Fraud and Abuse in Online Payday Lending

Payday loans are short-term loans that are typically repayable by the borrower’s next pay check.  In-store loans account for the majority of the payday lending market.  However, online payday lending has grown substantially over recent years.   


The Pew Charitable Trusts recently released the fourth report in their Payday Lending in America series.  This report focuses on the issues specific to online payday lending and finds that some of the internet-based practices have detrimental effects on consumers.  Some of the report’s key findings include the following:

1. one in three online loans automatically renews, resulting in long-term indebtedness;
2. “30% of online payday loan borrowers report being threatened by a lender or debt collector”;
3. borrowers report aggressive practices such as unauthorized withdrawals from bank accounts (46% of online borrowers reported that lenders made withdrawals that overdrew their checking accounts, twice the rate of in-store borrowers);
4. “[n]ine in 10 payday loan complaints to the Better Business Bureau are made against online lenders, although online loans account for only one-third of the market”; and
5. online payday loans usually cost more than store loans because defaults are more common in online lending.

The report reiterates Pew Charitable Trusts’ recommendations that the Consumer Financial Protection Bureau adopt regulatory guidelines to make the small loan market, including online payday loans, safer and more transparent.

Click here to read the full report.