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In Washington, a man with the initials W.C. was shocked when a $250 payday loan cost almost ended up costing him more than $1000. If he had read the fine print in his payday loan contract, W.C. would have noticed that the company he borrowed with had an undercover ploy to milk money from their customers. The company stated in their contract that they reserved the right to renew W.C's loan every two weeks by withdrawing a renewal fee. Until the loan was paid back in entirety with interest, the debt would continue to stack up, while the company automatically withdrew $105 from W.C's account bi-monthly.
Thankfully, the borrower was able to detect this money-trap before it was too late- he could have ended up with thousands of dollars in debt if he had not checked to see why only $105 was withdrawn from his account, instead of the whole loan payment like he expected. When he realized that something was wrong, W.C. contacted the State Department of Financial Institutions, and found a shocking fact, the company he had used was not licensed in the state of Washington.
Due to their lack of license, the company could not force W.C. to pay back his loan. He closed his bank account and was free from debt.
Many Americans unknowingly partner with payday loan companies that are illegal in their state. These cases can be avoided by checking with state authorities before securing a loan with any payday loan company.
Over 2,000 borrowers have been caught in traps like W.C. within the past year. Therefore, people must be cautious when applying for a payday loan.
Online payday loans often supersede the need for a state license because they are not based in one state. Many of these companies are based off shore, are run my Native American companies who hold sovereign immunity rights, or are protected by a shell of companies. Online payday lenders state that consumers should have an array of options when borrowing. They also state that they use a variety of legal business models to protect them from jurisdiction by certain states that are hostile to the payday loan business.
The online payday loan industry made around 10.8 billion dollars in 2010, and has grown 90%
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