It is now more important than ever to stop modern day loan sharks from preying on West Virginia consumers who may be tempted by difficult financial circumstances to apply for payday loans on the Internet,” McGraw said in a press release. “While these companies offer quick and easy money, most consumers end up paying 10 times the amount borrowed without ever paying off the loan.”

Assistant Attorney General Norman Googel explained that payday loans — sometimes called cash advances — are very short-term loans for small amounts of money. These loans are usually not more than $500 and are almost always due in two weeks, or by the next payday.

People obtain the classic payday loans at check cashing places, which West Virginia fortunately doesn’t have, Googel said. If someone is borrowing $300, for example, he or she may have to give the loan entity a post-dated check for $390. In order to get that check back, the individual has to return to the store in two weeks with $390 cash. If that person doesn’t have the money, however, he or she must at least pay the $90 to roll it over for two more weeks and avoid going into default.

“They’re obviously in financial trouble already or they wouldn’t be there,” he said. “They get a payday loan, and every two weeks they start paying a fee.”

Googel said this cycle often goes on for months. Although the consumer may have avoided default, he or she still owes the entire $300 on the loan and is being charged incredibly high interest rates.

“This is the pattern with all payday loans,” he said. “We call it a debt trap, because once you get into that cycle you can’t get out.”

Internet payday loans follow the same concept, except people apply for them online on their home computers. These loans are almost always approved because there is no credit check, Googel said.

If a consumer is approved for a $300 loan, for instance, the company would electronically deposit the money into his or her checking account, he said. The person authorizes the loan entity to electronically debit $390 from the account in two weeks. But the establishment assumes that the individual won’t be able to pay the money, and just takes out $90 and continues to do that indefinitely.

“You get into the same debt trap by doing it over the Internet,” Googel said.

With these Internet payday loans, consumers get scared because they don’t know how to stop the fees from being taken out of their bank account. The lender tells them that they can’t stop the debits, which isn’t true, Googel said. Consumers just need to go to their bank.

“When you give somebody permission to debit your account, you’re merely agreeing to a payment method,” he said. “The truth is that the consumer can stop it anytime they want. There’s a lot of deceptive practices involved.

“You don’t get arrested if you don’t pay a debt. You won’t be arrested or criminally prosecuted, because it’s not a crime to be poor.”

West Virginia requires collection agencies to have a business license. The Attorney General’s Office believes that these Internet payday loans are illegal, and a company that makes an illegal loan isn’t entitled to have it repaid, Googel said.

All ages — from young people to senior citizens — have been victimized.

“The payday lending industry would say that they’re providing a valuable service because a lot of these people can’t get conventional loans,” he said.

But what they’re really doing is causing more trouble, Googel said. Desperation leads consumers to payday lenders, but they end up much worse off than before as they fall into the debt trap.

“The payday loans — people shouldn’t get them in the first place,” he said.

One of the Attorney General’s new lawsuits involves four collection agencies: Capital Collections LLC, Claims Investigators of America, Crime Monitoring Center, and Premier Recovery Group. These entities were collecting Internet payday loans, but none had licenses to collect any debts in West Virginia.

The office issued subpoenas to all four agencies requesting that they provide information on the debts they collected in the state, Googel said. The lawsuit asks the court to order them to comply with the subpoenas and to stop collecting these debts.

“These companies are total outlaws,” he said. “They don’t feel that they’re subject to the laws of any states. It’s hard to even find these companies because they’re really operating off the grid.”

The other lawsuit deals with a group of interrelated companies that are lenders. Under the trade name “FFD Resources,” these entities ran at least four payday loan Web sites. McGraw’s office sued these companies a couple years ago after they didn’t respond to subpoenas and disregarded the court’s order, Googel said.

“This is a suit to ask them to refund all the loans they have collected,” he said. “It’s not just to support the subpoena. We will see what happens there. These are real companies and there’s real investors behind this and there’s money involved.”

Googel said the Internet payday lending industry takes great efforts to avoid state and federal regulations.

Since 2005, the Attorney General’s office has been aggressively fighting against Internet payday lenders and trying to enforce the law, he said.

“We feel that we have made a difference,” Googel said.

To file a complaint against a payday lender, contact the Attorney General’s Consumer Protection Hot Line at 800-368-8808 or visit www.wvago.gov for a complaint form.

E-mail Jessica Legge Borders at jlegge@timeswv.com.