Repayment provisions for many payday lenders trap borrowers in a cycle of repeat loans. Instead of consumers having to walk into a payday loan store to buy back their check with cash and write a new check to renew loans, internet sites make it easy to automatically renew loans.
Options for repayment typically include permitting the lender to withdraw only the finance charge from the borrower’s bank account on the due date, extending the loan for another pay cycle; paying the finance charge plus a portion of the loan; or repaying the loan and finance charge in full on the next payday.
Payment options from United Cash Loans, as offered through referral site www.mypayday.com:
a. Refinance. Your loan will be refinanced on every due date unless you notify us of your desire to pay in full or to pay down your principle amount borrowed. You will accrue a new fee every time your loan is refinanced. Any fees accrued will not go toward the principle amount owed. On your fifth refinance and every refinance thereafter, your loan will be paid down by $50.00. This means your account will be debited for the finance charge plus $50.00, this will continue until your loan is paid in full.
b. Pay Down. You can pay down your principle amount by increments of $50.00. Paying down will decrease the fee charge for refinance. To accept this option you must notify us of your request in writing via fax at 800-xxx-xxxx, at least three full business days before your loan is due. (Phone number removed by author.
c. Pay Out. You can payout your full balance, the principle plus the fee for that period. To accept this option you must notify us of your request in writing via fax at 800-xxx-xxxx. The request must be received at least three full business days before your loan is due.
Sixty-five of the surveyed sites permit loan renewals without repayment of principal. Forty-six sites simply state that loans can be renewed without limits (three of these sites indicate that consumers are entitled to unlimited renewals.) Fourteen sites quote a four renewal limit before loans must be repaid, and three sites will permit three renewals.
Signing Away Rights
Twenty-one websites included mandatory arbitration clauses in online documents that consumers could access without giving away personal information. Many more mandatory arbitration clauses showed up in applications visible only after a consumer enters personal information to start the application process. The use of mandatory arbitration clauses is almost universal in the payday loan industry, so it is likely that all Internet lenders include mandatory arbitration clauses in final contracts.
In addition to depriving borrowers of their right to take an Internet payday lender to court, some loan applications also require consumers to forfeit other rights they have. The County Bank of Rehoboth Beach, DE loan agreement is typical and includes a mandatory arbitration clause, an agreement not to bring, join or participate in class action lawsuits against County Bank, its agents, servicers, directors, officers and employees and agree that an injunction can be brought to remove the consumer from a class action suit and to pay the Bank’s court costs and attorneys’ fees from taking the borrower to court.
The agreement not to bring a class action lawsuit claims to survive the closing, funding, repayment and/or default of the loan for which the application is made. By signing the loan application a consumer agrees to let the Bank call them at home or at work any time up to 9:00 p.m.
Privacy and Security Features
Although all surveyed sites ask consumers to enter personal and financial information online, eighteen sites had no posted privacy policies. The privacy policies used by the typical web site permit the lender to use information provided by consumers for third party marketing and other uses. In other words, when consumers enter their personal financial information including bank account numbers on a web page to apply for a quick loan, that information is available for unlimited uses by the web site.
The United Cash Loans privacy policy states that all information submitted to the company via the website is the “property of United Cash Loans and United Cash Loans shall be free to use such information for any lawful purpose…” Personal information is used for marketing other products to consumers. “We reserve the right to share, rent, sell, or otherwise disclose data we collect to third parties.” In order to opt out of receiving communications from United Cash Loans or its partners, consumers must not submit their information.
The payday loan referral site “Cash Advance and Payday Loans Online,” operated by Jowston.org, claims to be serious about protecting online privacy. Jowston collects or tracks web page http headers, information entered into online application forms, surveys, or other entries, such as email addresses, personal, financial or demographic information; information on what pages site visitors access and the email addresses of visitors that communicate with them.
The site states that personal information is used for marketing and promotional purposes, or is added to their databases for future emails or postal mailings. To opt out a consumer would have to not apply for a loan. The site retains the right to change its privacy policy at any time by either sending the new policy or posting changes online to its site. Consumers who ask to be removed are promised that their personal information will not be used in the future.
Web sites indicate secure links by displaying a closed lock on the browser or adding the “s” to “https” as a sign that information being transmitted is encrypted. These security indicators do not provide assurance that lenders protect consumer data once it is received. The CFA survey found that security protections on Internet payday loan sites are frequently nonexistent.
Twenty-eight sites did not have secure connections on application pages that collected personal financial information, including referral sites where the consumer clicks through to another URL for the actual application. Another twenty-five sites, including referral sites with different application page URLs, claimed to have secure connections but did not. A total of forty-one sites had secure connections, nineteen of whom claimed some type of privacy or security seal program.
Customer Service and Contact Information
Consumers would have a hard time locating or contacting many of the payday loan web sites surveyed. Less than half gave a physical street address (43) or phone numbers (45). Seventy-three web sites provided contact through email addresses or provided an online form to send email to the company. Forty-four sites gave fax numbers for consumers to use in faxing applications and required documents, but that could also be used to contact the lender. Almost one-fourth of the surveyed sites, twenty-three, list no contact information of any kind.
