Minnesota Attorney General Lori Swanson's office is suing five Internet payday lenders that made loans to consumers in the state.
The lawsuits allege that the high interest rates charged by the lenders are illegal. The companies named in the lawsuits are:
* Flobridge Group LLC of Utah, which called its loans "cash flow 'til payday" and "a little emergency money...to get you to your next payday."
* Integrity Advance of Delaware, which advertised its loans as a way "to get a cash advance until your next paycheck" and that its loans are "designed as a short-term cash flow solution."
* Silver Leaf Management of Utah, which states that its loans "provide you with emergency cash..."
* Sure Advance LLC of Delaware, which states that its payday loans "are not intended to meet long-term financial needs."
* Upfront Payday of Utah, which states that online payday loans offer "cash when you need it most ... usually between paydays!"
Swanson says the loans contained unlawfully high annual interest rates of up to 782% percent and were illegally extended, "trapping the borrower in a cycle of debt."
"Many people are living paycheck to paycheck right now, and unlicensed Internet lenders offer easy credit. This credit comes with a hefty price tag and often leaves a rash of problems in its wake," says Swanson.
The Internet payday loan industry is estimated to have a total loan volume of $10.8 billion in 2010. Swanson is warning Minnesotans against taking out loans over the Internet from unlicensed lenders, citing a growing list of complaints to her office from consumers who have done business with such companies.
Among those complaints, according to Swanson's office:
* High interest rates. Minnesota law caps the interest that licensed lenders may charge. Unlicensed Internet payday lenders regularly violate these caps, charging annual interest rates of up to 782%.
* Auto-extensions. A 2009 Minnesota law prohibits a short-term lender from extending payday loans of less than $350 for over 30 days and from using the proceeds of one payday loan to pay off another. Online lenders routinely violate these laws by either extending the loan and withdrawing only interest charges or by "rolling over" the loan, paying off the old loan with the proceeds from the new loan. These practices can turn a payday loan--advertised as a short-term financial fix--into a long-term financial nightmare where borrowers pay far more in interest than they intended to borrow.
* Unauthorized withdrawals. When consumers take out an online loan, they must provide their banking and personal information. Some consumers report that unlicensed lenders made unauthorized withdrawals from their accounts, sometimes of hundreds of dollars.
* Unlawful debt collection tactics. Consumers report that some online lenders and their collectors use illegal debt collection tactics, such as threatening that the consumer will be taken to jail and prosecuted for a financial crime, or attempting to illegally garnish their paycheck.
* Phony collection scams. Some consumers who did not even take out a payday loan, but who only explored the option online, report being hounded by overseas scam artists who threaten to have them arrested if they do not pay, even though the consumer does not owe any money. These scam artists contact the consumers, often impersonating attorneys or law enforcement, demand large payments, and frequently attempt to scare or intimidate consumers into paying with threats of arrest or legal action against them or their families.
Under Minnesota law, for loans less than $350, the state caps the fees that may be charged on a sliding scale as follows: $5.50 for loans up to $50; 10% plus a $5 fee on loans between $50 and $100; 7% (minimum of $10) plus a $5 fee on loans between $100 and $250; and 6% (minimum of $17.50) plus $5 fee on loans between $250 and $350. For loans between $350 and $1,000, payday lenders cannot charge more than 33% annual interest plus a $25 administrative fee.
