The Clinton Herald, Clinton, Iowa

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December 23, 2013

MEIER: How easy is it to get an online payday loan?

CLINTON — I get a fair number of complaints from folks who say they just got a phone call from someone threatening to send the sheriff or the police out to arrest them, for committing fraud.

The fraud?

Not paying back an online payday loan. These callers usually quote a debt owed for several thousand dollars, but are willing to settle for 20 or 30 percent of that if you make a payment immediately, as in “right now.” These callers will use legal terminology and titles such as “investigations unit” or “fraud division”, which causes some consumers to think the callers are directly linked to law enforcement.

First of all, law enforcement is not out debt collecting for payday loans. I’ve written before about the rules for debt collecting, and threatening arrest is a big no-no for debt collectors. So consumers who hear such threats should know right away these callers are not above stretching the truth and anything they say is suspect. I encourage anyone getting such threats to contact me.

After hearing dozens of these complaints, I started to wonder: Why do online payday loans seem to be behind these supposed debts? I did some research. I learned the payday loan industry made $49 billion (that’s billion with a b) in loans in 2012. One third of the loans happened through online applications. The entire payday loan industry is very controversial. The practice of offering these high-interest loans, usually in excess off 360% annual interest, is banned in fifteen states. Consumer advocates claim the industry preys on the poor and desperate, leading them into a cycle of perpetual debt. The industry defends itself by claiming they serve a segment of the populations which cannot get loans anywhere else.

A reporter from Planet Money, a radio news show, did some of the same research. The reporter applied for an online payday loan through a website offering such loans. The reporter made up everything on the online loan application, including her name, address, and social security number. She provided her real phone number, however. She got an immediate response, telling her a loan company pre-approved her for a loan. But she did not get just one response. She received dozens of calls, over a period of months, offering loans up to $5,000, from many different loan companies. Many of the calls came from callers with strong foreign accents.

The reporter found out the websites which advertise the loans are not loan companies at all. They are “lead generators.” They take the online applications, loaded with personal and financial information as they are, and sell them to loan companies, who call the applicant to pitch their loans.

What could possibly go wrong with this business model? Well, someone who stole your personal information can take out a loan in your name. And you don’t know anything about it until you start getting phone calls dunning you for the debt. If you get such debt collection calls for a debt you did not incur, you should suspect identity theft. I think it always worth a phone call to the collection agency to find out who they are, their physical address (if they will tell you), and what the nature of the debt is they want to collect on. If you can find out this information, it will be very helpful to me in researching the complaint.

Many people who did make application for online payday loans, but never received them, later found their bank accounts debited for $30 withdrawals without their authorization. In these cases, it seems the loan application was just a method to steal personal information, including your bank account numbers.

The payday loan industry is coming under closer scrutiny from regulators. Federal banking regulators just recently announced new rules clamping down on “deposit advances”, a type of payday loan offered by several large banks in which they automatically withdraw their re-payments from your account when you deposit your paycheck, pension check or other benefit check.

Many of the online payday loans are made by companies headquartered or associated with Indian reservations. Because of the sovereign status of Indian tribes, some aspects of regulation don’t apply to them. Whether the payday loan regulations apply on Indian reservations is a matter in litigation in several states.

BAIT AND SWITCH DUCT CLEANING

A Clinton woman called me two weeks ago describing a bait and switch operation. She saw an ad in an area newspaper offering air duct cleaning for $79.95. She called the number listed on the ad, and made an appointment for the cleaners to do the work. The cleaners arrived and brought in large vacuum and long hoses. They cleaned out the ducts and gave the woman a bill for $319.95, four times the quote in the ad. They explained they found many more cold air returns in the house than the bid covered. After some arguing, they lowered their price to $275, and asked the woman to write the check to one of the workers, not the firm they worked for.

This is a classic bait and switch. This contractor offered a low price to tempt consumers. Then, once in the door, the contractor found himself “extra” work, not covered in the bid, and billed for that also.

How can you prevent this? Make sure you get a written bid before any work starts. Such a written bid lets everyone know what the expectations are, so no surprises show up at the end of the job. Make sure you understand the written bid. If you see terminology you don’t understand, get the contractor to explain it in layman’s terms. If some dispute arises after the job, things will be much easier to straighten out if you are holding a written contract in your hand.

You can contact me about fraud or scam issues at Seniors vs. Crime, 242-9211, Ext. 4433.

 

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