Payday Loan Tip #2: Beware of Risks from Internet Payday Lending

Using the Internet to borrow money carries unique risks. Not only will you have to pay the high cost for a payday loan and deal with the short repayment time, but borrowing money online also adds privacy and security concerns. Signatures are signed electronically on contracts. Also, required disclosures are sent electronically, and all you have to do to bind yourself to a contract online is click the "OK" button. Also, Internet payday loans can cost quite a bit more than those you receive from a storefront lender.

When you apply for a payday loan on the Internet, you will be sending personal identification information, your Social Security number, and your bank account information to the lender. If the websites are unsecured, your security and privacy are at risk.

All Internet payday loans require you to give the lender the ability to electronically access your bank account to deliver your money and take out fees and payment. This creates a real risk for identity theft and fraud. Most consumers are disclosing their financial information to lenders they do not know.

Borrowers can be trapped into debt with Internet payday loans. Because many online payday loans automatically renew each pay period, the lender can withdraw the finance charge electronically without having the borrower pay any principal towards the loan. When consumers are ready to pay the principal, they have to take extra steps to make sure that the lender closes the loan correctly.

Finding these lenders is often difficult. Sometimes Internet payday lenders are either offshore, or they offer so little information that a consumer or consumer advocacy agency cannot find them. This allows the lenders to follow foreign laws or the laws in states that do not have many consumer protections in place. While these lenders are supposed to adhere to the laws in the state where you are getting the loan, the state regulatory agencies have a difficult time enforcing these laws against virtual lenders.

If you have a complaint against an Internet payday lender, file it with your state Attorney General, state regulator, and the Federal Trade Commission. Remember, it does not matter where the Internet lender is located, it must follow your state's credit regulations.

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