Payday Loan Times

The names are catchy: MyCashNow.com. PayDayOK.com. But the details of these payday loan online lenders can be controversial.

In Minnesota,credit counselors say the Internet operators, a new part of a $25 billion lending marketplace, are also bypassing state laws on payday loans and leading thousands of Minnesotans into deeper financial trouble.

"With online loans, they're greasing the skids so people slide into boiling oil that much faster," Darryl Dahlheimer of Lutheran Social Service Financial Counseling in Minneapolis told the Star Tribune. "The ease of access and the anonymity allow people to get into trouble with much less oversight."

Inside the state payday loan law: Minnesota law limits payday loans to $350 and caps the interest rate at about 200 percent annually, or $23 on a loan of $300. The law also prohibits lenders from rolling over these cash advance loans. This is how most people fall deeply into debt.

Internet lenders, however, offer loans as high as $1,000 and some charge interest rates of more than 1,000 percent annually, or $93 every two weeks on a $500 loan. Borrowers must give the lender electronic access to their bank accounts. It's a stake contrast to storefront lenders in Minnesota, as providers of online payday loans operate with no state oversight. Many are based overseas or in states with minimal banking regulations.

"If they're not domiciled here - if there's no bricks and mortar - we don't have anything to go after," said Bill Walsh, a spokesman for the Minnesota Department of Commerce, which enforces lending laws.

The result is that lenders can do things on the Internet that would be illegal if they did them in person. That makes no sense, said Prentiss Cox, a former Minnesota assistant attorney general who heads the legal clinic at the University of Minnesota Law School.

"If they're making the loan to Minnesota residents, there's no reason that Internet payday lenders shouldn't be complying with the laws," Cox said. "There's nothing magic about the Internet that exempts these people."

Other states, including Colorado, New York, California and Kansas, have cracked down on abusive Web-oriented payday loans. Oregon regulators are drafting a bill for the next legislative session, said Cory Streisinger, director of the Oregon Department of Consumer & Business Services.

The proposed law would make it clear that loans to Oregon residents are covered by state law, no matter where the lender is located. It also would bar unlicensed lenders from collecting on debts.

Freedom of online payday loan companies: No association represents online lenders; calls to several major online payday advance lenders were not returned.

"Nobody knows what the [online] market is, because it's unregulated. No one is keeping track," said Steven Schlein, a spokesman for the Community Financial Services Association, an industry group representing traditional storefront payday lenders. "Who knows their owners? They're incorporated in Liechtenstein, they bank in the Cayman Islands and they live in Costa Rica."

About 141,000 payday loans from storefront lenders were made in Minnesota last year, according to the state Department of Commerce. The state doesn't keep track of bad credit payday loans over the Net, but financial counselors say their clients use them about as often as they do the traditional variety.

Two large nonprofit counseling agencies - Family Means and Lutheran Social Service - provide financial counseling to about 20,000 Minnesotans each year. Those agencies estimate that 10 percent of their clients have payday loans, while about half of those got the loans online.

"And what we've always said is that only 10 percent of the people who need help are going to come meet with you," said Linda Humburg, a Family Means counselor.

Role of a payday advance: The no fax payday loan industry says it serves consumers who can't get small, short-term loans from banks. That's the case for Anitra Foote, an Eden Prairie woman who has gotten 10 payday loans online.

She has borrowed as much as $700 at a time for unexpected expenses such as vet bills for her dog. Foote shops for the best rate, usually paying $10 to $15 per $100 borrowed.

"I've kind of stayed generally where I know I can pay it back," said Foote, who makes about $45,000 a year as a financial analyst. "I do always feel bad about paying all the fees, but it is convenient for me, and it's better than asking family members for a loan."

But for Jennifer Stein, Internet payday cash advances put her in a deeper hole.

"They suck you in," said Stein, an Inver Grove Heights resident who makes about $27,000 a year as an administrative assistant. "It's very, very hard to get caught up once you get involved in these."

Stein fell behind on her bills about two years ago and borrowed $300 online. She quickly got two more Internet loans for $500 each. So far, she's paid more than $2,300 on her borrowed $1,300, and doesn't know when she'll pay it off.

"When you go for these loans, you're pretty desperate, and you don't really care as long as you get the money you need," she said. "They basically give it to you just to fail."Boy, that was a bad part of my life."