States should preserve and strengthen state usury laws and/or small loan rate caps and prohibit loans based on check holding or electronic access to consumers’ bank accounts. Failing an outright ban on loans based on electronic access to consumers’ bank accounts, states should amend small loan and payday loan laws to explicitly apply to loans made via the Internet and other electronic means with in-state consumers in order to provide a consistent level of consumer protections for loans made to consumers. States should prohibit choice of law provisions that make the laws of other countries or state applicable to loans. State credit regulators and the Federal Trade Commission should investigate the Internet payday loan industry to enforce state credit laws and interest rate limits and federal credit and financial privacy laws. The Electronic Fund Transfers Act should be updated to extend consumer protections to ACH-enabled credit transactions not envisioned when the law was enacted. Industry self-regulatory rules for the ACH system should be revised to fit payday loans applied for and delivered and collected online. Advice to Consumers Do not borrow money at triple-digit interest rates with unrealisteic repayment terms. If you pay $90 to borrow $300 and take out twelve two-week loans a year, you will have paid $1,080 to use $300 for half the year. Do not send personal financial information or bank account information via the Internet or by fax to an unknown company. Safeguard bank account numbers, Social Security numbers and other identifiers. If payday lenders already have access to your bank account, revoke that authorization in writing and notify your bank in writing to stop processing ACH withdrawals. Immediately report any unauthorized transactions to your bank. File a complaint at your bank if the lender returns the same check/debit more than three times. Seek out lower cost and less risky alternatives to payday loans to cope with a financial emergency, such as real overdraft protection, arrangements with creditors, borrowing from friends or relatives, or help from religious institutions. Compare the cost of borrowing money, based on both the dollar finance charge and the annual percentage rate, and only borrow as much as you can repay during the term of the loan. Build up savings and seek credit counseling and budgeting assistance to avoid high-risk debt. File complaints about Internet payday lending with state credit regulators or the Attorney General. Seek legal help from private attorneys or legal services offices. Download Appendix and a printable version of this report.
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