National Public Radio (NPR) reporter Pam Fessler recently experienced firsthand the murky world of online payday lending. In the course of reporting a story, Fessler logged on to a site called eTaxLoan.com and completed an application for a $500 dollar loan. Despite using a false name, address, social security number, and bank account, Fessler was immediately pre-approved for a one week $750 loan. The fees and interest for the loan would amount to $225—an annual percentage rate of more than 1300%. Needless to say, Fessler did not approve of these terms and logged off the website.
Her story did not end with her decision to reject the loan offer. Whereas Fessler used a fake name and address, she did supply the site with a correct phone number. Within minutes of declining the loan, a representative of the lending company contacted her to offer a high-interest loan. Even after disclosing that she was reporter working on a story and not at all interested in obtaining a loan, the calls kept coming. For the next several months Fessler received dozens of calls letting her know that she had been approved for loans up to $5,000. Her efforts to find the companies behind these calls usually resulted in unreturned emails and disconnected phone numbers.
After a great deal of investigation, Fessler learned that sites like eTaxLoan.com are not themselves payday lenders. Rather, these sites operate as marketing firms directing potential consumers to lending companies for a fee. Once an application has been submitted, the consumer’s personal information can be sold to any number of payday lending providers, often leaving the consumer completely in the dark as to who they are dealing with. As BenJamin Lawsky, superintendent of financial services for New York, notes, “Because they’ll have front companies and shell companies and they’ll be in different states, you can never really get to the bottom of who is behind the marketing, the lead generating, and the lending itself.”
The buying and selling of consumers’ personal information is but one more example of the inherently predatory nature of the payday lending industry and affiliated businesses. Payday loans, whether made in a store or on a computer, are designed to trap individuals in a long term cycle of indebtedness. Policymakers must continue to take steps to rein in these abusive lending practices.