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 soon he feared his car might be towed away. “I took out a payday loan thinking that would solve the problem,” he says. He started with a single $300 loan 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, as now, the site promised quick approval — and money in her checking account within hours.
That was June 2010. As is often the case with payday borrowers, Bradley’s finances were already fragile. He was focused on the money he needed now, not the consequences he would face later. He repaid the first loan on July 9 — $390 for a $300 loan — and took out another $350 on July 28 from the same lender. This time, PDL seemed to withdraw payments from its account at random, and never enough to repay the loan. As the costs of this loan skyrocketed, he needed even more money. He took a third loan in August, which led to two more in September. By December, he had taken out a total of 11 loans from 10 different online lenders.
Bradley thought every loan would be simple. “It was supposed to be a one-time deal,” he says. “I got the money all at once, I’m going to pay it back all at once. It wasn’t supposed to continue month after month. Bradley, who got his paycheck by direct deposit, expected that each lender would electronically deduct their full loan balance from their checking account two weeks after the loan was issued, but according to their account, based on a review of their bank statements, each lender withdrew less than the amount loan, making successive deductions that were never enough to reduce his balances to zero. For Bradley, the withdrawals had no rhyme or reason, and had the effect of pushing him further down the hole as he that fees, penalties and interest were accumulating.
“They just took the interest and then they came back and did the same [again],” he said. “They didn’t touch the principle.”
One by one, as he fell 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 post office box in San Jose, Costa Rica — its website no longer lists one — but the lender claimed he had to another $550.
In January 2011, US Fast Cash Credit, owned by AMG Services Inc., a chartered company from the Miami Tribe of Oklahoma, wanted $250 more after already paying $945 on a $400 loan. GECC Loan (also doing business as Cash Direct Express), CCS Loan Disbursement (also doing business as Community Credit Services), Sure Advance Loan, Tior Capital, Loan Shop and My Cash Now all called it the home and at work, although he never reached anyone who could answer questions about 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 to escape his financial snowball 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 repay the loan. And the bank charged fees when loan repayments were not 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 to Bradley such high rates or touch 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 either ban or strictly regulate payday loans. New York’s ban is one of the toughest in the country. Whether done online or at a mall, loans with three-digit APRs (annual percentage rates) violate the state’s Usury Act of 1976, which caps 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 allowed to charge 29% or more on credit cards. But payday lenders are considered non-banks, so licensing and regulation is up to the states. Any non-bank lender who charges more than 16% interest in New York is subject to civil action; charging more than 25% can expose lenders to criminal penalties. First-degree criminal usury is a Class C felony carrying a maximum sentence of 15 years.
In 2004, when then-Attorney General Elliot Spitzer 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 servers in the state that had been launching payday loan websites, forcing Cashback to repay customers. In 2009, a year before Bradley got his first internet payday loan, then-Attorney General Andrew Cuomo settled with the County Bank of Rehoboth Beach, Delaware, which allowed lenders on Pennsylvania-based Internet payday Telecash and Cashnet use its bank charter to make Internet payday loans. At New York. A $5.2 million settlement was distributed to more than 14,000 New Yorkers who had taken out their loans online, with some burned out 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 exorbitant interest rates is a serious concern,” said Benjamin Lawsky, the state’s Superintendent of Financial Services. “Payday lenders should be aware that making loans to New Yorkers exposes them to legal action and that they have no legal right to collect on the loans they make here.”
Payday loans, whether offered through storefronts or the Internet, are defined by their relatively small dollar amounts and excessive annual percentage rates (APRs), which are typically in the three and four digits. Bradley’s first loan, for example, with a $90 fee on a $300 two-week loan, equaled 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 throughout the 1990s.
In 2003, there were only about 3,000 payday storefronts nationwide. Today there are about 20,000.
The number of internet lenders is smaller, but again, a single website can reach many more people than a storefront. In a January 2012 report, San Francisco-based JMP Securities analyst Kyle Joseph, 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, spokesman for the Online Lenders Alliance, a trade organization based in Alexandria, Va., which represents internet lenders, says his organization has more than 100 members and that “a reliable industry estimate on the number of lenders is 150.
John Hecht, in a January report for San Francisco-based investment bank JMP Securities, found that 35% of all payday loans were made over the internet in 2010. Hecht, now an analyst at the investment Little Rock Stephens Inc., estimates the market will likely grow to 60% by 2016.
Like storefront lenders, online lenders clearly state that they do not check credit scores – as part of a marketing strategy to those with bad credit. PDL Loans, for example, Bradley’s first lender, proclaims, “Bad or no credit ok” ; another of Bradley’s lenders, US Fast Cash, says, “Even bankruptcies, bad checks, charge-offs and other credit issues don’t stop you from getting the cash advance you need!”
And lenders usually tout how quickly loans are closed. AmeriLoan, another of Bradley’s lenders, says, “It’s easy to get the funds you need in seconds” ; PDL Loans offers “3 minute application” and “instant approval”. Virtually all of them promise to deposit the loan into your checking account the next business day.
Places where payday loans are prohibited or tightly regulated – 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 that internet lenders say is worth tapping into. Advance America, the largest publicly traded payday lender, and Cash America, the second largest, both provide payday loans online. While opening a store in a state with a wage ban is too high profile to be practical, the internet is a good place to hide.