Feds Eye Online Lending Problem

By Oravecz, John D | Tribune-Review/Pittsburgh Tribune-Review, August 9, 2014 | Go to article overview

Feds Eye Online Lending Problem


Oravecz, John D, Tribune-Review/Pittsburgh Tribune-Review


Unregulated online lending is a growing problem, experts say, and state and federal regulators are stepping up efforts to control it.

Loans available from unlicensed online lenders include short- term payday loans and installment loans of up to 10 years. Both can charge high interest rates, with fees and lengthy repayment terms. They are attractive to consumers in a pinch who think getting cash they need may be worth the cost.

Usury laws that put a cap -- 24 percent -- on how much interest lenders can charge in Pennsylvania have made predatory payday loans illegal in the state. But such loans have been made available to state residents from unlicensed Internet lenders.

State regulators last month reached a $1 million settlement stopping a California company from making and servicing such loans, which more than 18,600 Pennsylvania residents have taken out, said Ed Novak, a spokesman for the Department of Banking and Securities. The company charged interest rates ranging from 89 percent to 169 percent, exceeding state lending laws, Novak said.

Under the settlement, approved by the state Banking and Securities Commission, CashCall Inc. of Anaheim, Calif., its founder, a subsidiary and an affiliate, which offered the online loans without a state license, are banned from obtaining one for three years and must stop advertising loans in the state.

The $1 million settlement will be used for restitution to consumers and to repay the Banking Department's costs.

Online loans are a problem the department has been working to stop, Novak said. It previously reached undisclosed settlements with at least seven lenders, such as one last year with Credit Payment Services Inc. and its sites Paydaymax.com, Mycashnow.com and Igotit.com.

On its website on Friday, CashCall offered a $2,600, 47-month loan at a 204.94 percent annual percentage rate with a monthly payment of $431.49. That works out to total repayment of $20,280.03. But now, Pennsylvania residents are not eligible to make a loan, the site said.

Neil Barofsky, a New York attorney representing CashCall, and a spokesman did not return telephone messages for comment.

Online lending is a growing segment of the overall lending marketplace, and unlicensed lenders are part of it, said Tom Feltner with the Consumer Federation of America.

"There are about 80 websites we know of offering unlicensed lending. Half of the business is done by five of the sites who claim tribal sovereign immunity from state banking laws," Feltner said. …

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