Although offers and arrangements vary from site to site, the typical Internet payday loan involves an online or faxed application in which the borrower provides extensive personal and financial information, direct deposit of the loan proceeds into the borrower’s bank account through the Automated Clearing House system on the same or next day, and an agreement to permit the payday lender to withdraw the loan and finance charge electronically from the consumer’s bank account on his/her next payday.
Qualifications
Qualification requirements on the purported County Bank application are typical. To be eligible for a $500 loan, a consumer must have a steady income, be able to show a verifiable source of recurring income payments, have a checking account with the consumer’s name printed on the checks, be able to be contacted after work, be at least 18 years old, have a gross income of at least $1000 per month or a minimum of $800 per month in Social Security or other benefits income.
Applicants must not be delinquent on a prior loan from County Bank or other short term loan lenders, and must have access to a fax machine. Required borrower income levels generally range from $800 to $1200 per month. One lender claims they will never allow applicants to bite off more than they can chew by not approving loan amounts for more than your biweekly net pay. Lenders advertise no credit checks but use databases, such as TeleTrack, to screen applicants for returned check history and payday loan use.
Applications
Sites use multi-stage applications to draw applicants into the process. The first set of questions, pre-filled in with “yes” answers, covers the basic qualifications and asks for name and email address. When the consumer clicks “apply,” a graphic of a check filled out for $500 payable to the borrower pops up, followed by a much longer set of questions.
Consumers encounter a variety of methods to apply for payday loans used by Internet lenders. Consumers fill out detailed application forms online, including bank account information and routing numbers for their checks. A completed application form pops up which the applicant confirms and files online. Or, more commonly, consumer information from an online application is entered into a set of forms, which the applicant is instructed to print, sign and fax back with additional documentation.
Applicants may access this paperwork through pop-ups or icons at the end of the online application or through links that have been sent to their email accounts. In both methods, applicants enter their bank account numbers, Social Security numbers, birth date, and other personal financial information online to transmit to the lender. A third method bypasses online applications altogether. Consumers are directed to download applications, print out and complete them, and then fax the forms and documentation. Many lenders have different procedures and requirements in place for returning customers.
The portion of the Cashnet500 application which is printed out and faxed back requests personal and contact information, a Social Security number, whether the borrower rents or owns her home, and the birth date. Employment information that must be supplied includes the supervisor’s name, shift hours, and phone number, net take home pay and schedule of pay periods, whether the pay is made through direct deposit, the next pay day and the second pay date. Applicants must give the names and phone number for two contact persons. No questions are asked about other debts or obligations that would enable a lender to determine ability to repay the loan.
Some applications ask very intrusive questions. Onlinepaydayadvance.com asks if a consumer has ever filed for bankruptcy, had property foreclosed or made a settlement for a creditor’s benefit. It asks if the consumer is party to any lawsuit or legal action or has an unsatisfied judgment against her. Is the consumer an officer, director or shareholder of a financial institution? Have you filed all required tax returns?
Applications are available in Spanish on request at some sites.
Consent at the Click of a Mouse
Under the federal E-Sign law, consumers can now “sign” contracts and receive required disclosures through electronic means if federal requirements for consent and capacity are met. As electronic signature includes any “electronic sound, symbol or process,” such as pressing a touch-tone key on the phone, clicking “OK” on a salesperson’s computer, or through a simple email or click. A contract is “signed” by clicking “I accept.”
Industry NACHA rules also require that the record creating the ACH transaction must be signed in a way that evidences the identity of the person who signed and that person’s assent to the terms of the contract. A payday loan borrower can electronically sign using a digital signature, PIN, password, shared secret. A hard copy record can be authenticated via the telephone by the consumer speaking or key-entering a code provided on the record. Several sites in the survey permitted consumers to “sign” by typing their names and clicking an “I accept” button.
Contracts and Authorization Forms
The packet of paperwork or online forms typically include a loan application, a loan note and disclosure form, and an authorization to access the bank account. Application forms include an agreement to arbitrate all disputes, and agreement not to bring or participate in class action lawsuits. The applicant signs and dates the form.
The contract is often called a “Loan Note & Disclosure” and spells out the Truth in Lending cost disclosures, the payment schedule, prepayment policy, and itemization of the loan and the finance charge. Contracts repeat the agreement to arbitrate all disputes, not to join a class action lawsuit, a promise not to file for bankruptcy, and agreement that the contract is bound by the law of the state where the payday lender claims to be located.
