The new frontier in the fringe small loan market in cyberspace is payday loans marketed online, delivered directly to borrowers’ bank accounts and collected electronically with no personal contact between lender and borrower. Reports published by Consumer Federation of America over the last seven years have documented the growth of check-based lending, the ruses and scams used by some to evade state usury and small loan laws, and rent-a-bank partnerships employed by leading payday lenders to avoid state efforts to regulate the small loan industry. 

Reports from CFA and other organizations and state officials demonstrate the debt trap set for cash-strapped consumers by check-based lenders and the collection tactics used to ensure repeat borrowing by consumers at storefront operations.

This report summarizes a survey of a sample of one hundred Internet sites offering payday loans and explores the additional risks to consumers who borrow from distant lenders by providing access to personal bank accounts to receive loan proceeds and make payments via electronic funds transfer.  Internet payday lending is the latest ploy used by small loan companies to evade consumer protections and usury laws in the state where borrowers apply for and receive loans and few state regulators have attempted to enforce state credit laws against online lenders.

Payday lending on the Internet involves a confusing mix of referral sites, loan sites, websites that appear to offer financial education or counseling, or sites that hold themselves out as payday lender rating services. Consumers are urged to get up to $2,500 deposited overnight in their bank accounts by filling out online applications and/or faxing applications and support documents without knowing to whom or where that personal financial information goes.  Online payday loans are delivered and collected through electronic fund transfers.