CFA surveyed a sample of 100 Internet sites that market payday loans directly to consumers. The sample was selected, using top listings in several search engines, directories of lenders, and from e-mail messages. Researchers collected all web pages available through each site, and clicked through links present on web sites.
We filled out online application forms with nonsense data in order to gain access to multi-part application forms and disclosures about loan terms that in some cases were not available on the lenders’ homepages or pages available without an application. Another purpose for “sending” applications was to see if a secure link was provided for transmission of personal financial information. CFA did not take out any payday loans as a part of this survey project.
In addition to observing web sites, CFA performed domain registry searches for each site and tried to determine if lenders were licensed in their home states. For further information on the survey methodology, please see Appendix A.
Who and Where Are Lenders
The Internet payday loan sites surveyed by CFA were categorized as lender or referral sites. Based on the information available on the sampled web sites, we concluded that fifty-eight of the 100 sites made loans to consumers, while forty-two were referral sites.
Some companies had multiple web sites in the sample. Internet Cash Advance Marketing, based in Vancouver, is listed as the domain owner for six United Cash Loan primary or referral sites.
CashAdvanceNow.com, Payday One XL, Liberty Capital Investments, Benjamin Thomas LLC, Michael Gibbons, and Network Solutions had two registrations each. Web Check Services had three registrations.
CFA conducted a domain name search for each surveyed site, noting the location of the domain name registration. Eight sites were registered through Domains by Proxy, based in Arizona, a service that makes web site ownership anonymous. California had the most registered sites with eighteen, followed by ten in Canada, and nine each in Florida and Nevada.
In all, twenty states were listed by domain registry filings as well as Canada with ten, and Costa Rica and Grenada. Contact information for one site listed a bank in the Bahamas. One site claims to be a Nevada based lender with Nevada law applicable to its loans; however, it directs consumers with questions to call the Utah State Department of Financial Institutions.
Who Regulates Lenders
Of the 100 surveyed sites, fifteen sites claimed to be licensed in one of seven states (SD, DE, UT, NV, CA, ID, NM) while two additional sites claimed to be licensed but did not say in which state. CFA attempted to verify claims of state licensing and to check the license status of the primary lender sites.
In ten instances the web site claimed state licensing which CFA was able to confirm. Another ten Internet lenders were listed as licensed in their home states but did not disclose their state licensing status on their web sites. Six lenders claimed to have state licenses but CFA could not confirm that with state regulators. In part, this uncertainty resulted from web site names having no relationship to licensed lender names, the absence of physical addresses, and hidden domain registry information.
Where Loans Are Available
CFA also noted claims on web sites about states where loans would not be made and other limits on the geographic availability of payday loans made via the Internet. Twelve sites listed states where loans are not available. Two sites claimed that loans are available in all 50 states and three sites said loans are available in the US and Canada. One site each claimed loans are made in US, Canada and the UK; only in CA and NV; and only available in Nevada. A total of fifteen states were listed as states where loans are not available from one or more lenders. The most frequent listings were for New York and Georgia (six each), Kansas with five mentions, and Nebraska, Colorado, and Idaho with three sites each.
Some sites require an applicant to type in a zip code before being permitted to fill out the application. Other sites send a message - “Error, pick a new state” - if an applicant types in a state where loans are not made. It is not clear whether a consumer is actually denied a loan if she enters another state in response. Other sites say they permit consumers from all fifty states to apply, such as the ad claim by FastBucks: “Easy to apply. With Fast Bucks’ advance payday system, you get the money you need! Anywhere in the U.S.”
Whose Law Lenders Claim
Twenty-eight Internet payday loan sites stated a choice of law claimed to govern loans made, with nine states and three foreign countries mentioned. Another three sites claimed “Federal” law applied to their loans. States listed under choice of law included Delaware (6), Nevada (6), and California and New Mexico with three listings each. Utah was listed by two sites, and Arizona, South Dakota, Pennsylvania and Idaho were given as the choice of law on one site each. Other countries whose laws were claimed to apply were Grenada, Costa Rica, and St. Christopher.
A review of loan terms compared to state limits for payday loans demonstrates that choice of law claims do not always mean compliance with that choice. Delaware’s payday loan law caps loans at $500, yet half the surveyed lenders who claim to be subject to Delaware law offer loans up to $1,000. Two of the three sites claiming California law make loans of up to $415 and $500, despite the California payday loan law that limits the face value of the check used to get a loan at $300.