A third form that must be signed by the borrower is the Authorization Agreement for Preauthorized Payment. This agreement gives the lender the right to access the consumer’s bank account to deposit the loan proceeds and to withdraw loan payment on the due date. Some agreements permit the lender to initiate multiple withdrawals to collect a single loan.
The right to withdraw access authorization no later than three business days before payment is due is typically included. If authorization is withdrawn, the borrower agrees that the lender will turn the electronic withdrawal into checks that will be collected from the consumer’s account. The Cashnet500 agreement states “This authorization to prepare and submit checks on your behalf may not be revoked by you until such time as the loan is paid in full.”
Contracts completed online require consumers to electronically sign contracts. Efastcash.com requires consumers to check that they have read the terms of the application for, the privacy policy, an authorization agreement to access the borrower’s bank account, and the loan note and disclosure. To “sign” electronically, a consumer merely types in her full name and clicks the “I agree” button.
Documentation
At most sites, applicants are required to fax a variety of personal financial documents, typically a voided personal check, a recent pay stub, a current bank statement, along with the signed contract and an agreement to allow the payday lender access to the borrower’s bank account.
United Cash Loans paperwork to be faxed includes a copy of a personal check marked “void,” a copy of the most recent bank statement, a copy of the most recent pay stub, a completed loan application with printed and signed name, the signed Note and Disclosure form, a congratulations sheet with required items attached, and the signed electronic payment authorization form.
Some sites enable consumers to access their bank statements online in order to complete applications. Emergency Cash Loans lists over four hundred banks for applicants to click on to print off the required bank statement in order to fax in an application with supporting documents. Other sites have links to Kinko’s to help applicants locate a commercial fax center. Others permit paperwork to be shipped by overnight delivery.
Loan Approvals
Cashadvancefast.com claims its 30 minute approval process is “quicker than getting a pizza delivered.” Consumers either receive an email or a phone call to let them know the loan has been approved. Lenders use specialized credit reporting databases such as TeleTrack to screen applicants. Some verify addresses with US Postal Service lists.
A typical claim of no credit checks: “Don’t worry about your credit rating. At Payday-loans.org, there are absolutely no credit checks. Payday-loans.org works with providers of payday loans that will loan you payday loans regardless of your credit history.” Another site states “Don’t worry about your credit rating. At Payday Loans Overnight, there are absolutely no credit checks.”
One site says: “Can I still get an unsecured loan if I have bad credit or a bankruptcy? Yes. Our list has over 80 little-known companies willing to give ‘high risk’ loans to people with bad credit or even a bankruptcy.” “Even bankruptcy, bounced checks, charge-offs and other credit hassles don’t prevent you from getting the cash advance you need!” One lender claims to “approve 96% of payday loan customers for up to $1,000 dollar (sic) in just 30 SECONDS!” ZippyCheck will even make loans to borrowers with current insufficient check fees, based on take home pay. If the borrower has $2,500 take home pay, not more than $400 overdrawn is acceptable.
Electronic Delivery and Payment
Payday lenders use the Automated Clearinghouse system to deliver and collect loans. This electronic funds transfer system involves a bank on both ends of the transaction and operates under industry self-regulatory rules administered by the National Automated Clearinghouse Association.
Internet lenders typically promise that loan proceeds will be direct deposited into the borrower’s bank account by the next business day. On the loan due date, the loan amount and finance charge are electronically withdrawn from the consumer’s bank account. No paper checks are involved. A few sites will wire loan proceeds for an additional fee.
Sites make claims of reliability as a result of ACH capacity. One site disclosed: “We are authorized to use the Federal Reserve Wire System and we must follow all FDIC and NACHA regulations, so we are only authorized to withdraw the amount authorized by your payday loans request.”
Repayment Options
Lenders typically offer three choices for repayment/loan renewal. In many cases, the default option is to pay the finance charge only and renew the loan for another payday. If a consumer does nothing, the loan is automatically flipped. A consumer who wants to repay the loan in full must notify the lender three days before the loan due date or sign a separate section of the contract. After a set number of renewals, the lender may provide the option of paying down the loan principal in $50 increments plus another finance charge each payday. A minority of sites require payment in full on the next payday.
Collections
Payment is electronically processed without action by the consumer. If funds are not available to repay the loan, a fee for insufficient funds is charged by the lender and another fee is imposed by the consumer’s bank. The FastCashConsulting firm claims that ACH is an “awesome collection tool, enabling it to collect $20,000 or more from customers that had been written off in just two months.Some loan agreements permit the lender to split the payment into multiple withdrawals.
