By Richard Kitterman

Special to the Daily Herald

Consumers report unscrupulous online payday lenders charging unlawful interest rates of more than 300 percent.

Handing over your bank account information to an online payday lender without doing your homework could leave you paying hundreds and even thousands of dollars more than you bargained for.

Hundreds of consumers have complained to BBB after signing up for a payday loan on sites like;; and

Consumers state that after signing up for what they believed was a one-time payday loan – typically a few hundred dollars to be paid off in two weeks – they supplied their bank account information to the lender and received the funds shortly thereafter.

Consumers complain all subsequent payments went toward paying off recurring finance charges and never toward the principal loan amount. As a result, they report paying two and three times the amount of the original loan without seeing any reduction in the amount originally borrowed.

One Massachusetts woman who received a loan from Ace Cash Services said she made over $1,700 in payments to pay off a $225 loan. A borrower in Pennsylvania claimed to be subjected to a 547 percent interest rate on a $300 loan from a lender called United Cash Loans.

Many consumers were surprised to learn that the online lender involved was not licensed by the state and charged interest rates well over what was allowed by state usury laws. Lenders typically responded that they are not subject to state or federal laws, often claiming that they are based in another country or on Native American reservations.

Following an investigation and lawsuit by the West Virginia attorney general against online payday lenders, officials stated that they had evidence to prove the lenders who claimed tribal sovereignty were not actually part of the tribe but were merely "renting" it for the purposes of claiming shelter from state and federal laws.

One article on online payday lending in the Los Angeles Times cites that state officials and consumer advocates find it impossible to track this unregulated industry but, "suspect that it involves thousands of Web sites generating billions of dollars in revenue nationwide."

Payday lending is legal and regulated in 37 states; however, federal law prohibits charging more than 36 percent interest on a payday loan to any military service member or their dependent.

For consumers considering an online payday loan, BBB recommends the following:

Consider all the options. Payday loans can be extremely expensive if they are not paid off quickly. The Federal Trade Commission recommends looking into a short-term loan from your bank, contacting your current creditors to explore payment options, working with a credit counseling center or at the very least, shopping around for the best interest rate and terms. Due to concerns with online lenders, consider searching for a brick and mortar location before settling on a lender.

In some cases, active-duty military, retirees, surviving spouses and family members may find themselves eligible for an interest free loan through Army Emergency Relief or one of the other military emergency relief organizations.

Look for red flags. Unscrupulous online lenders may not be forthcoming about their location or contact information. Also be cautious of any lender that doesn't ask you for any background information outside of your bank account number.

Research the lender with BBB. Check an online payday lender's BBB Reliability Report™ online before you hand over any bank account information. BBB Reliability Reports are available free of charge online and will tell you how many complaints BBB has received, how the company responded to complaints and the company's overall letter-grade rating with BBB.

For consumer information, Reliability Reports on businesses, reports on charities, to schedule a guest speaker or to file a complaint on a company, visit the Better Business Bureau online at or call 699-0694.

Richard Kitterman is the executive director of the Better Business Bureau for Central and South Central Texas.

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