Loan Size Offered
The size of loans available at the surveyed sites ranged from $200 to $2,500. The most frequent loan size was $500, at sixty-seven percent of surveyed sites. Seventeen sites will make loans of $1,000. Other loan limits included $245, $255, $300, $415, $510, $1300, and $1500.
Cost of Internet Payday Loans
The most frequently disclosed finance charge for borrowing $100 was $25, listed on 18 sites; $30 on 12 sites, and either $17.50/$17.65 or $20 listed on five sites each. The lowest price quoted by two sites was $10 per $100 and the highest quoted rate was the site charging $25 per $100 plus a $10 fee, for a $35 total cost to get $100 until payday. One site claims that it is “in compliance with federal and state laws. Our fees take all this into consideration and are available anywhere from $30 to $90, depending upon your salary and other factors.”
The finance charge for loans is not the only cost to payday loan borrowers. If funds are not on deposit in the consumer’s bank to repay loans on the due date (and borrowers have not agreed to automatic loan renewals), lenders impose bounced check fees (NSF) which are electronically withdrawn from the consumer’s bank account. Twenty-seven surveyed sites listed their NSF fees which ranged from $15 to $30 per overdraft, while another two sites indicated that they charged NSF fees but did not specify an amount. Over half the sites that listed an NSF fee charge $25 per returned withdrawal.
Disclosure of Finance Charges
Only fifty-seven percent of sites posted the finance charge for loans and this information almost never was made on the home page for the site. Finance charge disclosures were buried in FAQ pages or on a separate disclosure page. Forty-three surveyed sites disclosed no finance charge amounts, with consumers encouraged to apply for loans with no idea of the cost.
The FAQ page at Rapidcashprovider.com answers the “What does it cost?” question without quoting a dollar finance charge or a typical APR. Instead the lender says “Your fees are less than the cost of not having the cash you need.” and “Actual fees are determined based on the information you provide when you submit your loan application.” Yourcashnetwork.com answers the “what does it cost?” question with “your fees are less than the cost of not having the cash you need when you need it.”
Disclosure of Annual Percentage Rates
The Federal Truth in Lending Act requires lenders to quote the annual percentage rate (APR) for loans when advertising other trigger terms for loans, such as the finance charge. Some sites include the APR on the same page with finance charge disclosures, while others require consumers to click onto a separate page. Although 57 sites quoted the finance charge, only 38 sites listed the APR for their loans on a page that was accessible to consumers who had not filled out an application. Another two incorrectly quoted the finance charge as the APR. The most frequently quoted APR for a $100 two week loan was 652% at fifteen sites, followed by 782% at eight sites.
Some contracts generated by the lender using application information provided by the surveyor contained inaccurate APRs. Mypayday.com stated a 26.5133% APR for a two-week loan with a finance charge of $30 per $100 instead of 780% APR. Americashadvance.com’s FAQ page lists the finance charge without an APR disclosure. Getcash911.com quotes the finance charge in a manner that could confuse consumers about the APR. The site’s FAQ says “The APR formula is 15.0% for 1-10 day loan terms. 17.5% for 11-20 day loan terms, and 25.0% for 21-30 day loan terms.”
After the application is submitted, the consumer receives a rate disclosure page stating, “A loan of 1-10 days is only 15%; 11-20 days for 17.5%; 21-30 days for 25%.” Only the subsequent filled-in loan contract discloses the APR for a 31 day loan at 294% APR. The more typical 14-day loan would cost 455% APR.YourCashBank.com posts a fee chart, listing the amount borrowed, the flat fee, a wiring fee, and the payback amount but does not include an APR disclosure along with the finance charge.
Loan terms offered on Websites
Loan duration periods offered at online payday lenders varied. Thirty-one sites offered loans due on the borrower’s next payday. Twelve sites make loans with a maximum duration of fifteen days while nine sites will allow loans for as long as thirty days. Just three sites give over thirty days to repay loans, with the longest term of 37 days.
Surveyed sites promised that loans would be delivered promptly to consumers’ bank accounts through the ACH Network or electronic funds transfers. About three-fourths of sites promised loans delivered by the next day. Two sites promised loans in one hour.
